A Roadmap for Development of MSMEs with Focuses on Gender, Sustainability and the Green Transformation
A Roadmap for Development of MSMEs with Focuses on Gender, Sustainability and the Green Transformation
Micro, small and medium enterprises (MSMEs) constitute the backbone of most developing economies, accounting for approximately 90% of businesses and more than 50% of employment worldwide according to the World Bank. In low- and middle-income countries, MSMEs contribute up to 40% of gross domestic product (GDP), while their role in employment generation, poverty reduction, innovation diffusion and regional economic integration continue to expand amid structural transformation.
Despite their strategic importance, MSMEs in developing countries remain constrained by limited access to finance, technological gaps, weak productivity, insufficient infrastructure, low managerial capacity, environmental vulnerabilities and fragmented integration into global value chains (GVCs).
These constraints are further intensified by climate change, geopolitical uncertainty, digital disruption and tightening environmental standards in international markets. Consequently, the future competitiveness and resilience of developing economies increasingly depend on the establishment of a systematic, green and sustainable SME development framework capable of integrating productivity growth, environmental stewardship and inclusive economic transformation.
This article proposes a comprehensive and systematic development framework for MSMEs in developing countries under a sustainable and green growth vision.
The framework synthesises empirical evidence from the International Monetary Fund, World Bank, Organisation for Economic Co-operation and Development (OECD), International Finance Corporation (IFC), UN Industrial Development Organization (UNIDO), and Asian Development Bank (ADB), highlighting how coordinated policies, institutional reforms, green financing mechanisms, digital transformation, industrial clustering and climate-smart entrepreneurship can collectively accelerate sustainable SME development.
The study particularly emphasises the role of MSMEs in supporting green industrialisation, circular economy transitions, renewable energy adoption, low-carbon manufacturing, sustainable agriculture and resilient urbanisation.
Globally, the financing gap for MSMEs remains substantial. The International Finance Corporation (IFC) estimates that formal MSMEs in developing countries face an unmet financing need exceeding $5.7 trillion annually.
The financing constraints are especially severe among women-owned enterprises, rural firms, start-ups and environmentally innovative MSMEs. According to the World Bank Enterprise Surveys, access to finance remains one of the top three constraints affecting SME productivity and growth in Africa, South Asia, Southeast Asia and Latin America.
Approximately 70% of MSMEs in emerging markets lack sufficient collateral or formal credit history to access traditional banking systems. Simultaneously, only a small proportion of MSMEs currently benefit from green financing instruments such as sustainability-linked loans, green bonds, blended finance, carbon credit mechanisms or concessional climate funds.
The IMF further argues that climate-related vulnerabilities disproportionately affect MSMEs due to their smaller asset base, lower adaptive capacity and limited technological readiness. MSMEs operating in agriculture, fisheries, tourism, textiles and informal urban services are particularly vulnerable to floods, droughts, rising temperatures, supply chain disruptions and energy price volatility. Therefore, a sustainable SME development strategy must simultaneously strengthen economic competitiveness and climate resilience.
This article develops a five-pillar systematic SME development model composed of: (1) enabling institutional architecture, (2) green financing ecosystems, (3) digital and technological upgrading, (4) sustainable industrial clustering and market integration and (5) human capital and inclusive entrepreneurship.
Pillar I: Enabling Institutional Architecture
A coherent institutional ecosystem represents the foundation of sustainable SME development. Evidence from East Asia demonstrates that countries with strong institutional coordination mechanisms tend to achieve higher SME productivity and export competitiveness. The experiences of South Korea, Singapore and Vietnam reveal that successful SME transformation depends on integrated policy coordination among ministries of economy, industry, trade, finance, education and environment.
An enabling institutional architecture requires the establishment of national SME development strategies aligned with green growth and gender policies, one-stop digital business registration systems, simplified tax and regulatory frameworks, and environmental compliance support mechanisms. It further entails the creation of SME innovation agencies and incubation centres, sustainable public procurement systems, industrial extension services and digital governance platforms.
The World Bank estimates that reducing regulatory complexity can increase SME formalisation by up to 20% in developing economies. Similarly, digital business registration systems reduce administrative costs while increasing transparency and investment confidence. Furthermore, decentralised SME governance is essential for reducing regional inequality. Local governments should be empowered to establish green industrial parks, eco-industrial clusters, sustainable logistics infrastructure and local innovation hubs tailored to regional comparative advantages.
Pillar II: Green Financing Ecosystems
The transition toward sustainable SME development requires a transformation of financial systems. Conventional lending models often exclude MSMEs due to perceived risks and limited collateral. Consequently, innovative green financing ecosystems are essential to support sustainable investments.
The IMF emphasises that climate finance mobilisation remains insufficient for developing economies despite rising global sustainability commitments. MSMEs require affordable financing instruments to adopt renewable energy technologies, energy-efficient machinery, sustainable agricultural systems, green buildings, waste recycling technologies and low-carbon transportation systems.
A systematic green financing ecosystem should include green credit guarantee schemes, sustainability-linked MSME loans, climate adaptation funds, green venture capital and public-private blended finance. It should also encompass carbon financing access, digital financial inclusion platforms, ESG-based lending criteria, green fintech ecosystems and further tax incentives for sustainable investments.
The emergence of green banking provides new opportunities for MSMEs. According to the IFC, green investments in emerging markets could generate over USD 23 trillion in climate-smart investment opportunities by 2030.
Digital financial services also play a transformative role in improving financial inclusion. Mobile banking, digital payments, AI-driven credit scoring and blockchain-based financing systems can reduce transaction costs while improving credit accessibility for MSMEs operating in informal or underserved sectors.
Pillar III: Digital and Technological Upgrading
Technological transformation constitutes a central driver of SME competitiveness in the green economy. The Covid-19 pandemic accelerated digitalisation across developing economies, revealing significant productivity gains among digitally integrated MSMEs.
However, substantial digital divides remain between urban and rural firms, large and small enterprises, and developed and developing economies. The World Bank estimates that digitally enabled MSMEs are significantly more likely to survive economic shocks, expand exports and adopt sustainable production methods.
Digital technologies support smart energy management, resource-efficient production, precision agriculture and digital marketing and e-commerce, as well as supply chain optimisation, environmental monitoring, circular economy platforms and waste reduction systems.
Industry 4.0 technologies, including artificial intelligence, cloud computing, Internet of Things (IoT), robotics and big data analytics, can substantially improve SME productivity while reducing carbon intensity.
Nevertheless, digital transformation requires coordinated investments in broadband infrastructure, digital literacy, cybersecurity, research and development, and technical training systems.
Governments should establish SME digital transformation funds, technology extension centres, and innovation voucher programs to accelerate technology adoption. This article argues that green digitalisation must become a central pillar of industrial policy. MSMEs should not merely digitise existing inefficient production systems but instead transition toward environmentally sustainable digital business models that optimise energy consumption, reduce emissions and enhance resource efficiency.
Pillar IV: Sustainable Industrial Clustering and Global Value Chain Integration
Industrial clustering significantly enhances SME productivity through economies of scale, knowledge spillovers, supplier networks and innovation diffusion. The experiences of East Asian industrial zones demonstrate that cluster-based development can accelerate structural transformation and export diversification.
Sustainable industrial clusters should integrate renewable energy infrastructure, shared waste management systems, green logistics networks and eco-industrial symbiosis, together with resource recycling systems, shared research and development facilities, and sustainable transportation systems.
Eco-industrial parks provide a practical model for green SME development. UNIDO studies show that eco-industrial parks can reduce industrial waste by up to 30% and energy consumption by 20% while improving productivity and profitability.
Global value chain integration also remains critical for SME upgrading. Export-oriented MSMEs participating in international supply chains generally exhibit higher productivity, stronger innovation capacity and better environmental standards.
However, increasing environmental regulations in developed markets — particularly the EU’s Carbon Border Adjustment Mechanism (CBAM) and ESG compliance requirements — create both opportunities and challenges for developing country MSMEs. Therefore, to remain competitive, MSMEs must adopt environmental certification systems, sustainable sourcing standards, carbon accounting mechanisms, green production technologies, traceability systems and ESG reporting frameworks.
International development partners can support MSMEs through technical assistance, climate finance, trade facilitation and sustainable export promotion programmes.
Pillar V: Human Capital and Inclusive Entrepreneurship
Human capital development represents the most fundamental determinant of sustainable SME transformation. Developing economies frequently experience skills mismatches, managerial limitations, weak entrepreneurial ecosystems and low technical capacity among MSMEs.
According to the World Bank Human Capital Index, productivity growth in developing countries is increasingly constrained by insufficient workforce skills and educational quality. Sustainable SME development therefore requires comprehensive investments in technical and vocational education and training (TVET), green entrepreneurship education, digital literacy programmes and climate adaptation skills, alongside financial management training, women entrepreneurship programmes and youth innovation incubators.
Attention must be given to women-owned MSMEs, which face disproportionately high barriers to finance, market access and formalisation despite their significant economic contribution. Inclusive entrepreneurship policies can significantly enhance social resilience, poverty reduction, and regional development. Green MSMEs operating in renewable energy, sustainable agriculture, eco-tourism, waste recycling and climate-smart urban services create substantial opportunities for inclusive employment generation.
Youth entrepreneurship will become increasingly important in regions experiencing demographic transitions and urbanisation. Developing countries with expanding youth populations must create entrepreneurial ecosystems capable of generating productive, green and innovation-driven employment opportunities.
Sustainable MSME development and climate transition strategy needs to concentrate on climate change as it fundamentally reshapes the development trajectory of MSMEs. The transition toward net-zero economies, due to the commitment of the Ministry of Environment’s Nationally Determined Contribution 3.0, creates new risks but also unprecedented opportunities.
Global green markets for renewable energy, electric mobility, sustainable agriculture, energy-efficient construction and circular economy products are rapidly expanding.
The International Energy Agency projects that global clean energy investments will exceed fossil fuel investments substantially during the coming decades. MSMEs can become key suppliers within these emerging green value chains if adequate policy support is provided. A sustainable SME transition strategy should therefore integrate national climate commitments, green industrial policy, carbon neutrality pathways and sustainable urban development, together with circular economy frameworks, biodiversity protection and renewable energy expansion.
MSMEs should not be viewed merely as beneficiaries of sustainability policies, rather as active drivers of green structural transformation. MSMEs possess unique advantages in innovation flexibility, local adaptability and community engagement, enabling them to accelerate bottom-up sustainability transitions. The policy implications for developing economies, sustainable SME development requires long-term strategic coordination rather than fragmented interventions.
The study recommends an integrated policy agenda in which governments develop national green SME transformation strategies aligned with climate and industrial policies, expand sustainable financing ecosystems through blended finance and green banking reforms, strengthen digital infrastructure and technological upgrading programmes, and establish eco-industrial clusters and sustainable economic zones.
Governments should further enhance SME integration into regional and global green value chains, invest heavily in green skills and entrepreneurial ecosystems, improve environmental governance and ESG compliance systems, and strengthen resilience against climate and economic shocks.
Finally, policymakers should promote inclusive entrepreneurship among women and youth and expand data systems and monitoring frameworks for SME sustainability performance.
Moreover, international cooperation remains essential. Multilateral development banks, climate funds, bilateral donors and international financial institutions must increase concessional financing and technical support for sustainable SME ecosystems in developing countries. MSMEs will play a decisive role in shaping the future trajectory of sustainable development in emerging and developing economies.
Their contribution extends beyond employment generation and economic growth toward climate resilience, green innovation, social inclusion and structural transformation. However, achieving this potential requires a systematic and integrated development framework capable of addressing financing gaps, technological constraints, institutional weaknesses, environmental vulnerabilities and human capital limitations simultaneously.
Sustainable SME development cannot rely solely on market mechanisms or isolated policy interventions.
Instead, it requires coordinated state capacity, green financial ecosystems, technological upgrading, industrial clustering, climate-smart entrepreneurship and inclusive human capital development. The convergence of digital transformation and green transition provides a historic opportunity for developing economies to build more resilient, low-carbon and inclusive SME ecosystems.
Ubiquitously, the success of sustainable SME transformation will determine whether developing economies can achieve long-term productivity growth, environmental sustainability and equitable prosperity in an increasingly uncertain global economy.
Dr. Mao Sonariddh is an advisor to the Ministry of Economy and Finance, while Lay Heng serves as a ministry official. The views and opinions expressed are their own.
-Phnom Penh Post-
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PHOTO: -The authors highlight the need to support the sustainable of SMSEs, which are the backbone of the Cambodian economy. Tuol Tumpoung Market FB
