SMEs is the mainstay of any financial framework, and they fundamentally add to the monetary advancement and blossoming of nations. In spite of the fact that SME make commitments to the change of a nation financial framework, all things considered, there is no specific, generally acknowledged definition for little and medium organizations. According to (Gentrit et Justina, 2015), SME are frequently defined based on features such as the scale criterion of number of employees and financial criterion of annual turnover. Furthermore, Gentrit et Justina stated that SME definition expand in 3 flanks: definitions by international establishments, definitions via national laws and by means of enterprise definitions.
SME: Definition : Bolton report, Business
one of the first attempts to offer a definition of SMEs is that of the Bolton document 1971 (Carter and Jones-Evans: 2006). The Bolton report is of the view that the primary reference for qualitative definition of SMEs for all subsequent literature inside the field, defines 3 essential characteristics of small businesses: management of firm via its owner(s) in a customized way; fairly small proportion of the marketplace in economic terms; independence in the sense that it is somewhat free from outside control in its principal decisions (Bolton: 1971 as quoted in Stokes and Wilson: 2010).
“A business in a big market in a certain sector can be considered small, while another in a small market in any particular sector of the business can be medium or large” (Gentrit et Justina, 2015). Consequently, Small business length requirements range by using the enterprise within which the business operates: production, production, mining, transportation, wholesale exchange, retail trade, and services (Hatten: 2011). For instance, according to Gentrit et Justina, 2015, the main criterion in agriculture subsector of grain manufacturing is turnover of 750,000 dollars. In mining enterprise the criterion is the quantity of personnel from 500. The maximum criterion in the meals manufacturing industry is the employment of 500 or fewer employees to be tagged as small commercial enterprise. The criterion in wholesale change is the wide variety of personnel from 100 (USSBA: 2013) Appendix 2 presents some qualitative indicators defining SMEs, summarized by UNIDO, Industrial Development Organization of the United Nations.
European commission through a manual determines the standards for defining businesses: These standards include: range of personnel, annual turnover and annual balance sheet (European commission: 2005). It is far decided that meeting the criteria of the range of employees is obligatory, while filing another from the 2 financial standards is a choice of the company. See appendix 3 for the definition of SME based on the EU commission. The proposition of this definition came into effect starting 1 January 2005
World Bank definition
The world financial institution makes use of three quantitative standards for defining SMEs: range of personnel, total assets in U.S. dollars and annual sales in U.S. dollars (IEG: 2008). According to the World Bank, a business have to meet the quantitative standards of wide variety of personnel and at the least one monetary standards to be labeled as micro, small or medium enterprise. See Appendix 4 for the definition of SME according to the world Bank
With the above explanation, while the European makes use of the standards of annual turnover and the balance sheet, World Bank use the standards of total property and overall annual income. Moreover, based on the various definitions discussed throughout this paper, we can noticed that the numbers of employees considered as one of the criteria is relevant when defining SME. To emphasize this, according to Ayyagari et al.: 2003, “The largest number of sources defines SMEs to have a cut-o range of 0-250 employees” (Ayyagari et al.: 2003). The study further concluded that although being the most common criterion in the definition, the number of employees has many variances indifferent sources of SME statistical reporting.
Between all SMEs definitions, the one most implemented in SME studies is that of the European Union. This definition is as follows: European Commission supports “the criterion of the number of staff as the main criterion, however, introducing a financial criterion is nonetheless a necessary adjunct in order to grasp the real scale and performance of an enterprise and its position compared to its competitors”(European Commission, 2003). Even though the EU definition is endorsed, it is not always adopted by state governments and policymakers as it is only needed for institutions and businesses seeking funding from it (Carter and Jones-Evans: 2006). Furthermore, a World Bank study conducted by as MSMB exhibits that out of 132 nations blanketed within the observe, forty six of them or a 3rd outline SMEs as corporations with fewer than 250 employees (Kushnir et al.: 2010). As a result, the definitions of SME from country to country based on the quantity of employees is presented in Appendix 5.