Accounting systems in small and medium enterprises

2.23. Definition of SMEs

The definition of and small medium enterprises generally vary from country to country depending on the economic and socio political context of the country. In some countries different institutions adopted different definitions depending on the objectives to be achieved that is assigned to the sector.

The SMEs categorization is used to mean micro, small and medium enterprises. It is some times referred to as micro, small and medium enterprises (MSMEs). The SMEs cover non farm economic activities mainly manufacturing, mining, commerce, cervices and agro business.

There is no universally accepted definition of SMEs. Different countries use various measures of size depending on their level of development. The commonly used yardsticks are total number of employees, total investment, and total sales turnover.

In the case of Rwanda, there is no commonly accepted definition by all the intervening institutions. The most commonly used definition is that of Rwanda development bank. It is based on the criteria as net investment, turnover and employment as follows:

Size of the enterprises	Net capital investments in million FRW	Annual turnover in million FRW	Employment number
Micro enterprises	Less than 0.5	Less than 0.3	Less than 3
Small enterprises	0.5 to 15	0.3 to 12	3 to 30
Medium enterprises	15 to 75	12 to 50	30 to 100
Large enterprises	More than 75	More than 50	More than 100

(Source : Etude sur le secteur des petites et moyenne industries et de l artisanat au Rwanda MINIMART/ SERDI, Mai 1990)²¹

²⁰ Anthony, R.N. and J.S , Management accounting principles, Taraporewala,1975,p.11

²¹ Etudes sur le secteur des petites et moyennes entreprises et de l'artisanst au rwanda MINIMART/SERDI, 1990

General orientation of SMEs

The SMEs policy lies within the scope of the key development orientations of our country, practically;

Vision 2020: The vision's targets attributes emphasis to the development of SMEs in the following ways:

The modernization of agriculture and diary farming whereby, by 2020 50% of the population will be employed by the agriculture sector instead of 90% and the private sector will be employing the remaining 50%. In regard to the development of the private sector, the SMEs will help to guide the medium income earner's efforts in investment and development.

Importance of SMEs

Given that the situation and the fact that Rwanda is characterized by low rate of capital formation, SMEs are the best option to address this problem. SMEs tend to be more effective in the utilization of local resources using simple and affordable technology. They play a fundamental role in utilizing and adding value to local resources. They have been tested and trusted to be labor intensive, to create employment at relatively low levels of investment per job created.

Their development can be of an immense importance to Rwanda because they facilitate the distribution of economic activities within the economy and thus foster equitable income distribution. Furthermore SMEs technologies are easier to acquire, transfer, and adopt. Also, SMEs are better positioned to satisfy limited demands brought about by small and localized markets due to their lower overheads and fixed costs.

Moreover, SMES owners tend to show grater resilience in the face of recessions by holding on to their businesses, as they are prepared to temporally accept lower compensation. They have great potential to complement large industries through business linkages, partnerships, and subcontracting relationships. A strong and productive industrial structure can only be achieved where SMEs and large enterprises not only coexist but also function in a symbiotic relationship.

However due to the above and the fact that the government of Rwanda support for SMEs is limited and scattered, SMEs policy therefore creates the potential for enhancing linkages within the economy. As said by Michael porter (strategy guru in Kigali, June 2007) you can never be competitive just by copying best practices, instead you must learn from them; this requires innovative brains. SMEs act as a training ground for entrepreneurship and managerial development and enable motivated individuals to find new avenues for investment and expanding their operations.

Since, SMEs development does contribute significantly to poverty alleviation, resources earmarked for poverty alleviation should also be availed to the SMEs sector. Various initiatives towards improving infrastructures and especially roads do provide an added opportunity for SMEs development.

Constraints faced by SMEs in Rwanda

In general SMEs in Rwanda are faced with distinctive problems including:

Underdeveloped business development services

SMEs operators lack information as appreciation for such services and can hardly afford to pay for the services. As a result, operators of the sector have rather low skills.

Limited of access to finance and lack of permanent premises

Further more, there is no uniting body, association or an umbrella for SMEs in Rwanda at the moment and apparently, there is no clear coordinated guidance framework and policy for the development of the sector.