Micro, small, and medium-sized enterprises (MSMEs) constitute 90% of businesses globally. In emerging markets and in rural or underserved communities, MSMEs are a critical link to basic goods and services, and to employment, providing as much as 50% of jobs and income for millions of households around the world.


But MSMEs are facing very specific challenges to one of the greatest crises of our time: climate change.


Climate change is here and happening now, disrupting the ability of emerging market MSMEs to operate and enable thriving communities — communities that are often disproportionately impacted by the climate crisis.

Simon Mwaina, 38, has been impacted by drought in rural Kenya. Photo courtesy of Mercy Corps.

The needs, constraints, and ambitions of small businesses in emerging markets have largely been neglected both in terms of research and targeted products and services. Now, in the context of increasing global disruptions, such as climate change, the innovation ecosystem needs to get laser-focused on solutions that better serve MSMEs and protect their communities from these disruptions. Our new research leads the way in understanding the impact of climate change on micro-retailers and their communities, and how to support and grow their resilience through tech-enabled products and services.


This research was a human-centered design study conducted in partnership with Circle Innovation. Between August and September 2022, we ran surveys with 449 micro-retailers served by tech startups in our portfolio, across two markets: Nigeria and Kenya. It is important to note that despite substantial differences in geography and culture, the findings across both markets were similar.


The business owners we surveyed operated a variety of retail outlets, including fast moving consumer goods (FMCG) retailers and food vendors. Their shops were approximately 4 square meters in size, on average, and either semi-informal structures (made from iron sheets) or inside shipping containers. Most of the micro-retailers kept manual records, though all of them used some digital technology, given we reached them for interviews through our portfolio companies. On average, these micro-retailers reported monthly profits of less than $USD80. Over 60% of the micro-retailers we interviewed are women.

Overview of Participant Demographics
The MSME Context

Despite the importance of MSMEs as a critical link to basic goods and services and employment around the world, these businesses are underserved in crucial areas that could further their growth or enable their resilience. These areas include the supply chains they use, their access to markets and information, and their access to financial services. Current barriers to credit or short-term working capital limits small business growth and decreases their ability to overcome or prepare for shocks.


These barriers are more significant for women-owned MSMEs, which often face additional social and non-financial challenges in launching and growing their businesses.

Startups serving MSMEs have been building innovative tools such as predictive supply chain analytics and delivery, alternative credit scoring, and buy-now-pay-later financing products to break down some of the traditional barriers faced by micro-retailers to build and operate their businesses. Many of these startups, like WasokoBoostPivo, and Kwanza Tukule, have been gaining exciting market share and traction over the last few years.

An estimated 41% of MSMEs in frontier markets have unmet financing needs, lacking the collateral, formalization, and credit history typically required by traditional financial institutions.

However, through deep engagement with this current ecosystem of MSME-focused startups, we see that a gap in understanding and discussion, and therefore tools, products, and services — specifically ones targeted at building the resilience of MSMEs to shocks — still remains. In this context, we define MSME resilience as having the capacity to handle shocks, reduce risks, withstand disruptions, and invest in and build their business. In recent years, there has been positive progress to understand small businesses ability to adapt to shocks during the COVID-19 pandemic, and we saw many startups quickly pivot their products and services in response to challenges it presented. But this momentum hasn’t been sustained to understand and enable the resilience of small businesses to other shocks and stressors.

We have found little discourse and action on what we see as the greatest disruption facing all emerging markets (and global) businesses: climate change.

Climate change requires a fundamental change in how startups serving MSMEs should think about their customers’ needs, their product offering and business models, and the aspirations of their customers.

Lucy Nganga, 30, is a small business owner in Kenya. Photo courtesy of Mercy Corps.
MSMEs and Climate Change: Our Findings
For MSMEs, climate change is here and happening now: 90% of micro-retailers interviewed had heard of “climate change” and 90% reported experiencing weather-related business impacts.

Awareness of climate change is the first step to both mitigation and adaptation, and climate change literacy as a concept is increasing in importance. Recent studies indicate that climate change literacy across African countries varies largely, but is dramatically lower compared to countries in Europe or North America. In our own survey, we sought to understand climate change literacy among micro-retailers, since this could be an important enabler in supporting MSMEs to build resilience to climate and weather-related shocks. We were surprised to find that 90% of small businesses in our sample had heard of climate change. Many micro-retailers reported having heard of climate change on local radio or TV programming, and described direct experience of changes in weather patterns or seasons during their lifetime and evidence of climate change locally. When asked to describe the term, micro-retailers often reported climate change as changing seasons, increasing severity of extreme weather events, and the increasing unpredictability of weather year-on-year.

“Yes, I’ve heard of [climate change]. There is no one who is not affected by climate change. Look at me — I close my shop when it is raining and I lose sales because I do not open at the usual times. So if I know how to change, I won’t be affected as much.”
Adela, middle-aged female shop owner selling consumer goods, urban area, Nigeria

“It’s very difficult to predict if there will be some climatic changes. So most people do not prepare for [climate change]. Particularly in the coastal strip, the climate pattern has been very inconsistent and it’s very hard to predict such changes. When there’s a sudden change of climate it is considered a calamity by many. In such instances households are hard hit in such a way that they have to adjust their lifestyles, reduce their expenses to the most basic ones, and do away with the luxury ones. They only have the funds to live from hand to mouth.“
Festus, middle-aged male shop owner selling groceries and cereal, urban area, Kenya

Urban settlement, Kenya. Photo courtesy of Mercy Corps.

These micro-retailers had not only heard of climate change, but 90% reported weather-related events had impacted their business. Recognizing that one of the core challenges of understanding climate change is attribution — it’s not always clear whether weather events are directly caused by the changing climate — we can’t say with certainty that the weather events described by retailers in Kenya and Nigeria were caused by climate change. However, trends in temperature and precipitation point to the effects of climate change.

Kenya is getting warmer, droughts are becoming more common, rainy seasons are shifting, and extreme rainfall events are increasing in intensity and frequency. Similar analysis in Nigeria shows it is getting warmer, and rainfall across the country is becoming less predictable.

Since MSMEs are already feeling the impacts of climate change, there is an immediate opportunity to better serve them and provide for their new and changing needs.


However, it was clear through our research that climate change impacts are not a monolith. Micro-retailers described different impacts of floods and droughts, and of historic events and unpredictable seasons, providing a window into the complexity of increasing resilience.


When MSME owners were asked about recent weather events that impacted their business, the most common responses were related to flooding or drought.

Survey Response: What extreme weather event did you recently face that impacted your business?

Flooding caused direct and immediate damages to MSMEs and their communities. Shop owners cited logistical challenges in supply delivery and in reaching the shop (themselves and customers) as some of the greatest impacts of flooding. They also cited the spoilage or damage of goods, either in transit or in the shop, and physical damage to their shop as key challenges.

“I lost stock worth more than $USD245 last year. Rice, sugar, and 10 bundles of flour were ruined by the flood.”
Mary, 22-year-old female shop owner selling consumer goods, urban area, Kenya

“Lorries are not able to get to the shop due to poor roads, so I have to hire manual laborers to carry the goods to the shop.”
Peter, 31-year-old male shop owner selling consumer goods, urban area, Kenya

These impacts are different from those described in the case of a drought. The primary challenge cited as a result of drought was the lack of availability of goods, as the production of meat, dairy, and other produce declines, and a reduction in the spending power of customers who are involved in farming or farming value chains. These impacts are indirect and long-term, meaning they may not be immediately experienced when a drought sets in but instead may have longer-term impacts that are harder for communities to recover from.

“We were affected by drought. Last year I would sell at least 30 bags of maize for three days but that has changed to two bags for three weeks.”
Festus, middle-aged male grocery shop retailer, urban area, Kenya

Summary Table: Impacts of Flooding and Drought on MSMEs

The differences between the impacts of flooding and drought are made even clearer when asking micro-retailers about their ability to recover from these shocks. MSMEs face more difficulty in recovering from droughts because they are longer term and more deeply impact their community of customers. The majority of micro-retailers interviewed reported that it took them one month to feel “fully recovered” from a significant flooding event, and one year to recover from a drought. Of those interviewed, 63% impacted by flooding said they had fully recovered, compared to only 33% for droughts.

Recovery from flooding and drought

The stark differences in how these weather events impact MSMEs and their communities means that the tools and services offered to these businesses must be different as well. This also serves as a strong reminder to the community of investors, funders, and operators that building resilience to climate change will require complex and nuanced solutions that respond to the local context and challenges climate change will bring.

Many MSMEs interviewed also reported that climate change exacerbates existing exclusion and barriers faced by MSMEs, and must be addressed within the holistic context of their needs and communities.

It’s well documented that MSMEs face a number of challenges to building a resilient business. They face barriers in being served by traditional financial products, so they rely heavily on cash flow and small amounts of savings to operate. In times of shock or in an effort to grow, they often turn to predatory loan products and make use of intermediaries with high fees. We found that climate change and extreme weather events only compound these existing challenges, by putting additional pressure on cash flow and savings, or necessitating the use of additional loans to rebuild.

Paul Mwendo Mutinda, 27, has been impacted by drought in rural Kenya. Photo courtesy of Mercy Corps.

Climate change is also exacerbating challenges faced by the communities that MSMEs serve. These communities are often lower income, have limited diversification of livelihoods and food supply, and have poor physical infrastructure. For MSMEs in rural areas, their communities are often directly dependent on land and natural resources for their livelihoods and income, so there are natural fluctuations in food, resource availability, and spending power. During our interviews, many micro-retailers told us that climate change is making normal seasonal income fluctuations more severe or less predictable, and therefore more difficult to plan and prepare for.

“I make more sales during dry seasons, maybe $USD 114–137 a day. However, I only make $USD36 during the rainy season. Yesterday I only made $USD31 because of the rain. That is why I save in the dry season to prepare for the rainy season.”
Lola, middle-aged female shop owner selling Unilever products, urban area, Nigeria

When asked to describe a weather event in recent years that had a severe impact on their business, most described these changes in the severity and predictability of rainy and dry seasons — i.e. flooding or drought — rather than the catastrophic events covered by news outlets.

The lesson for startups serving MSMEs, and the investors, ecosystem actors, and others working with them, is that climate and weather-related shocks aren’t a new phenomenon for these businesses, and they aren’t just once-in-a-decade flooding event or drought. Understanding how small businesses operate, thrive, and recover in response to their physical environments should be a core part of any offering, and will become increasingly important as the impacts of climate change worsen in the months and years to come.

To provide the ecosystem with a tangible path forward, we will deep dive into the specific and nuanced impacts of flooding and drought on MSMEs in Africa in the next two articles. We will conclude the series with ideas for designing right-fit products and services to drive small business resilience to climate change.

Click to read the next article:s

The Impact of Flooding
The Impact of Drought
Designing right-fit tools and solutions