No one doubts the importance of small and medium enterprises—SMEs—in driving employment and economic diversification. They feature in nearly every ministerial speech, every multilateral policy report, and every five-year economic plan. But the persistence of generic, one-size-fits-all support measures suggests a gap: the reality is that SMEs are anything but homogenous. Their challenges differ sharply by sector, and failure to recognize these differences can lead to wasted resources and lackluster outcomes. This is where the International Standard Industrial Classification (ISIC) system quietly, yet powerfully, changes the equation.
At a first pass, segmenting SMEs by ISIC code is simply about better targeting. Instead of treating all small businesses as a single group, policymakers can drill down: restaurant owners (ISIC 5610), clothing manufacturers (ISIC 1410), small tech consultancies (ISIC 6202), and so on. Each faces its own set of seasonal, regulatory, or capital-access hurdles. Why offer the same training program or loan product to each? It makes little sense. The ISIC framework allows government agencies, development banks, and business associations to match their support tools to real-world needs.
Take the hospitality sector—a textbook example of where sector segmentation matters. Hospitality SMEs (ISIC 5510 for hotels, 5610 for restaurants) are uniquely exposed to seasonality. Revenue spikes during peak travel months, then plummets in the off-season. If SME support schemes are blind to these cycles, they may inadvertently reinforce cash-flow crises, causing otherwise viable firms to close their doors. However, by using ISIC data to identify which SMEs are seasonally exposed, policymakers can design bespoke tax credits, short-term bridge loans, or targeted marketing support during slow months. Evidence from several Mediterranean economies shows that such tailored measures do, in fact, improve business survival rates and employment stability.
Sectoral insight also transforms training and upskilling programs. In the past, many SME workshops have focused on generic business planning or “how to access finance.” But when agencies analyze registration and turnover data by ISIC code, they often find, for example, that manufacturing SMEs struggle more with adopting new production technologies, while retail SMEs lag in e-commerce adaptation. This nuance makes it possible to convene sector-specific training, bringing together SMEs with shared challenges and, as importantly, creating peer learning networks that persist long after the program ends.
Credit access is another area where ISIC-driven segmentation pays dividends. Banks and public lenders often view SME lending as risky, in part because they lack sector-specific risk models. By pooling SME loan performance data by ISIC code, lenders can better understand the actual risk profile of, say, small food processors (ISIC 1071) versus small construction firms (ISIC 4210). This can justify differentiated interest rates, longer tenors, or even the creation of specialized credit guarantee schemes for sectors historically underserved by commercial finance. Over time, this data-driven approach can help break down the self-perpetuating cycle where “risky” sectors remain starved for investment simply because they’ve never been properly understood.
Of course, effective segmentation requires good data. Not all business registries are created equal, and not every firm updates its ISIC code as activities evolve. Some SMEs, intentionally or not, misclassify themselves for regulatory or tax advantages. Policymakers and program administrators must remain vigilant—periodic audits and triangulation with trade or tax data can help. Yet, even allowing for these imperfections, sectoral segmentation is almost always an improvement over the status quo.
The best evidence of ISIC-based SME support comes from countries that have institutionalized the approach. In Singapore, for instance, the government’s enterprise agencies use ISIC codes as a backbone for sector-targeted grants, co-investment schemes, and innovation vouchers. Evaluations show higher take-up rates, faster firm growth, and greater spillover effects than more generalist approaches. In Chile, matching SME incubator support to clusters identified through ISIC mapping has resulted in more robust job creation, especially in export-oriented sectors. It’s not just about picking winners; it’s about enabling more SMEs to survive the critical first three to five years, where the risk of failure is highest.
There’s also a less tangible, but important, benefit to ISIC-driven support: clarity for the SMEs themselves. Business owners, when grouped by sector, see that their struggles are not unique—and, in many cases, that practical solutions already exist. This peer effect, hard to quantify but easy to observe, can spur collaboration, joint marketing, and even informal lending circles. Over time, sectoral ecosystems become more resilient, less dependent on external support.
Still, the approach is not without its pitfalls. It requires policymakers to resist the temptation of headline-grabbing, broad-based programs in favor of more nuanced, sometimes less visible, interventions. It also means accepting a certain level of administrative complexity—support measures need to be modular, adaptable, and regularly reviewed. And, as always, success depends on feedback loops: are the targeted measures actually moving the needle on SME survival, job creation, and productivity? Continuous evaluation is critical.
ISIC codes offer much more than a statistical convenience—they are a powerful instrument for smarter, more effective SME support. By meeting small businesses where they are, in the context of their actual challenges and opportunities, policymakers can foster a more vibrant, diverse, and resilient economic base. The evidence is there for those willing to look past averages and embrace the reality of sectoral difference.