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SME Integrity Tool

Provided by the International Finance Corporation


This SME Integrity Tool was designed to help businesses strengthen their integrity performance in the world, where, on the one hand, they have to comply with stringent regulations, and, on the other hand, face the realities of doing business in their fledgling markets. Fostering the culture of integrity will not only save your company's reputation or reduce the cost of doing business. The benefits of demonstrating integrity are much bigger. This tool will help you understand the concept of integrity, the consequences of not demonstrating integrity and the many benefits that SMEs acquire when committing themselves to the honest and open rules of the game.

Reasons for the Lack of Integrity

Nearly all SMEs face integrity challenges, yet smaller firms say they are more vulnerable to corruption than their larger counterparts. The reasons are numerous.

At the macro-level the reasons include:

  • Poor rule of law/unclear laws and regulations in some countries
  • Focus on larger firms by law enforcement
  • Poor business environment

At the firm-level the reasons are:

  • Limited financial resources
  • Lack of long-term corporate strategy
  • Higher degree of informality
  • Low bargaining power
  • Small staff
Consequences of the Lack of Integrity

How does lack of integrity hurt SMEs? Shouldn’t SMEs just focus on staying in business and not worry about integrity?

First of all, the lack of integrity is costly. SMEs in some countries spend up to 33%-49% of revenue in bribes.

Second, when SMEs cannot demonstrate integrity, it may hurt their ability to:

  • do business with reputable firms / national or international buyers
  • access financing
  • access public contracts
  • expand business, relocate or export
  • belong to the mainstream business community

Thirdly, lack of integrity may lead to legal consequences for SMEs, e.g. fines and prosecutions.

Finally, SMEs can suffer from private-to-private corruption when involved in purchasing, licensing, hiring, obtaining finance, interaction with the media.

Benefits of Integrity to SMEs

At the same time, there are numerous benefits to SMEs from demonstrating integrity, including, but not limited to:

  • Reduced cost of doing business;
  • Competitive advantage of becoming the preferred choice of customers;
  • Easier access to financing under better conditions;
  • Better access to national and international markets;
  • Attraction and retention of more principled employees;
  • Enhanced opportunities in public procurement;
  • Better protection against legal penalties, loss of licenses, blacklisting;
  • Easier exit strategy through an acquisition.
Definition of Integrity

Now let's define integrity. What does it mean to have a culture of integrity in business?
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SME Integrity Tool

Emphasis on progressive improvement

The following tool has been developed to help firms remain resilient in a difficult business environment; to let firms focus on practical actions, not theoretical; and thrive with an emphasis on progressive improvement.

There are three levels of action that need to be taken to help SMEs achieve integrity with emphasis on progressive improvement of business performance:

LEVEL 1 helps firms create internal awareness on good integrity performance and avoid extortion.

LEVEL 2 helps firms demonstrate good integrity performance internally and externally.

LEVEL 3 helps firms work together in collective action.

 

 

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