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For most of us, window shopping comes as second nature. A glance at a well‑made sofa can spark ideas for how we might furnish an entire room. But for many couch-makers operating small businesses in Nairobi, Kenya, even showing their work is a luxury. With cash coming in only when customers place an order and give a down payment, they can’t afford to build display pieces in advance, which means advertising the quality of their products simply costs too much in terms of labor and risk. That simple constraint - lacking the liquidity to invest in something that could generate revenue in future - captures what&nbsp;<a href="https://www.smallfirmdiaries.org/" rel="noopener noreferrer" target="_blank">Small Firm Diaries (SFD)&nbsp;</a>revealed in hundreds of small businesses across Africa, Asia-Pacific and the Americas. These entrepreneurs are not going out of business. They keep trading year after year. But the unpredictability of cash flow keeps them operating at a level that’s below what they could achieve.The SFD project, led by the Financial Access Initiative (FAI) with support from the Mastercard Center for Inclusive Growth (CFIG), was a <a href="https://www.smallfirmdiaries.org/global" rel="noopener noreferrer" target="_blank">study</a> running across seven countries - Nigeria, Kenya, Indonesia, Fiji, Colombia, Uganda and Ethiopia - which looked at how small firms operate in emerging markets. And what is clear is that rather suffering from a shortage of ambition, talent or even formal credit, what often constrains small firms is the mismatch between uneven revenue and rigid finance.

Life at the tipping pointWhen each week’s income can differ by 50% or more from the week before, businesses lack the predictability needed for forecasting.Small-firm owners are often hindered in their attempts to get ahead by fluctuations in revenue, according to reports from SFD. As a result, they are forced to make constant adjustments.This might mean paying workers only for each item they complete in one month, then holding off on buying materials the next. It’s improvisation born of necessity.As an example, a shoemaker in Cali, Colombia told the SFD: “When orders are low, you don’t use as much labor and you don’t call on [all the machine] operators in that season, but you call on them as orders grow.”Despite this, the research suggests that the majority of small firms do continue to operate. In fact, of the 700-plus firms followed by SFD over the course of one year, only a handful permanently closed. And of the 60 firms that the SFD study followed continuously for more than three years, only one shut down.This highlights the double-edged nature of running a small firm. Because while the majority are surviving thanks to the cautious decisions owners are forced to make - including fewer hires, smaller inventories, and slower expansion - they tend to operate far below their potential.

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Tim Ogden

FAI, Managing Director

Why classic loans miss the markIn many economies, expanding access to finance has meant providing bigger loans or more capital for investment. But, as SFD helped reveal, small businesses often say they already have access to loans: they simply don’t want them.The issue is largely that most financial products are designed for predictable repayment schedules and multi‑year investments.As one Indonesian sweater-maker told researchers when asked about upgrading his machinery, he would need a loan of about $3,300 to buy a faster knitting machine to potentially grow his customer base. But, he added, “I’d rather continue as I am now.”The reasons again come down to volatility. He wasn’t confident that he would have the orders to justify the investment due to seasonal fluctuations in demand, and was worried that he would end up offering his workers less stable work than he was giving them now.&nbsp;“His hesitation points to a product design gap,” says Ogden. “Between loans structured for big, transformative investments, and the kinds of flexible financing tools small firms feel they need to manage volatility and pursue growth more gradually.”Entrepreneurs, then, aren’t resisting growth or credit. They’re hesitant to take on risk that feels uncontrollable. What they need most is working capital - the kind of short‑term, affordable credit line that would let them cover costs when cash is tight and repay when business is stronger. With access to finance that flexes more acutely with the rhythms of their business, this might prove a different story.

The household connectionOne consistent feature across SFD’s findings is the blurred lines between household and business finances. Many owners make no real differentiation between the two, and might not even pay themselves a regular salary.As a result, just as a salaried worker might use a personal credit card to bridge an expense, small-firm owners will often draw on family savings or supplier credit to balance temporary shortfalls. The ingenuity lies in how effectively they use every available channel of liquidity.Companies that can extend their payment terms can absorb more volatility, plan better, and often secure higher-quality materials. That makes supply chain credit - the extra weeks a supplier grants before payment is due - particularly vital. It’s little surprise that around half of the businesses covered by the SFD use supply chain credit or personal loans to cover gaps when needed.According to Laura Freschi, deputy director at the FAI: “Offering lines of credit is very difficult. Very sophisticated Financial Service Providers (FSPs) in wealthy countries with lots of data struggle to do this well, at non-predatory rates.”She adds: “One of the places we are hopeful that innovation can make a difference is in partnerships between suppliers and FSPs to offer more supply chain credit. Suppliers are understandably reluctant to get into the lending business, but they have the insight into who to lend to and how much they can afford.

Laura Freschi

FAI, Deputy Director

Unlocking the potential of small firmsFor most small firms, ‘access to finance’ doesn’t mean a large loan to buy equipment, it means just enough cash this month to restock or pay workers. But when we think again about the couch‑makers in Nairobi, the missing sofa in the window tells a larger story. As the SFD reports make clear, businesses endure and play a key role in local economies, employing neighbours, training apprentices, and strengthening communities, yet there is no guarantee cash will arrive when it’s needed most. Instead, these small companies rely on cash upfront - on new orders and down payments - to carry on. From a credit perspective, this means they need finance solutions that reflect their reality.Designing that kind of flexibility is difficult, but the payoff is broad. It means more stable income for owners, steadier jobs for workers, and better products for customers. When cash flow moves more smoothly through workshops like those lining Nairobi’s streets, small businesses and willing entrepreneurs can show exactly what they are capable of.

Small-firm owners are often hindered in their attempts to get ahead by fluctuations in revenue, according to reports from SFD. As a result, they are forced to make constant adjustments.

Financial Access Initiative at NYU

Financial Access Initiative FAI is a research center working at the intersection of financial inclusion, development, and poverty.

Why solving the cash flow puzzle matters most to small firms