The Line Holders: Firms That Keep Economies Functioning
Key Takeaways
- The scale is massive: MSMEs make up over 90 percent of all firms, account for 70 percent of employment and 50 percent of GDP worldwide. Yet they face a $5.7 trillion finance gap in emerging markets, swelling to $8 trillion when informal enterprises are included.
- Informality dominates: 2 billion workers, over 61.2 percent of global employment, work informally. The informal economy represents 35 percent of GDP in low and middle income countries. This is not a bug. It is the system.
- Finance is the choke point: 40 percent of formal MSMEs are credit constrained (19 percent fully, 21 percent partially). Women owned MSMEs face a $1.9 trillion gap, 34 percent of the total. Between 2015 and 2019, the gap grew 6 percent annually even as credit supply increased 7 percent.
- The corridor is policy: transit arrangements, customs rules, payment systems, and maintenance contracts decide whether essentials move reliably. When these corridors are politicized or captured, line holders shrink or become rent collectors.
- Trust is operational: when basics arrive reliably, the public tolerates adjustment. When they do not, politics becomes permanent emergency.
When economies come under stress, attention gravitates to presidents, central banks, and markets. Yet the first place a crisis appears is rarely a press conference. It appears in the pharmacy that runs out of antibiotics, the supermarket that rations cooking oil, the factory that pauses because one component is missing, the generator that becomes an unaffordable line item, and the port queue that quietly lengthens until prices change.
Between macro policy and lived reality sits a layer of firms that do not often make headlines. They clear goods, store them, distribute them, service the machines that keep power and water moving, advance credit to small retailers, and absorb short term shocks so households do not face the full blast. In much of the Global South, this layer is the difference between a hard year and a destabilising one. Call them line holders. They keep essentials moving when the state is slow, the currency is weak, and the formal financial system is cautious. They are not saints. They are operators. They make money. But the system depends on their ability to do a simple thing at scale: deliver reliably.
When the informal majority meets the finance gap
Two structural facts explain why line holders matter and why they remain vulnerable. First, informal and semi formal work remains the dominant reality for billions. According to the International Labour Organization, 2 billion workers, more than 61.2 percent of the world's employed population, operate at least part time in the informal economy. The number of workers in informal employment increased from approximately 1.7 billion in 2005 to 2.0 billion in 2024. This is not a residual category. This is the majority. The informal economy represents 35 percent of GDP in low and middle income countries and around 15 percent of GDP in developed economies.
Second, small and mid sized firms carry far more of the delivery burden than the public narrative admits, yet they face systematic credit constraints. MSMEs make up over 90 percent of all firms and account, on average, for 70 percent of total employment and 50 percent of GDP worldwide. According to the latest IFC World Bank MSME Finance Gap Report published March 2025, across 119 emerging markets and developing economies there is a finance gap of about $5.7 trillion, equivalent to 19 percent of GDP and 20 percent of total private sector credit. The study finds that 40 percent of formal MSMEs are credit constrained, with 19 percent fully and 21 percent partially constrained.
Workers in informal economy worldwide (ILO 2024), 61.2% of global employment
MSME finance gap in EMDEs (IFC-World Bank March 2025), equivalent to 19% of GDP
Total finance gap when informal enterprises included (IFC estimate)
Share of firms that are MSMEs, accounting for 70% employment, 50% GDP globally
Data from ILO World Employment and Social Outlook May 2024, IFC World Bank MSME Finance Gap Report March 2025, and IFC MSME Finance overview. The informal economy figure represents 35 percent of GDP in low and middle income countries per IMF and ILO estimates.
Among women owned MSMEs, the gap is even more severe: approximately $1.9 trillion, or 34 percent of the total finance gap. Informal enterprises generate an additional $2.1 trillion in unmet demand for finance, equivalent to around 8 percent of GDP in developing economies. Between 2015 and 2019, the MSME finance gap grew by more than 6 percent annually, even as the supply of credit increased by 7 percent. This means demand consistently outpaced supply. Total demand for credit increased by $2.2 trillion over this period while supply grew by $991 billion, widening the gap by $1.1 trillion to reach $5.7 trillion by 2019.
These numbers are not abstract. They describe an economy where resilience is privately built and systematically underfinanced. The private sector generates 90 percent of jobs in developing economies according to World Bank estimates. A cold chain distributor that keeps vaccines viable, a spare parts importer that prevents a factory shutdown, a payments provider that keeps micro merchants liquid, a warehouse operator that stabilises inventory. These are not luxuries. They are the difference between continuity and panic. Yet the firms that perform these functions are precisely the ones least able to access affordable credit, most exposed to currency and commodity shocks, and most vulnerable to policy uncertainty and discretionary enforcement.
Why delays become inflation
In import dependent states, the price level is not only a function of exchange rates and fiscal policy. It is also a function of elapsed time. Each day a container sits uncleared is not merely a nuisance. It is working capital trapped, spoilage risk rising, demurrage accumulating, informal fees tempting, and stockouts becoming more likely. Those costs do not stay inside the port. They leak into retail prices, turn into household inflation, and create the perception of hoarding or profiteering even when the underlying cause is logistics and liquidity friction.
Line holders internalise this reality. The best of them operate like risk managers in real time. They diversify suppliers to reduce single source dependency, split shipments to manage clearance uncertainty, hold buffer inventory even when finance is expensive because stockouts destroy market share, and build relationships with clearing agents and customs officials that reduce processing time without crossing into corruption. The worst of them turn friction into rent, using their position in constrained corridors to extract premiums from downstream buyers who have no alternative suppliers.
The public sees only the outcome. A price change. A shortage. A rumour that someone is hoarding. Underneath, it is often a logistics and liquidity problem amplified by policy uncertainty. When governments announce subsidy changes, currency adjustments, or import restrictions without clear implementation timelines or transition mechanisms, line holders face an immediate dilemma: do they pass costs through immediately and risk losing market share, or do they absorb costs temporarily and risk insolvency if the policy persists longer than their working capital can sustain.
Composite case study: the medicine importer
This case is a composite built from recurring patterns across import dependent economies. No single firm is described.
- Shock: currency pressure raises the landed cost of essential medicines by 30 percent over three months, while banks tighten trade credit lines citing country risk.
- Constraint: the importer cannot pass the full cost through immediately because households will simply stop buying, creating shortages that draw regulatory attention and public anger.
- Response: the firm uses a mix of smaller shipments to reduce per shipment financing needs, engages faster but more expensive clearing agents to minimize demurrage, and tightens inventory control to keep staples available while cutting slower moving items.
- Trade off: margins compress from 12 percent to 4 percent, but reliability preserves market share and stabilises demand patterns, which lowers the risk of sudden shortages that could trigger price controls or import restrictions.
- Outcome: six months later when currency stabilizes and credit conditions ease, the firm has maintained relationships, retained customers, and avoided the reputational damage of stockouts. Competitors who passed costs through immediately lost market share to informal importers operating outside regulatory oversight.
The point is not romantic. It is mechanical. In fragile systems, competence becomes a stabiliser. When a handful of competent operators hold the line, the country gets a kind of shadow macro policy. Not made in a ministry or central bank, but felt in a queue that does not form, a price that stays predictable, a medicine that remains available. This shadow stabilization is invisible until it stops working, at which point the political and economic costs arrive suddenly and visibly.
Who keeps the system moving
| Line holder category | What they actually do | Finance constraints | What breaks when they fail |
|---|---|---|---|
| Importers and clearing agents | Convert foreign supply into domestic availability, manage documentation, clearance, FX timing, demurrage | Trade finance scarce, FX exposure unhedged, working capital trapped in transit | Stockouts, sudden price jumps, informal fees, panic buying, black markets |
| Distributors and wholesalers | Move goods from ports and factories into retail networks, often extending informal credit to small retailers | Receivables financing absent, credit risk from downstream defaults, inventory financing expensive | Regional scarcity, market fragmentation, rationing, informal credit spirals |
| Cold chain and essential logistics | Maintain temperature integrity for food and medicines, manage last mile delivery reliability | Equipment financing scarce, fuel price volatility, energy access unreliable | Spoilage, waste, health risk, hospital shortages, food inflation |
| Maintenance contractors | Keep power, water, telecom, industrial machinery running through repair and parts supply | Parts inventory financing absent, payment delays from state entities, skill retention difficult | Outages, factory downtime, service collapse, productivity loss, informal workarounds |
| Payments and micro finance rails | Maintain liquidity for small merchants, enable commerce when cash is scarce or risky | Regulatory uncertainty, capital requirements, fraud risk, network effects slow | Trade freezes, informal credit at usurious rates, higher crime risk, reduced tax capture |
What unites these roles is not sector or size. It is function. They convert uncertainty into continuity. That conversion is valuable to society and profitable for firms when conditions are stable. But it is also fragile, because it relies on three things that are scarce in developing economies: access to affordable credit, predictability of rules and enforcement, and trust that contracts will be honored and disputes will be resolved without political intervention or corruption.
When rules become discretionary or selectively enforced, line holders face an impossible choice. They can try to maintain operations by paying informal fees and accepting selective enforcement, which preserves continuity but normalizes rent seeking. Or they can refuse and exit the corridor, which preserves principle but eliminates the service. In both cases society pays: either through higher prices that reflect rent seeking, or through shortages that reflect missing services.
Supply chains are policy even when no one admits it
Small technical arrangements can function as macro stabilisers. A transit facility that allows goods to move between countries without full clearance. A route agreement that keeps shipping costs predictable. A customs fast track for essential goods. A cross border clearance rule that reduces processing time. These arrangements lower the time tax, reduce inventory costs, make prices less volatile, and allow line holders to operate with thinner margins which keeps final prices lower for consumers.
Then, sometimes overnight, these arrangements become political. In 2025, disputes over transit and handling arrangements between India and Bangladesh showed how quickly logistics workarounds can be withdrawn for political reasons, forcing exporters and importers to re route cargo at higher cost and with greater delay. The immediate impact was measured in demurrage fees and missed delivery windows. The medium term impact is measured in lost contracts as buyers shift to more reliable corridors. The long term impact is measured in reduced investment as firms conclude that political risk is unmanageable.
This is why the best line holders build redundancy even when it is expensive. They do not rely on a single port, a single route, a single bank relationship, a single supplier, or a single regulatory corridor. They behave like systems engineers designing for failure. They assume critical nodes will fail and design operations to route around failures without catastrophic service interruption. The countries that prosper are those that make this redundancy cheaper through reliable infrastructure, predictable rules, and competitive markets. The countries that stagnate are those that punish redundancy with arbitrary frictions, monopolistic infrastructure, and discretionary enforcement.
How states can stop fighting their own stabilisers
Governments often respond to economic stress with narratives about villains: hoarders, speculators, foreign manipulation. Households respond to delivery: can I buy cooking oil at a predictable price, can I fill a prescription, does the water run, does power stay on. Sequence matters because citizens cannot wait for long term structural reforms while essentials deteriorate. The fastest way to rebuild confidence is to make the corridor auditable and predictable, protect the vulnerable without burning the currency, and restore the basic infrastructure that allows line holders to function.
A credibility sequence for fragile economies
- Publish the corridor: subsidy costs, procurement contracts, import pricing logic, state enterprise arrears, and regulatory enforcement patterns so the public can see where money goes and why prices move.
- Target protection precisely: shift from blanket subsidies that benefit everyone including the wealthy, to targeted cash transfers, vouchers, or digital payments that reach the poorest households and can be audited and verified.
- Restore reliability infrastructure: finance maintenance backlogs in power, water, and transport. Reform utility governance to reduce political interference. Pair tariff increases with credible service improvement commitments and protection for vulnerable households.
- Cut the time tax: streamline port clearance, reduce documentation requirements, publish processing time targets, penalize officials for discretionary delays. In import dependent states, logistics efficiency is inflation policy.
- Rebuild export ladders: support export capability development, skills pipelines, and productivity improvements that allow firms to climb value chains and generate foreign exchange, reducing import dependence over time.
- Fix MSME finance: use partial guarantees, first loss facilities, and development bank lending to crowd in commercial credit. Support digital lending platforms that use alternative data. Simplify collateral requirements and speed up dispute resolution.
The political point is not perfection. It is trust. When citizens can see where money goes, who is protected and why, and when basic services work, they tolerate difficult adjustments. When they cannot see those things, they assume extraction and resist all reform. Line holders then become scapegoats for policy failures, or they retreat from formal operations into informal channels. Both outcomes are expensive for society.
There is a deeper implication. The countries that build durable development do not only chase foreign investment or wait for commodity price booms. They build reliability. They make it easier for competent firms to do boring things well: clear containers, store inventory, repair equipment, distribute goods, and collect payments without bribery, discretionary delay, or arbitrary rule changes. That shift from survival mode to growth mode requires institutional quality that treats the corridor as infrastructure, not as a source of rents.
Resilience is built in warehouses not speeches
Development is often narrated as vision: speeches, summits, strategies. In practice, it is continuity. The warehouse that stays organized through power outages. The spare parts chain that does not break when currency moves. The payment rail that works through internet disruptions. The maintenance crew that keeps water pressure stable. These are not glamorous. They are the scaffolding of dignity. They are what allows people to plan, to invest in children's education, to start small businesses, to trust that tomorrow will resemble today in predictable ways.
If the Global South wants growth that feels real to citizens, it must stop treating delivery as an afterthought to macro policy. It must treat the line holders as a national asset requiring protection and support, not as targets for blame when policy creates impossible trade offs. It must regulate the corridor so that competence rather than connections determines success, so that firms can invest in productivity rather than political insurance, and so that the informal economy can formalize without facing predatory enforcement or impossible compliance costs.
When the basics hold, everything else becomes negotiable. Citizens tolerate tax increases if water runs. They accept subsidy cuts if targeted support protects the vulnerable. They support difficult reforms if they see corruption prosecuted and public accounts made transparent. When basics do not hold, politics becomes a permanent argument about scarcity where everyone assumes extraction and no reform is credible.
That is why the companies that hold the line are not merely businesses operating in markets. In many countries across the Global South, they are the quiet institutions that keep society functional while formal institutions catch up. They deserve credit systems that recognize their stabilizing role. They deserve rules that are published, predictable, and enforced equally. And they deserve recognition that their margins are not extraction but the price of continuity in fragile systems.