Governments in both industrialized and developing countries provide a wide variety of programs to assist small- and medium-scale enterprises (SMEs). Despite the success of SME strategies in a few countries, the majority of developing countries have found that the impact of their SME development programs on enterprise performance has been less than satisfactory. Underlying the search for best practice are some basic questions: - What is the justification for public intervention in the first place? - Should SMEs be singled out for assistance? - If there is a justification for government intervention, what form should that intervention take? This paper investigates the economic rationale for intervention in support of small- and medium-scale enterprises, on both theoretical and empirical grounds. It also suggests a framework for SME intervention to help the Bank Group's client countries design SME strategies, gauge the effectiveness of assistance programs, and achieve the objective of raising SME competitiveness. This volume will be of interest to government officials and development agencies involved in SME support policies and programs.