Overview

Small and Medium Enterprises (SMEs) play a major role in most economies, particularly
in developing countries. SMEs account for the majority of businesses worldwide and are
Financial Sector
important contributors to job creation and global economic development. They represent
about 90% of businesses and more than 50% of employment worldwide. Formal SMEs
contribute up to 40% of national income (GDP) in emerging economies. These numbers Go back to main topic
are significantly higher when informal SMEs are included. According to our
estimates, 600 million jobs will be needed by 2030 to absorb the growing global
workforce, which makes SME development a high priority for many governments around RELATED
the world. In emerging markets, most formal jobs are generated by SMEs, which create 7
Key Reports:
out of 10 jobs. However, access to finance is a key constraint to SME growth, it is the
Alternative data transforming SME finance
second most cited obstacle facing SMEs to grow their businesses in emerging markets and
developing countries. Closing the credit gap for formal and informal micro, small, and
medium enterprises

SME Finance Policy Guide

Alternative Data Transforming SME Finance

SMEs are less likely to be able to obtain bank loans than large firms; instead, they rely on
internal funds, or cash from friends and family, to launch and initially run their Innovation in Electronic Payment Adoption: The case of small
retailers
enterprises. The International Finance Corporation (IFC) estimates that 65 million firms,
or 40% of formal micro, small and medium enterprises (MSMEs) in developing countries, Search WBG Documents on SMEs

have an unmet financing need of $5.2 trillion every year, which is equivalent to 1.4 times
the current level of the global MSME lending. East Asia And Pacific accounts for the
largest share (46%) of the total global finance gap and is followed by Latin America and RELATED
the Caribbean (23%) and Europe and Central Asia (15%). The gap volume varies
considerably region to region. Latin America and the Caribbean and the Middle East and Websites

North Africa regions, in particular, have the highest proportion of the finance gap SME Finance Forum

compared to potential demand, measured at 87% and 88%, respectively. About half of Invest West Africa
formal SMEs don’t have access to formal credit. The financing gap is even larger when
Policy Brief: Addressing the SME Finance Problem (pdf)
micro and informal enterprises are taken into account.

Formal MSME Finance Gap in Developing Countries

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What We Do

A key area of the World Bank Group’s work is to improve SMEs’ access to finance and
find innovative solutions to unlock sources of capital.
Our approach is holistic, combining advisory and lending services to clients to increase
the contribution that SMEs can make to the economy including underserved segments
such as women owned SMEs.

Advisory and Policy Support for SME finance mainly includes diagnostics,
implementation support, global advocacy and knowledge sharing of good practice. For
example we provide;

Financial sector assessments to determine areas of improvement in regulatory and

policy aspects enabling increased responsible SME access to finance

Implementation support of initiatives such as development of enabling environment,

design and set up of credit guarantee schemes

Improving credit infrastructure (credit reporting systems, secured transactions and

collateral registries, and insolvency regimes) which can lead to greater SME access
to finance.

Introducing innovation in SME finance such as e-lending platforms, use of

alternative data for credit decisioning, e-invoicing, e-factoring and supply chain
financing.

Policy work, analytical work, and other Advisory Services can also be provided in
support of SME finance activities.

Advocacy for SME finance at global level through participating and supporting G20
Global Partnership for Financial Inclusion, Financial Stability Board, International
Credit Committee for Credit Reporting on SME Finance related issues.

Knowledge management tools and flagship publications on good practice, successful

models and policy frameworks
Lending Operations:

SME Lines of Credit provide dedicated bank financing – frequently for longer tenors
than are generally available in the market – to support SMEs for investment, growth,
export, and diversification.

Partial Credit Guarantee Schemes (PCGs) – the design of PCGs is crucial to SMEs’
success, and support can be provided to design and capitalize such facilities.

Early Stage Innovation Finance provides equity and debt/quasi-debt to start up or

high growth firms which may otherwise not be able to access bank financing.

Results of Our Work

Early-Stage SME Finance

In Lebanon, the Innovative Small and Medium Enterprises (iSME) project is a $30
million investment lending operation providing equity co-investments in innovative young
firms in addition to a grant funding window for seed stage firms. As of August 2019,
iSME’s co-investment fund has invested $10.23 million across 22 investments and has
been able to leverage $25.47 million in co-financing, demonstrating its ability to crowd in
private sector financing and expand the market for early stage equity finance in Lebanon.
To date, 60 out of 174 grantees had leveraged the iSME funding to raise a total of $13.1
million from various funding sources, a leverage ratio of 5.3 times. Overall, stakeholders’
consultations suggest that the iSME project could play an even larger role in the future
financing of the Venture Capital (VC) sector by supporting existing VCs and emerging
players, including increasing attention on a fund of funds approach, which could also
cover growth funds (later stage and private equity).

In India, our MSME Growth, Innovation and Inclusive Finance Project improved access
to finance for MSMEs in three vital but underserved segments: early stage/startups,
services, and manufacturing. A credit line of $500 million, provided to the Small Industry
Development Bank of India (SIDBI), was designed to provide an affordable longer-term
source of funding for underserved MSMEs. Technical assistance of about $3.7 million
complemented the lending component and focused on capacity building of SIDBI and the
participating financial institutions (PFIs). In addition to directly financing MSMEs,
disbursing a total of $265 million in loans, the project pushed the frontiers of MSME
financing through the development of innovative lending methods that reduced
turnaround time, reached more underserved MSMEs, and crowded in more private sector
financing. It also reached new clients, women-owned MSMEs, and MSMEs in low-
income states. The project supported SIDBI to scale-up of the Fund of Funds for Startups,
which aims to indirectly disburse $1.5 billion to startups by 2025. SIDBI’s “contactless
lending” platform, a digital MSME lending aggregator and matchmaking platform, has
crowded in $1.9 billion of private sector financing for MSMEs, making it the largest
online lender in India.

Lines of Credit

In Jordan, two World Bank Group’s lines of credit aim to increase access to finance for
MSMEs and ultimately contribute to job creation. The $70 million line of credit
encouraged the growth and expansion of new and existing enterprises, increasing outreach
to MSMEs, 58% of which were located outside of Amman and 73% were managed by
women. The line of credit directed 22% of total funds to start-ups. The project financed
8,149 MSMEs, creating 7,682 jobs, of which 79% employed youth and 42% hired
women. The additional financing of $50 Million is progressing well towards achieving its
intended objective. $45.2 million has been on-lent to 3,345 MSMEs through nine
participating banks. The project is especially benefiting women, who represent 77% of
project beneficiaries, and youth (48% of project beneficiaries), and increasing
geographical outreach, as 65% of MSMEs are in Governorates outside of Amman.
In Nigeria, the Development Finance Project supports the establishment of the
Development Bank of Nigeria (DBN), a wholesale development finance institution that
will provide long-term financing and partial credit guarantees to eligible financial
intermediaries for on-lending to MSMEs. The project also includes technical assistance to
DBN and participating commercial banks in support of downscaling their operations to
the underserved MSME segment. As of May 2019, the Development Bank of Nigeria
credit line to PFIs for on-lending to MSMEs has disbursed US$243.7 million, reaching
nearly 50,000 end-borrowers, of which 70% were women, through 7 banks and 10
microfinance banks.

Partial Credit Guarantees

In Morocco, the MSME Development project aimed to improve access to finance for
MSMEs by supporting the provision of credit guarantees by enabling the provider of
partial credit guarantees in the Moroccan financial system to scale up its existing MSME
guarantee products and introduce a new guarantee product geared towards the very small
enterprises (VSEs). As a result of the project, the number and volume of MSME loans are
estimated to have increased by 88% and 18%, respectively, since the end of 2011.
Cumulative volume of loans backed by the guarantees during the life of the project is
estimated at $3.28 billion. With significantly increased lending supported by guarantees,
PFIs were able to continue building their knowledge of MSME customers, refining their
systems to serve them more effectively and efficiently. Owing to guarantees, many first-
time borrowers were able to generate credit history, which made it easier for them to
obtain loans in future.

Supporting Women-Owned SMEs

In Ethiopia, the Women Entrepreneurship Development Project (WEDP) is an IDA

operation providing loans and business training for growth-oriented women entrepreneurs
in Ethiopia. After identifying a persistent ‘missing middle’ financing gap for women
entrepreneurs in Ethiopia, WEDP launched as a microfinance institutions’ (MFIs)
upscaling operation, helping Ethiopia’s leading MFIs introduce larger, individual-liability
loan products tailored to women entrepreneurs. WEDP loans are complemented through
provision of innovative, mindset-oriented business training to women entrepreneurs. As of
October 2019, more than 14,000 women entrepreneurs took loans and over 20,000
participated in business training provided by WEDP. 66% of WEDP clients were first-
time borrowers. As a result of the project, participating MFIs increased the average loan
size by 870% to $11,500, reduced the collateral requirements from an average of 200% of
the value of the loan to 125%, and started disbursing $30.2 million of their own funds as
WEDP loans. The average WEDP loan has resulted in an increase of over 40% in annual
profits and nearly 56% in net employment for Ethiopian women entrepreneurs.

In Bangladesh, the Access to Finance for Women SMEs Project aims to create an enabling
environment to expand access to finance to women SMEs (WSME) by supporting the
establishment of credit guarantee scheme (CGS), issuance of SME Policy, and
strengthening capacity of the regulator and sector. The project supported the issuance of
Bangladesh’s maiden SME Policy. Bangladesh’s first comprehensive SME Policy was
launched in December 2019 through concerted efforts in high-level upstream work,
enhancement of the regulator’s capacity, and formulation of key recommendations with a
sharper gender lens. In Bangladesh, $2.8 billion financing gap prevails in the MSME
sector, where 60% of women SME’s financing needs are unmet, and lack of access to
collateral is one of the key hindrances. Bangladesh lacked a single policy with systemic
plan to enhance SME finance. With nearly 10 million SMEs contributing to 23% of the
GDP, 80% of jobs in the industries sector and 25% of the total labor force, the SME
Finance Policy will play a pivotal role in enhance SME financing.

Leasing
In Ethiopia and Guinea, the World Bank Group is supporting the local governments in
creating an enabling framework which is conducive to launching and growing leasing
operations, as well as attracting investors, to increase access to finance for SMEs. It is
doing so by working at the macro, mezzo, and micro levels, supporting the governments
with legal and regulatory reforms, and working with industry players to create technical
partnerships and increase market awareness and capacity. In Ethiopia, the project
generated a $200 million credit facility supporting 7 leasing intuitions and introducing 4
new leasing products into the market: hire purchase, finance lease, microleasing and
agrileasing. As of June 2019, 7,186 MSMEs have accessed finance valued at over $147
million. The project in Guinea supported the adoption of the national leasing law and the
accompanying prudential guidelines for leasing, which in turn, have helped 3 companies
to launch leasing operations. To date, these institutions have supported 31 SMEs through
the disbursement of leases valued at $25 million.

Who We Work With

Leveraging our expert knowledge, we work globally with public stakeholders and private
sector intermediaries in partnership with other multilateral and bilateral development
organizations to support SME Finance development in emerging markets and developing
countries.

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