Estimated reading time: 3 minutes

IFC, a member of the World Bank Group, launched a new initiative to aid financial service providers in delivering funds to small businesses in emerging markets, with a particular focus on those owned by women and those in the agriculture and climate sectors.

The MSME Finance Platform (the Platform) will provide a financing package of up to $4 billion from IFC’s own account to banks, non-bank financial institutions, microfinance institutions, and innovative digital lenders that focus on micro, small, and medium enterprises (MSMEs). This support will be available to both new and existing IFC clients.

The Platform will also use various forms of credit enhancement to mobilise private capital, including an innovative Catalytic First Loss Guarantee, aiming to attract an additional $4 billion in financing from eligible financial service providers to expand lending to these businesses.

“Micro, small, and medium enterprises form the backbone of most developing economies, yet they face significant financial barriers that hinder their potential,” explained Makhtar Diop, Managing Director of IFC. 

“Our new financing platform addresses these challenges head-on, empowering financial service providers to extend critical support to these businesses, particularly those that are women-led or environmentally focused.”

MSMEs constitute over 90% of all firms and account, on average, for 60-70% of total employment and 50% of GDP worldwide. However, according to the SME Finance Forum, there is currently a roughly $5.7 trillion financing gap for MSMEs.

In emerging markets, MSMEs and the informal sector are essential to economic growth, job creation, and poverty alleviation. Recent crises have financially weakened financial service providers, limiting their ability to meet increasingly stringent lending requirements. 

As a result, businesses in emerging markets and developing economies are experiencing a credit contraction due to tighter credit conditions, rising interest rates, and a limited appetite for risk. As the largest development finance institution supporting the private sector in emerging markets, IFC is well-positioned to assist financial service providers.

IFC will leverage its risk capital to extend first loss protection to eligible financial service providers, which often have ample local currency liquidity but limited exposure to MSMEs due to the segment’s perceived high risk. 

Through this mobilisation approach, the MSME Platform aims to create a financing solution through capital optimisation structures and potentially redirect substantial amounts of local currency financing to businesses.

The Platform will be supported by the International Development Association’s Private Sector Window (IDA PSW) to help de-risk the credit and foreign currency exposures in projects in low-income countries. 

Up to $100 million will come from the IDA PSW Blended Finance Facility (BFF). Additionally, resources from the Global SME Finance Facility (GSMEF) and the Women Entrepreneurs Opportunity Facility (WEOF) will be allocated to support and incentivise lending to businesses in the agriculture sector and women-owned MSMEs.