The International Finance Corporation (IFC), part of the World Bank Group, has launched a new initiative to facilitate financial support for small businesses in emerging markets, particularly those owned by women and those in the agriculture and climate sectors.
The MSME Finance Platform will channel up to $4 billion from IFC’s own resources to a diverse range of financial service providers, including banks, non-bank financial institutions, microfinance institutions, and digital lenders focusing on micro, small, and medium enterprises (MSMEs).
The funding aims to support both new and existing IFC clients. In addition, the platform will employ various credit enhancement mechanisms to mobilize private capital.
One notable instrument is the Catalytic First Loss Guarantee, which seeks to attract an additional $4 billion from eligible financial service providers to expand their lending capacities to these critical sectors.
Makhtar Diop, Managing Director of IFC, emphasized the vital role of MSMEs in developing economies.
“Micro, small, and medium enterprises form the backbone of most developing economies, yet they face significant financial barriers that hinder their potential,” Diop said. He added:
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 represent over 90% of all firms globally and account for 60-70% of total employment and 50% of GDP on average. However, there is a significant financing gap estimated at approximately $5.7 trillion, according to the SME Finance Forum.
The financial landscape for MSMEs in emerging markets has been particularly strained, with recent crises weakening financial service providers and tightening credit conditions.
This contraction is compounded by rising interest rates and a limited appetite for risk among lenders.
IFC aims to leverage its risk capital to provide first loss protection to financial service providers, which often possess ample local currency liquidity but are hesitant to lend to MSMEs due to perceived high risks.
Through capital optimization structures, the MSME Platform intends to redirect substantial local currency financing to businesses that need it most.
The initiative is supported by the International Development Association’s Private Sector Window (IDA PSW) to help mitigate credit and foreign currency exposures in projects in low-income countries.
Up to $100 million will be provided by the IDA PSW Blended Finance Facility (BFF), with additional resources from the Global SME Finance Facility (GSMEF) and the Women Entrepreneurs Opportunity Facility (WEOF) allocated to encourage lending to businesses in agriculture and women-owned MSMEs.
