Micro, small, and medium-sized enterprises (MSMEs) paving the way to a sustainable economy
We all know how important small businesses are to the global economy. They create jobs. They lift families out of poverty. They invigorate communities. And nowhere are they more important than in developing countries, where small businesses are responsible for 90 percent of new employment opportunities and up to 70 percent of GDP.
COVID-19 dealt a devastating blow to these economic engines. Businesses closed, jobs lost, supply chains disrupted—the full economic cost of the pandemic is hard to comprehend, let alone address. But address it we must—with urgency, creativity, and shared purpose.
Our first priority must be improving access to capital.
This is not a new issue. Financing has always been the biggest constraint on business growth in developing countries, with owners and entrepreneurs saying it is one of their toughest challenges—often outranking electricity shortages and other concerns.
In fact, the most recent data tells us that the financing gap for micro, small, and medium enterprises in emerging markets is nearly $8 trillion—and that was before the pandemic. The gap is almost certainly larger today.
This means that small businesses had little to no buffer to help them weather the storm. And the financial institutions that were best positioned to help these enterprises quickly encountered their own liquidity concerns.
Supporting small businesses in the developing world has always been a priority for IFC. But this overwhelming need created by the pandemic demanded that we step forward in new and decisive ways.
With COVID-19 dragging Africa into its first economic recession in 25 years, IFC committed $1 billion in new direct financing for MSMEs on the continent.
We also launched a $400 million global initiative to help financial service providers deliver funding to small businesses, informal enterprises, and low-income households hit hardest by the pandemic.
The first loan under our Base of the Pyramid Program is helping Kazakhstan’s leading microfinance institution, KMF LLC, support its 217,000 customers, who mostly live in rural and remote areas. In a country like Kazakhstan, where small businesses account for more than a quarter of economic growth, that support is vital to recovery efforts.
This is only the beginning of IFC’s support for MSMEs. As we look to the future, we’ll be particularly focused on using our investments to regain ground on gender equity.
With countless women forced out of the labor market and into unpaid care work during the pandemic, we must act quickly if we’re going to save a generation of female entrepreneurs.
But there is a limit to what IFC—or any one institution—can do to meet the sheer volume of need that is out there. We must work together if we’re going to help small businesses return to where they were before the pandemic.
What can this look like? The height of the crisis revealed a number of innovative examples that we can build on.
In the public sector space, several countries introduced emergency loans and more flexible repayment terms for existing loans.
Traditional and nontraditional financial institutions also stepped up in new ways. Fintechs were able to use the wealth of data at their disposal to help government agencies and other financial institutions better determine the health of businesses before the downturn started, so that relief could flow to enterprises that were likely to bounce back quickly and start hiring workers again.
One thing is clear: developing economies won’t be able to “build back”—much less “build back better”—without dedicated, coordinated small business support from governments, financial institutions, and the private sector.
If we succeed, we’ll be able to weave a net that catches MSMEs before they fall through the cracks forever—and the global economy will be better off for it.
Thank you.