The International Finance Corporation (IFC), a member of the World Bank Group, announced a significant initiative to support small businesses in Nigeria and other developing countries.
The $4 billion MSME Financing Platform will focus on businesses owned by women and those operating in the agriculture and climate sectors.
“Micro, small, and medium enterprises form the backbone of most developing economies, yet they face significant financial barriers that hinder their potential,” said Makhtar Diop, IFC managing director in a statement.
MSMEs make up more than 90percnet of all firms and account, on average, for 60-70percent of total employment and 50 percent of GDP worldwide, the IFC said, yet the SME Finance Forum puts the annual financing gap at around $5.7 trillion.
Access to finance has been hampered by tighter credit conditions, rising interest rates and a decline in risk appetite among mainstream lenders, the IFC said, something it hoped to reverse by offering to take the first loss on loans.
Up to $100 million of finance to help the platform de-risk the credit and foreign currency exposures will come from the International Development Association, it 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.”
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.
