Micro, small and medium enterprises (MSMEs) are the lifeblood of many economies, particularly in developing countries. Globally, they represent about 90 percent of businesses and more than 50 percent of employment. MSMEs also contribute significantly to gross domestic product and exports, making their development a high priority for many governments around the world. The Maputo Accord was endorsed in Maputo Mozambique on SME Financing recognizing the importance of SMEs in driving economic growth, employment creation and contributing to broaden sustainable financial inclusion and reducing poverty at the household level, especially through micro-enterprises. The importance of MSMEs goes beyond conventional economic and social contributions. It is essential to understand their importance and potential contribution to the Sustainable Development Goals (SDGs) and crucial to the “Leaving No One Behind principle” that is central to the 2030 Agenda.
Inclusion for MSME is equally as important as individual with an emphasis on access to credit. Despite of its importance, MSME development is still hampered by a relatively constrained access to finance, which inhibits growth and job creation in the sector. MSME finance gap in emerging economies is estimated at approximately $5 trillion – 1.3 times the current level of MSME lending. These numbers even more staggering at about $8 trillion if MSMEs in the informal sector were also included. Awareness of the impact of MSMEs on economic development has been steadily increasing since microfinance institutions (MFIs) and economic development agencies have focused on these enterprises’ potential contribution to economic and social stability. MSMEs require different forms of financing based on their stage of development. Loans are mainly used for business expansion, financing of working capital, extension of the product range, purchase of fixed assets or to reach out to new markets, both local and international. Most common challenges that impede to MSME access to finance include no or lack of collateral, insufficient credit history and MSMEs are very vulnerable for any shock of normal condition. It is important for MSME to improve their credit worthiness and necessary for the government to broaden the range of financing instruments available to MSMEs.
Microenterprises differ very much from small and medium enterprises. They often behave like individual clients in their financing requirements and are served by microfinance institutions or informal lending networks. Most microenterprises are active in the informal market and do not register their activities with a tax office. Collecting data about microenterprises can therefore be very difficult. SMEs, on the other hand, require a variety of financial services, including working capital and fixed asset loans that are often larger and with more flexible terms. They are more likely to be licensed and registered with the local tax authorities. Therefore, ministries collect and share data on SMEs and are better able to track their growth and impact on the economy.
SME the “Missing-Middle”
While microenterprises have apparently more secured alternative funding sources (e.g. family and friends, suppliers or microfinance institutions), SMEs are often perceived to be too big for MFIs, which cannot deliver adequate product solutions; too risky for larger financial institutions such as banks; and too financially needy for family or friends to lend to them. Worldwide, access to finance is one of the most prominent obstacles that SMEs face, particularly in low-income countries.
Different demand and supply sides measures have been implemented globally ranging from legal and regulatory framework, enabling credit infrastructure, access to finance policy, market efficiency and new elements that change the financing landscape for MSMEs which include alternative finance and FinTech. In addition, regulators and policy makers also focus on cross-cutting priority topics such as informal sector, women and youth MSMEs and inclusive green finance, among others.
AFI members underscored the barriers that the MSMEs encounter in accessing and using formal financial services, which include among others, lack of capacity to start business, lack of collateral to access funding, financial education, and inadequate use of technology. In addition, lack of clear supportive policies for harnessing women and youth MSMEs access to finance has also been a critical challenge for achieving the goal inclusive finance for growth. In response, various measures have been introduced to support MSMEs with both demand-side and supply-side initiatives, including legislation, regulation, infrastructure, capacity building and education. To address this policy challenges, the AFI established the SME Finance Working Group (SMEFWG) to share members’ insights and experience in promoting support for SME development also in-depth discussion on SME finance fundamental and emerging topics.
Women-owned enterprises account for over 28 percent of businesses worldwide. Paradoxically, the global MSME finance gap for women is estimated to be valued at $1.7 trillion – amounting to over 6 percent of global GDP, according to this 2017 report.
To this day, women entrepreneurs across the globe have limited access to credit and formal financial services when compared to their male counterparts, due to sustained social, structural, and regulatory barriers. Everything from cultural norms to financial literacy, geography, and demographics continue to stand in the way of their entrepreneurial ambitions.
Policy interventions that harness women’s ability to start, run and expand their own MSMEs are paramount to their success as entrepreneurs and their potential to contribute to countries’ economies.
SMEF targets, 10 in total so far, are more focused and direct, with the network leveraging on the lessons of previous targets and progress updates.
|Primary thematic area
SMEF Maya Declaration commitments by AFI members
|Maya Declaration targets
AFI’s SME Finance Working Group (SMEFWG)
Created in 2013, AFI’s SME Finance Working Group (SMEFWG) actively shares knowledge and experience that promotes MSME access to finance in the network with the development of policy guidance and in-country implementation. Policy guidance is developed based on member demand and global strategic MSME finance topics, and its outcomes founded in the proven practical national financial policies and action plans of members. These best practices, which can be voluntarily adopted by members within their specific requirements, allow members to improve the existing or create a better financing landscape for MSMEs.
Ismail Adam, Bank of Ghana
Saba Assaf, Palestine Monetary Authority
Shareen Farouk Dahab, Central Bank of Egypt
Gender Focal Point
Samuel Tarinda, Reserve Bank of Zimbabwe
MSME Islamic Finance and Financial Inclusion
Planned deliverable: To develop a Survey Report on Islamic Finance and Financial Inclusion that will provide a general mapping on the state of practice of Islamic Finance among SMEFWG members and understand more specifically how Islamic Finance products/approach are used to mitigate financial inclusion exclusion in member countries.
MSME SME Bank and Credit Bureau
Planned deliverable: To develop special report on SME Bank and Credit Bureau/Registry focusing on the importance, establishment, and uses of these two institutions that will promote access, usage, and provision quality of financial services for MSMEs.
MSME Alternative Data for Credit
To identify alternative or non-traditional data in assessing MSME credit worthiness and the use of alternative data for credit scoring to increase inclusion of MSMEs and individuals who do not meet the current traditional requirements for credit scoring and access to credit.
Planned deliverable: To develop a special report.
Transitioning MSMEs to Green (w IGFWG)
To develop a special report titled “’Green Transition Measures for MSMEs”. This report aims to examine the vulnerabilities of MSMEs to climate change and assess the role of financial services in their green transition. Focusing on the gaps in green finance and potential business opportunities for MSMEs in climate change mitigation and adaptation, the study aims to guide policymakers and financial regulators in fostering inclusive green finance.
|1st: Kuala Lumpur, Malaysia
|2nd: Yogyakarta, Indonesia
3rd: Port of Spain, Trinidad & Tobago
|4th: Kuala Lumpur, Malaysia
5th: Maputo, Mozambique
|6th: Ulan Bator, Mongolia
7th: Nadi, Fiji
|8th: Mahe, Seychelles
9th: Sharm El Sheikh, Egypt
|10th: Aman, Jordan
11th: Sochi, Russia
|12th: Livingstone, Zambia
13th: Kigali, Rwanda
|14th: Virtual Meeting
15th: Virtual Meeting
|16th: Virtual Meeting
17th: Virtual Meeting
The AFI SME Finance Working Group (#SMEFWG) celebrates their 10 years anniversary. Learn what members have to say about the working group- Read More
Arifa A. Ala, Assistant Governor of Bangko Sentral Ng Pilipinas on Islamic Finance and Inclusion- Read More
Supply Chain Finance (SCF) companies are fast emerging as preferred lending solutions partners for the vastly under-served MSME sector. Powered by new-age, advanced financial technologies, new SCF tools hold the promise to mitigate the funding woes of small-scale businesses. SCF lenders have a wider outreach among small businesses, ensuring faster loan approvals and seamless transaction processing on timely schedules with flexible terms. With the COVID-19 pandemic and the disruption of the global supply chain, many of which will impact financing structures from a macro perspective. Demand patterns on our economy will have a distorting impact on business and industries, resulting in flow-on effects for supply chains and, by extension, the financing structures that support them.- Read More
MSMEs play a huge role in facilitating economic development, including employment, GDP and exports. In spite of their importance, access to financing is still a significant challenges to growth due to shortages of MSME credit data, also known as ‘thin file’ borrowers. A better methodology of MSME data collection and utilization will encourage countries to relook at their financial inclusion indicators for MSMEs and develop better policies in the direction of improvement.- Read More