SME Finance Working
Group (SMEFWG)

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 businesses account for 28 percent of businesses and 32 percent of the MSME finance gap, the latter of which the 2017 MSME Finance GAP estimated at USD1.7 trillion. Across all regions, women entrepreneurs have lower access to finance than their male counterparts, due to structural or other barriers impeding women access to formal financial services, as well as inadequate knowledge of women financial services. Thus restrict the optimum potential of women MSMEs in contributing to the country’s economy.

From the demand-side, women- MSMEs face various business and social challenges (e.g. nature, size, culture, socio-demographic and geography) as well as financial inclusion challenges (e.g. access, usage, affordability, awareness, financial literacy, social norms and safety). Hence, deliberate policy intervention to address these barriers will harness the economic potential of women to start and run MSMEs and expand existing MSMEs access to finance.

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		2013	2014	2015	2016	2017	2018	2019	2020	2021	2022
SMEF Maya Declaration commitments by AFI members	Maya Declaration targets	6	10	11	48	55	55	64	65	68	71
	Completed	4	6	6	20	23	23	30	33	37	41
	In progress	2	4	5	28	32	34	34	32	31	30
	Completion rate	67%	60%	55%	42%	42%	38.2%	47%	51%	54%	58%

• Exchange knowledge and establish a common understanding of policies that promote tangible access, usage and quality of financial services for MSMEs.
• Identify policy frameworks learned from different regions and different actors both from demand- and supply-side involved in spurring the viability and financial inclusion of MSMEs, with a specific but not exclusive focus on financial sector policies.

MSME Alternative Finance Subgroup:

Develop alternative finance policies for MSMEs to facilitate the significant credit gap by utilising on the existing NBFIs financial products such as leasing and factoring. Also, leverage on FinTech and digitalization focusing on online financing platform like crowdfunding and peer-to-peer (p2P) and alternative credit scoring for better credit assessment.

• Planned deliverable: Alternative Credit Assessment: Facilitates Access to MSME Financing

Gender Inclusive Finance Subgroup:

Women MSMEs represent approximately 35 percent (8 million to 10 million) of MSMEs in developing and emerging markets. Despite improvement in financial inclusion globally, a gender gap of seven percentage points is unchanged since 2011 (65% of women have an account compared with 72% of men – Global Findex Database 2017). The value loss for the global economy is significative, with a credit gap estimated at $320 billion for women entrepreneurs. On one hand, women MSMEs face various business and social challenges (nature and size, culture, socio-demographic, geography) as well as financial inclusion challenges (access, usage, affordability, awareness, financial literacy, social norms, safety). On the other hand, economic opportunities arise from women MSMEs.

Planned deliverable: Policy Catalogue for Women Financial Inclusion and Economic Empowerment (final draft), Digital Financial Services for Women-led MSMEs in the Latin Region (first draft) and Special Report on Islamic Finance and Women- MSMEs (new)

Green Credit Guarantee Scheme Subgroup:

Development of green markets for MSMEs is challenged by a lack of policy and regulatory guidance as well as economic efficiency (i.e. projects which produce social returns but insufficient private returns given the perceived risks).  Credit guarantee schemes can help to bridge the initial phase of uncertainty of MSME financing of green projects by:

• Improving the bankability of transactions where collateral is poor.
• Encouraging lenders to provide financing to target groups by sharing credit risk.
• Creating market learning opportunities for green business and technologies.
• Improving the ability of lenders to price risk for MSMEs and green projects.
• Helping banks to initiate and grow their green lending business by revealing new clients.
• Planned deliverable: Green Credit Guarantee Schemes for MSMEs: AFI Special Report (final draft)

Microfinancing for MSMEs:

Microfinance acts as a tool to address the needs of underserved groups such as low-income or unemployed individuals who cannot access traditional financial services provided by banks. 85% of microfinance customers are women. Most microfinance institutions focus on offering credit in the form of small working capital loans, sometimes called microloans or microcredit. Now nearing 2 years into the pandemic, the focus has shifted away from immediate liquidity needs to building a stronger and more resilient microfinance sector. This is a new subgroup that will perform the activity in 2022 based on the support and request from members.

• Planned deliverable: Transitioning MFI Business Models:  Traditional, FinTech-based, and Islamic Microfinancing Other planned deliverables: Credit Guarantee Schemes (CGSs) in Africa: Facilitating MSMEs during COVID-19 (first draft)

2022

• SME Finance Guideline Note (V.2)
• Credit Guarantee Schemes: Facilitating MSME Financing in Africa During the COVID-19 Pandemic
• Survey Report on FinTech for MSME Access to Financing (V.2)

2021

• Alternative Financing in the Republic of Belarus: Leveraging on Leasing for MSME Financing
• Bringing the Informal Sector Onboard (Toolkit)
• Bringing the Informal Sector Onboard (Guideline Note)
• Policy Model for MSME Finance
• Agricultural MSME Financing in Uganda: A Response to COVID-19
• Policy Framework on MSME Data Collection: A Guide for Gender Inclusive Finance
• Data Collection Processes and Defining Micro, Small and Medium Enterprises

2020

• SME Finance Responses to COVID-19 in AFI Member Countries
• Inclusive Green Finance Policies for MSMEs
• Financial Education for the MSMEs: Identifying MSME Educational Needs
• Scoping and Assessment Report – MSME Access to Finance Ecosystem in Africa
• Survey Report on Alternative Financing for MSMEs

2019

• Case Study: Gender, Women’s Economic Empowerment and Financial Inclusion in Zimbabwe

2018

• Case Study:Agricultural Finance Intervention in the Kingdom of Eswatini
• Case Study: Agricultural Finance Intervention in Ghana

2017

• Case Study:: Meeting the financial needs of the agriculture sector through prudentially regulated SACCOs in Kenya
• Survey Report: Defining Small and Medium Enterprises in the AFI Network
• Survey Report on SME Finance Policies for Micro, Small and Medium Enterprises (MSMEs) Owned by Women and Women Entrepreneurs
• Case Study:Expanding Women’s Financial Inclusion in Bangladesh through MSME Financial Policies

2016

• Guideline Note 23: The Role of Financial Regulators in Promoting Access to Financing more MSMEs: Lessons from the AFI Network

2015

• Guideline Note 16: SME Financial Inclusion Indicators Base Set

2014

• Enhancing SME Access to Finance (Joint Paper with GPFI)