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SME Finance Working
Group (SMEFWG)

SME Finance Working
Group (SMEFWG)

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 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 area20132014201520162017201820192020

SMEF Maya Declaration commitments by AFI members
Maya Declaration targets610114855556465
Completed4662023233033
In progress2452832343432
Completion rate67%60%55%42%42%38.2%47%51%

 

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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.

62
Member
Institutions
61
Countries
51
Policy
Changes
28
Knowledge
Products

Chair

Ellen Joyce L. Suficiencia, Bangko Sentral ng Pilipinas

Co-Chair 1

Dr. Emma Haiyambo, Bank of Namibia

Co-Chair 2

Ismail Adam, Bank of Ghana

Gender Focal Point

Lilliana Orozco Vindas, SUGEF Costa Rica

  • 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

2021

2020

2019

2018

2017

2016

2015

2014

  • Ministry of Finance of Eswatini
    Regulatory Framework for Development Finance in the Kingdom of Eswatini
  • Bank of Zambia
    Pricing of Products and Services by FSPs
  • Central Bank of Solomon Islands
    MSME Bill and Business Loan Guarantee Scheme Framework & MSME Policy Performance Monitoring Framework
  • Reserve Bank of Vanuatu
    Micro, Small, Medium Enterprises (MSME) – Finance Survey: Vying the MSMEs Survey Challenges for ways forward
  • Royal Monetary Authority of Bhutan
    Regulations for Deposit Taking Micro Finance Institution (MFI) in Bhutan.
  • National Treasury of the Republic of South Africa
    South Africa’s SME Finance Infrastructure Projects — Partial Credit Guarantee System, Movable Assets Registry and Small Enterprise Shared Credit Information Services.
  • Banco Central de Reserva de El Salvador
  • Banco Central de Timor-Leste
  • Banco Central del Paraguay
  • Banco de Moçambique
  • Banco Nacional de Angola
  • Bangko Sentral ng Pilipinas
  • Bangladesh Bank
  • Bank Al-Maghrib
  • Bank Negara Malaysia
  • Bank of Ghana
  • Bank of Namibia
  • Bank of Papua New Guinea
  • Bank of Sierra Leone
  • Bank of Tanzania
  • Bank of Thailand
  • Bank of Uganda
  • Banque Centrale de Mauritanie
  • Banque Centrale de Tunisie
  • Banque Centrale des Etats de l’Afrique de l’Ouest (BCEAO)
  • Banque Centrale du Congo
  • Banque de la République d’Haiti
  • Banque de la République du Burundi
  • Central Bank of Armenia
  • Central Bank of Egypt
  • Central Bank of Eswatini
  • Central Bank of Iraq
  • Central Bank of Jordan
  • Central Bank of Lesotho
  • Central Bank of Liberia
  • Central Bank of Nigeria
  • Central Bank of Samoa
  • Central Bank of Seychelles
  • Central Bank of Solomon Islands
  • Central Bank of Sri Lanka
  • Central Bank of The Gambia
  • Central Bank of the Republic of Uzbekistan
  • Central Bank of the Russian Federation
  • Centrale Bank van Suriname
  • Comisión Nacional Bancaria y de Valores de México (CNBV)
  • Direction Générale du Trésor, Ministère de l’Economie et des Finances, Madagascar
  • Financial Regulatory Commission of Mongolia
  • Maldives Monetary Authority
  • Ministère des Finances et du Budget du Sénégal
  • Ministry of Finance – Eswatini
  • Ministry of Finance Zambia
  • National Bank of Cambodia
  • National Bank of Rwanda
  • National Bank of Tajikistan
  • National Bank of the Republic of Belarus
  • National Reserve Bank of Tonga
  • Nepal Rastra Bank
  • Palestine Monetary Authority
  • Reserve Bank of Fiji
  • Reserve Bank of Malawi
  • Reserve Bank of Vanuatu
  • Reserve Bank of Zimbabwe
  • Royal Monetary Authority of Bhutan
  • Sacco Societies Regulatory Authority (SASRA) Kenya
  • Superintendencia de la Economía Popular y Solidaria de Ecuador
  • Superintendencia General de Entidades Financieras de Costa Rica (SUGEF)
 201320142015201620172018201920202021
Events1st: Kuala Lumpur, Malaysia2nd: 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
Member Institutions283951474947515858
Knowledge Products
(aggregate)
023488111323
Policy Changes
(aggregate)
1272743476784TBD
Peer Reviews
(aggregate)
012335107TBD

Webinars

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.

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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.

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