Small and Medium Enterprises
AT A GLANCE Small and medium enterprises (SMEs) account for 97 percent of businesses and over 50 percent of employment worldwide. A thriving SME sector can drive growth and jobs in developing countries. However, access to financial services for SMEs remains severely constrained in many emerging markets. The World Bank Group provides support for SMEs in two ways: we work primarily with private sector partners to target financial and knowledge bottlenecks to get finance and business support for SMEs. We also work with governments to create a better investment climate for SMEs.
IMPROVING ACCESS TO FINANCE FOR SMEs Increasing access to finance for SMEs is best achieved by market-driven mechanisms that build depth and breadth of local financial markets and competitiveness of the private financial sector. IFC is active in this area through investments and accompanying advisory support, using a “wholesaling” approach, i.e. working through existing financial intermediaries. In fiscal 2009, IFC’s committed SME finance portfolio was $6.1 billion. By December 31, 2008, IFC investee banks had an outstanding SME portfolio of $90.6 billion, comprising 1.3 million loans. In addition, IFC’s trade finance included 1,534 SME transactions in FY09, with a value of $1.204 billion, and IFC has a portfolio of 77 equity funds targeting SMEs, with $765 million committed and 774 SMEs financed to date. Over 70 percent of IFC’s Advisory Services portfolio benefits SMEs. The World Bank and IFC are working together to support microenterprise and SME development in seven Sub-Saharan African countries, mobilizing IDA and IFC instruments to increase access to finance, implementing capacity-building measures and focused business environment reforms. IFC’s focus on increasing access to financial services for SMEs includes our diagnostic work, such as SME Banking CHECK, used to assess and structure our Advisory Services and conduct a “health check” in times of crisis. IFC’s SME Banking Benchmarking Online Survey allows banks to compare themselves against peer banks, helping them improve their SME-lending operations.
BUILDING A BETTER ENVIRONMENT Starting a business in low-income countries takes on average 47 days, and costs 116.5 percent of per capita gross national income (GNI), by comparison with 21 days and 7.3 percent in OECD countries. In the most challenging cases, it takes more than 100 days, and more than twice per capita GNI, to start a business— likely an insurmountable barrier for many would-be entrepreneurs. IFC diagnostics, such as the Enterprise Surveys and Doing Business, pinpoint critical investment climate constraints and regulatory barriers and track reform efforts. An active research program studies trends, drivers, and constraints for access to finance by SMEs. World Bank investment climate lending (reaching over 60 countries in FY09) covers both broad investment climate support, and projects focused on strengthening value chains and improving frameworks for technology and innovation support. IFC is working actively on the investment climate in 69 countries, with business simplification start-up programs in 39 countries. The World Bank Group also has a growing program of advisory and investment support to strengthen payment systems (including for remittances), collateral systems, and credit information systems. These services, which support over 100 countries, aim to improve information flows, strengthen property rights, and reduce transaction costs, which in turn facilitate access to finance for SMEs.
IFC Issue Brief / Small and Medium Enterprises 1
SMEs AS PART OF CRISIS RECOVERY
The World Bank Group is stepping up its support to SMEs, both to help mitigate the impact of the crisis and to better position SMEs as leaders of economic recovery. IFC’s bank capitalization and trade finance facilities seek to bridge financing gaps that could prove fatal for SMEs, and the World Bank is expanding lines of credit and partial credit risk guarantees targeting SMEs. IFC’s advisory work includes efforts to help financial institutions weather the crisis and reduce the likelihood of a long-lasting credit crunch on SMEs, e.g. through programs on risk management and nonperforming loans. IFC has a focused on growing its SME portfolio. Along with its partners, IFC expects to set stretch goals that would amount to a doubling of SME lending by 2013.
Updated August 2009 Media contact: Lotte Pang, E-mail: LPang@ifc.org, Phone: (202) 758-4290
IFC Issue Brief / Small and Medium Enterprises
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