MSMEs make up over 90% of all firms and account, on average, for 70% of total employment and 50% of GDP worldwide. The SME finance gap now stands at $5.7 trillion – a number that swells to $8 trillion when informal enterprises are included.
- SME Finance
- Microfinance
A worker rolling a spool of cable across the factory floor at Reroy Cables, an IFC beneficiary in Tema, Ghana. © Nyani Quarmyne, Panos/IFC
Access to financial services is key for economic development. Savings, insurance, and basic payment services improve livelihoods, increase growth, and foster innovation. Through its Financial Institutions Group (FIG), IFC helps to increase the availability and affordability of financial services, particularly to MSMEs.
IFC works across emerging markets to improve financial infrastructure and scale new tools to deliver impactful financial products and services for MSMEs. Working through financial intermediaries, IFC provides access to finance for millions of MSMEs that would be challenging to reach directly. IFC has launched innovative and complementary platforms targeting MSMEs, including enhancing bank risk appetite for SME on-lending, supporting micro-borrowers, increasing access to trade finance, and support to supply chain finance.
IFC enables digital and embedded financial service providers to better serve MSMEs by partnering with innovative banks, FinTechs, and digital platforms. IFC also works with financial intermediaries to provide training, mentoring, networking, and access to markets. These non-financial services have been shown to benefit the MSMEs as well as the financial institutions that serve them and are particularly impactful for women entrepreneurs who face constraints related to knowledge and networking.
Malti Devi speaks to neighbors and members of her lending group in Belwa Village, India. © Dominic Chavez / International Finance Corporation
IFC plays a major role in creating efficient microfinance markets and is the largest international funder in the sector. Financial inclusion, particularly microfinance, enables the poor to start saving, access basic payment services, build businesses, and strengthen communities. Through our Financial Institutions Group (FIG), IFC helps to increase the availability and affordability of financial services, particularly to micro, small, and medium enterprises.
While microfinance helps to expand job opportunities, concerns about over-indebtedness, data privacy, financial literacy, among other issues can put customers at risk in some markets. IFC leads and supports global efforts to advance responsible finance practices, which means providing transparent, inclusive, and customer-centered products and services. By doing so, IFC is helping to mitigate customer risks and build financial resilience, both of which are foundational to sustainable and prudent growth.
IFC supports responsible finance practices by:
- Conducting due diligence on its partner institutions, including to ensure they have know-your-customer (KYC) procedures in place.
- Working with partner institutions and stakeholders to incorporate responsible finance practices in key aspects of business operations, including training and capacity building, risk management efforts and digital finance strategies.
- Collaborating with private sector investors and innovators in digital finance to refine evolving actions in the Guidelines for Responsible Investing in Digital Financial Services.
Disruptive technologies are radically changing the financial services industry, forcing traditional microfinance business models to adapt and changing the economics of delivery to benefit the unserved and underserved. This presents opportunities and challenges for the sector, and IFC actively champions and supports responsible, innovative solutions and partnerships that can reach the underserved. Since 2007, IFC expanded its microfinance portfolio to include engagements in digital financial services (DFS). Through a seven-year joint initiative with the Mastercard Foundation, IFC reached an additional 100 million adults through DFS in Sub-Saharan Africa.
Despite progress, 1.7 billion adults lack access to basic transaction accounts. Those without access are largely concentrated in Asia and Sub-Saharan Africa and are disproportionately poor and female. In emerging markets, 70 percent of micro, small and medium-sized enterprises (MSMEs) lack adequate financing to thrive and grow. The financing gap for formal MSMEs is an estimated $5.2 trillion and for informal MSMEs its $2.9 trillion.
IFC will continue to help create efficient microfinance markets by focusing on the following:
- Building sustainable financial service providers that reach the un- and underserved.
- Supporting digital innovations that responsibly expand access and inclusion.
- Reaching persistently un- and underserved and vulnerable populations, particularly in fragile and conflict-affected states and IDA countries.
- Creating solutions that address real sector challenges and prevent structural exclusion.
IFC is a founder and lead implementing partner of the G20 Global Partnership for Financial Inclusion as well as a co-founder of the sector-wide Responsible Finance Forum.