SMEs in developing economies face $2 trillion financing gap – IFC

Micro small and medium enterprises (MSMEs) in developing economies are faced with about $2 trillion gap in terms of financing, a major report has revealed.

According to the International Finance Corporation (IFC) study titled “Closing the Credit Gap for Formal and Informal Micro, Small, and Medium Enterprises”, the amount in the gap is about one-third of outstanding MSME credit in these countries.

Findings by the study released October 16, 2013 indicated that over 200 million formal and informal MSMEs in developing countries are estimated to be either unserved—do not have a loan or overdraft—or underserved—have a loan or overdraft, but still find access to finance as a constraint.

It said an estimated 80% of all enterprises in developing economies—about 300 million of them—are informal MSMEs or non-employer firms.

It adds “these firms, together with formal microenterprises, account for more than 90 percent of all unserved MSMEs in developing economies.”

“MSMEs face many obstacles in developing economies, however, access to finance remains by far the biggest obstacle to their growth to date,” said Peer Stein, Director of IFC’s Access to Finance Advisory Services.
According to Stein, about two-thirds of full-time jobs in developing economies are provided by MSMEs, and therefore urgent action is essential in meeting their financing needs.

The study also identified a number of potential improvements in the financial sector infrastructure that can significantly improve access to finance by ensuring accessibility of credit information, enabling movable collateral, and strengthening creditor rights, thus making it less costly and more efficient for financial institutions to lend to MSMEs clients.

By Ekow Quandzie