Blended Finance for Small Firms
trillion
the unmet financing need of SMEs every year
Source: International Finance Corporation, 2022
⬇
SMEs need tailored support
Post pandemic, SMEs have fewer reserves, the perceived risk of emerging markets is greater, interest rates are at levels not seen for decades and many government budgets are under strain. SME financing needs are more acute than ever.
“SMEs are the most vulnerable sector of the global economy… The EBRD supports SMEs by providing them with the know-how and experience to grow organically, financing provided mostly by commercial entities, and trade facilitation mechanisms which allow them to trade internationally.”
Claudio Viezzoli, Managing Director, SME Finance & Development, European Bank for Reconstruction and Development
Blended models: Trust and communication
Combine funding from development finance institutions, commercial banks, government, or private investment with instruments like guarantees or direct financing to reduce risk and increase access. Trust and better exchange of information are needed. The key to unlocking funding potential is coordination, communication and cooperation to develop and deploy blended models.
“Korea has had great success with government stepping up to improve access (to finance for SMEs). The public sector has introduced mechanisms to raise money from banks or even provide 10-year loans directly at low interest rates.”
Dr Moon-Hwan Kim, Vice President, Korea SMEs and Startups Agency
Access, not just finance
Banks have options to develop SMEs as a key client segment, rather than see them as high-risk. Dedicating more time to understanding SMEs and using techniques to de-risk such as guarantees will expand bank balance sheets and grow SMEs.
“SMEs used to be a part of our retail banking division. In 2021 we opened a dedicated SME division and re-trained our credit analyst section to adapt to SME contexts. We have since significantly increased the number and size of loans going to SMEs – and also improved the performance of those loans.”
Erdenedelger Bavlai, First Deputy CEO, Khan Bank
Fintech improves access
Agile fintech solutions have demonstrated how mobile, accessible models of finance can transform access to finance for small businesses. With increasing mobile penetration across developing regions and rising rates of global literacy, fintech is revolutionizing small-scale banking. Combining banking services with mobile technology democratizes saving, borrowing and financial planning.
“We have a burgeoning, digitally literate youth population, we have expanding infrastructure, and the cost of mobile technology is coming down.”
Hohete-Berhan Arefeaine, Co-Founder and Executive Board Member, African Fintech Network
Match local and regional needs
Funding needs are guided by local conditions. Realities surrounding business policy, trade and shipping logistics, and even cultural conceptions of money and value shape the borrowing and lending landscape. Solutions must match the conditions and needs of those they serve.
“What works in one country may not work in another. Looking at each country independently and looking at the situation regionally is important. Solutions that might struggle in West Africa might succeed in East Africa and vice versa.”
Hohete-Berhan Arefeaine, Co-Founder and Executive Board Member, African Fintech Network
Full session recording
Access to Finance for SMEs
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