IFC Launches Call for Financial Services Providers to Expand MSME Access to Financing

MSMEs are a vital part of the global economy, making up over 90% of all businesses and employing roughly 70% of the workforce globally, accounting for 50% of the world’s GDP.

In an effort to boost economic growth and job creation, the International Finance Corporation (IFC) has officially launched a call for eligible financial services providers (FSPs) to become intermediaries under its Catalytic First Loss Guarantee Facility, a key initiative of IFC’s Micro, Small, and Medium Enterprise (MSME) Finance Platform. This facility is designed to increase access to financing for MSMEs, with a particular focus on women-owned businesses, agricultural enterprises, and climate financing projects.

The primary goal of the Catalytic First Loss Guarantee Facility is to provide risk mitigation in the form of a first-loss guarantee, which will incentivize FSPs to scale up their lending to MSMEs in emerging markets. By reducing the financial risk for lenders, this initiative aims to open up more avenues for MSMEs to access crucial funding, which is essential for their growth and sustainability. The facility is part of IFC's broader strategy to help bridge the $5.7 trillion financing gap faced by MSMEs worldwide, a number that grows to a staggering $8 trillion when informal enterprises are included.

MSMEs are a vital part of the global economy, making up over 90% of all businesses and employing roughly 70% of the workforce globally, accounting for 50% of the world’s GDP. Despite their critical role, MSMEs often face significant barriers to accessing financing, limiting their ability to grow, create jobs, and contribute to economic development. The IFC's new initiative seeks to address this gap by testing new products, services, and risk criteria for key market segments, with the aim of demonstrating the commercial viability of financing for these enterprises.

“We are excited by the opportunity to partner with local financial services providers to mobilize local currency to extend credit to underserved MSMEs. Expanding access to finance for MSMEs contributes to GDP and boosts exports, helps create and sustain jobs, and is crucial in supporting a key engine of growth in emerging markets,” said Adel Meer, Global Manager for Financial Inclusion at the IFC.

The Catalytic First Loss Guarantee Facility will focus particularly on facilitating access to finance for women-owned businesses and agricultural projects, as these segments are often underfunded. It is expected to help promote gender equality and support sustainable agricultural practices, both of which are critical for the economic resilience of developing countries.

Eligible financial services providers (FSPs) for the program include regulated banks, non-bank financial institutions, digital lenders, leasing companies, and microfinance institutions that are authorized to conduct lending or leasing activities in their respective countries. To participate in the initiative, FSPs must meet IFC’s qualification criteria, which include demonstrating financial capability, operational readiness, and a positive environmental and social risk rating (ESRR). Additionally, FSPs will need to meet the IFC’s Integrity Due Diligence (IDD) standards, ensuring that their business practices align with global best practices.

The IFC’s commitment to strengthening the financial inclusion of MSMEs comes at a time when the world is grappling with the economic challenges posed by the COVID-19 pandemic. Many MSMEs, particularly those owned by women or focused on agriculture and climate projects, have struggled to recover from the economic downturn, making access to financing even more critical. This new initiative aims to provide a lifeline to these businesses, helping them recover, grow, and thrive.

With over 90% of businesses worldwide falling under the MSME category, the potential impact of expanding access to financing is enormous. These businesses are the backbone of many economies, particularly in developing countries, where they play a crucial role in creating jobs, driving exports, and contributing to overall economic growth.

As part of its broader mission to support the growth and sustainability of MSMEs, IFC has also been working on developing financial products and services tailored to the specific needs of these businesses. The Catalytic First Loss Guarantee Facility is just one of the many initiatives being rolled out to ensure that MSMEs have the support they need to succeed in today’s rapidly evolving global marketplace.

In summary, the IFC’s call for eligible financial services providers to participate in its Catalytic First Loss Guarantee Facility represents a significant step forward in addressing the financing challenges faced by MSMEs worldwide. By providing financial guarantees and fostering innovation in lending practices, IFC aims to unlock new sources of capital for underserved businesses, particularly those owned by women and operating in agriculture and climate-focused sectors. This initiative has the potential to transform the financial landscape for MSMEs, enabling them to contribute more effectively to economic growth and job creation.