IFC Partners Tonga Development Bank to Boost MSMEs, Jobs After Economic Shocks

To help address these challenges, IFC will provide TDB with an unfunded risk-sharing facility of up to USD 3 million equivalent in Tongan pa’anga under IFC’s Small Loan Guarantee Program.

The International Finance Corporation (IFC), the private sector arm of the World Bank Group, has announced a new partnership with the Tonga Development Bank (TDB) aimed at expanding access to finance for micro, small and medium enterprises (MSMEs) and supporting job creation in Tonga, as the country works to recover from recent economic shocks.

Supporting Recovery After Multiple Crises

Tonga’s economy has faced severe disruptions in recent years. The Hunga Tonga–Hunga Ha’apai volcanic eruption triggered a tsunami that caused extensive damage to tourism infrastructure—one of the country’s key economic pillars. This was followed by the COVID-19 outbreak in early 2022, which further strained businesses, reduced income streams and weakened employment prospects.

These shocks have compounded longstanding gaps in access to financial services, particularly for MSMEs, limiting their ability to invest, grow and contribute to economic recovery. Small businesses—often family-owned and community-based—have been among the hardest hit.

Risk-Sharing Facility to Expand SME Lending

To help address these challenges, IFC will provide TDB with an unfunded risk-sharing facility of up to USD 3 million equivalent in Tongan pa’anga under IFC’s Small Loan Guarantee Program. The facility is supported by the International Development Association (IDA) Private Sector Window and the Women Entrepreneurs Opportunity Facility (WEOF).

The guarantee will allow TDB to:

• Expand lending to MSMEs

• Reach underserved and higher-risk borrowers

• Offer more inclusive financial products

• Strengthen support for women-owned businesses

In addition to financial support, IFC will provide technical assistance to enhance TDB’s capacity to better serve MSMEs, improve risk management and strengthen lending operations.

Boosting Jobs, Tourism and Women-Owned Businesses

The risk-sharing facility is expected to generate economy-wide benefits by increasing access to finance for MSMEs, including:

• Women-led enterprises, which often face greater barriers to credit

• Tourism-related businesses, critical for Tonga’s economic recovery

Expanded lending is anticipated to support direct job creation within SMEs and indirect employment through supply chains, service providers and increased economic activity across communities.

Strengthening Local and International Partnerships

“TDB stands ready to offer increased support to our nation’s vibrant entrepreneurs,” said Kaho ‘o Vailahi ‘Ofa, Chief Executive Officer of Tonga Development Bank. “We are delighted to enter this new partnership with IFC, which follows our successful collaboration to introduce the ‘Ave Pa’anga Pau remittance service.”

IFC emphasized the importance of improving access to finance for small businesses in Tonga.“Tongan MSMEs face numerous constraints on their access to finance, stifling their potential contributions to the economy,” said Allen Forlemu, IFC’s Acting Regional Vice President for Asia and the Pacific. “By improving access to finance, this project will catalyze MSME development, support job creation, and help reduce unemployment in Tonga.”

Advancing Inclusive Private Sector Growth

The partnership reflects IFC’s broader commitment to supporting private sector-led growth in small island developing states. By strengthening financial institutions and expanding MSME access to credit, IFC aims to promote resilience, inclusion and sustainable economic recovery in Tonga.