$5.5 billion Committed to MSME financing in Africa

The coalition for a sustainable and inclusive recovery of the private sector(link is external), an international group of 20 development finance institutions that came together in 2020, today announced commitments of over $5.55 billion of financing to micro, small and medium enterprises (MSMEs) in Africa between mid-2020 and end of 2021, beating their set target of $4 billion over the period.

The coalition said it had exceeded its initial target by 40 percent, while development finance institutions jointly committed over $5.55 billion of financing of micro, small and medium enterprises in Africa over the period.

At the first Finance in Common Summit in November 2020, the EDFI Association, on behalf of its 15 European member development finance institutions, together with the African Development Bank, the West African Development Bank (BOAD), FinDev Canada, the U.S. International Development Finance Corporation, and the Islamic Corporation for the Development of the Private Sector, launched the coalition. The Trade and Development Bank joined it soon after.

In response to the unprecedented global health and economic crisis caused by Covid-19, the coalition recognised the critical role development finance institutions play in supporting the crisis response in vulnerable countries.

While micro, small and medium enterprises are the economic lifeblood of emerging and frontier economies, they are also more vulnerable to crises than larger enterprises. In developing countries, formal small and medium enterprises contribute more than one third of gross domestic product and account for 52% of formal employment.

Improved access to finance for micro, small and medium enterprises is critically important to boost growth and the prospects of the 450 million young Africans projected to join the labour market by 2050. The Covid-19 crisis put the viability of micro, small and medium enterprises under acute pressure and efforts to expand inclusive financial solutions are crucial for a successful recovery.

To address this challenge, the coalition’s signatories committed to: deepen cooperation among their institutions; focus on inclusive financial solutions for the private sector; and support clients with technical assistance and advisory services when needed. Consequently, the 1,400 projects contracted demonstrate a strong focus on smaller and inclusive projects as well as on a broad spectrum of small and medium enterprises, from small enterprises/start-ups to mid-sized firms with strong growth potential. In addition, signatories mobilised €23 million of technical assistance, including capacity building and advisory services to MSMEs.

African Development Bank President Akinwumi Adesina said: “Micro, small, and medium-sized enterprises are vital to Africa’s prosperity, representing 90% of all businesses and generating more than half of all jobs. Many small entrepreneurs will tell you that limited access to finance is a major hurdle to growth. The $5.5 billion that we are committing together will go a long way in overcoming this hurdle. I am confident our initiative will make a major contribution to the success of micro, small, and medium-sized enterprises all over Africa. If they grow, we all do.”

The 20 development finance institutions signatories to the coalition are focused on investing in vulnerable countries where Covid-19 has jeopardised decades of achievements with regard to private sector development, job creation and poverty reduction The signatories hold collectively a portfolio of nearly USD 90 billion committed to private sector operations in low and middle-income countries, supporting more than 12 million direct jobs, with over 40% of this in Africa.

Source: AFDB