The World Bank’s private finance arm, the International Finance Corporation (IFC), launched a $4 billion program on Tuesday, May 28, aimed at small businesses in emerging markets, according to a CNBC Africa report. The initiative focuses particularly on women-owned firms and those in the agriculture and climate sectors, recognizing these businesses’ pivotal role in driving economic growth and sustainability.
The IFC’s program aims to provide funds to various financial institutions, including banks, non-bank financial institutions, microfinance institutions, and innovative digital lenders. These institutions will then loan to micro, small, and medium-sized enterprises (MSMEs).
The initiative also seeks to attract an additional $4 billion from the private sector by utilizing credit enhancements, which reduce the risk for private investors and encourage their participation.
“Micro, small, and medium enterprises form the backbone of most developing economies, yet they face significant financial barriers that hinder their potential,” said IFC Managing Director Makhtar Diop.
Indeed, MSMEs constitute more than 90% of all firms globally, account for 60-70% of total employment, and contribute about 50% of GDP. Despite their critical role, the SME Finance Forum estimates an annual financing gap of approximately $5.7 trillion.
Several factors have increasingly hampered MSMEs’ access to finance. Tighter credit conditions, rising interest rates, and declining risk appetite among mainstream lenders have created significant barriers. To address these challenges, the IFC plans to offer to take the first loss on loans, thereby de-risking the lending process and encouraging financial institutions to extend credit to these businesses.
The International Development Association (IDA) will contribute up to $100 million to help the platform manage credit and foreign currency exposures. This additional support further reduces the perceived risks of lending to MSMEs in emerging markets.
The IFC’s new financing platform is designed to address these financial challenges directly. Empowering financial service providers aims to extend critical support to MSMEs, particularly women-led or focused on environmental sustainability. This support is essential for fostering innovation, promoting gender equality, and enhancing climate resilience
For African countries, access to climate funding is particularly vital. The continent faces unique environmental challenges that exacerbate poverty and hinder economic development. Climate funding can help African nations implement sustainable practices, invest in renewable energy, and develop infrastructure resilient to climate impacts.
The IFC’s program can drive significant progress towards these goals by supporting MSMEs in the agriculture and climate sectors. These businesses are often at the forefront of adopting sustainable practices and technologies to mitigate climate change effects and promote environmental sustainability.
By addressing the financial barriers these enterprises face, the initiative supports economic growth and contributes to sustainable development and climate resilience in African countries. The program’s success could serve as a model for similar initiatives worldwide, highlighting the critical role of targeted funding in addressing global challenges.