Boosting Small and Medium Size Business Finance for Growth and Job Creation

Small and medium size enterprises (SMEs) are essential for creating jobs, representing 9 out of 10 businesses, and more than 50% of employment in emerging markets and developing economies. Access to finance is a key constraint for creating new firms, enabling them to grow, become more productive and create more jobs. It is particularly a challenge for women-led businesses. This session, featuring voices from both government and the private sector, explored critical policy actions to bridge the financing gap for small businesses and enable the World Bank to meet its commitment to provide 80 million more women and women-owned businesses with capital by 2030.

Financial services have changed dramatically in recent years, driven by the rise of mobile technology, digital platforms, and fintech innovations. These tools are opening new doors for entrepreneurs and small businesses—particularly those without traditional collateral or credit histories—by allowing different mechanisms to assess SMEs creditworthiness, lowering transactions costs and expanding the range of financial providers serving SMEs and the range of products offered.

Panelist Recommendations

• Governments should ensure that the enabling environment is in place, including laws and regulations that allow a wide range of financial providers to enter the market and operate under risk-based regulation and supervision, including not just banks, but also cooperatives, microfinance institutions and FinTech lenders, as well as the development of a range of financial products. This would foster competition and increased outreach to underserved businesses.  
• Financial technology, and the generation and use of alternative data, including through digital public infrastructure and digital payments, can be a game changer. Alternative data can help to build a credit footprint and unlock access to credit.

• But for many EMDEs, public financial support programs are also necessary to foster greater outreach of financial institutions, including derisking mechanisms, such as public credit guarantee schemes, which can help align the risk- appetite of financial institutions and increase private sector finance of SMEs.
• Governments can also foster greater access to equity financing for innovative start-ups by establishing investment programs, to bring scale and provide confidence to investors. These investment programs should be implemented based on private sector structures, for example, investing through private funds, to encourage private capital investment.
• For small countries, considering regional solutions/platforms is critical to bring the scale necessary to attract investors.
• Support for the ecosystem of firms providing services to SMEs should also be considered. In the case of equity financing, this also includes programs to build management capacity, such as incubators and accelerators.
• Addressing the challenges women face in getting finance requires the development of tailored financial solutions and in some cases, targeted public support programs.