Small and Medium Enterprises (SMEs) Finance

Overview

Small and medium enterprises (SMEs) are the backbone of most economies, representing around 90 percent of all businesses and accounting for more than half of global employment. In developing countries, SMEs are central to economic diversification, productivity, and poverty reduction. Yet, they face persistent challenges in obtaining the financing needed to start, sustain, and grow.

Over the next decade, an estimated 1.2 billion young people will reach working age, but only about 420 million jobs are expected to be created. This leaves hundreds of millions without a clear path to employment, with far-reaching social and economic implications. Expanding access to finance for SMEs is essential to enable private investment, productivity growth, and stronger local economies.

Beyond income, access to finance unlocks opportunity. It enables entrepreneurs to innovate, expand, and hire, empowering women and youth and strengthening communities. Women, in particular, reinvest much of their earnings into their families and local economies, creating a powerful multiplier effect. Supporting SMEs—especially women-owned and youth-led enterprises—is thus central to building inclusive and sustainable growth.

SME Finance Gap

Access to finance remains one of the greatest barriers to SME growth. The latest IFC–World Bank MSME Finance Gap Report (March 2025) estimates that across 119 emerging markets and developing economies (EMDEs), there is a finance gap of about US$5.7 trillion, equivalent to 19 percent of GDP and 20 percent of total private sector credit.

The study finds that 40 percent of formal MSMEs are credit-constrained, with 19 percent fully and 21 percent partially constrained. Among these, women-owned MSMEs face a gap of about US$1.9 trillion, or 34 percent of the total. Informal enterprises generate an additional US$2.1 trillion in unmet demand for finance, equivalent to around 8 percent of GDP in developing economies.

Between 2015 and 2019, the MSME finance gap grew by more than 6 percent annually, even as the supply of credit increased by 7 percent. Updated global estimates for 2023 are expected to be available by November 2025.

Formal MSME Finance Gap in Developing Countries

What We Do

A central focus of the World Bank Group’s work is to expand access to finance for small and medium enterprises (SMEs) and to find innovative ways to unlock new sources of capital. Expanding SME finance enables investment, innovation, and productivity, particularly among underserved segments such as women-owned and youth-led enterprises.

The World Bank’s approach combines advisory and lending services to help countries strengthen their financial sectors and create conditions for SMEs to grow. This includes policy reforms, institutional development, and operational solutions that enhance the capacity of financial institutions and the broader ecosystem supporting SME finance. A key element of this work is mobilizing private capital—leveraging public sector resources and development finance to attract commercial lending and investment into the SME sector. By helping to improve the enabling environment and by designing effective targeted financial interventions the Bank helps crowd in private funding and build sustainable markets for SME finance.

Recognizing the transformative role of technology, the World Bank also supports efforts to expand digital public infrastructure, promote open finance, and enable the use of alternative financial products such as peer-to-peer lending, crowdfunding, and embedded finance. These innovations are reshaping SME financing, allowing small firms to access working capital more quickly and at lower cost while improving transparency, efficiency, and credit risk management.

Advisory and Policy Support

The World Bank helps governments create an enabling environment where SMEs can thrive, combining financial-sector reforms with innovation-driven solutions. This includes:

• Financial sector assessments to identify reforms that improve SME access to finance;

• Strengthening credit infrastructure such as credit reporting systems, secured transactions and collateral registries, and insolvency regimes;

• Supporting the adoption of open banking, digital payments, and interoperability frameworks that lower transaction costs and expand reach;
  

• Promoting innovation in SME finance, including digital lending platforms, alternative credit scoring using data analytics, e-invoicing, e-factoring, supply-chain finance, IP backed finance, digitizing trade finance and Agri finance;

• Policy, analytical, and advisory work to build institutional capacity and ensure proportionate, innovation-friendly regulation;

• Global advocacy through participation in the G20 Global Partnership for Financial Inclusion, the Financial Stability Board, and the International Committee on Credit Reporting;

• Knowledge management and flagship publications on good practices and scalable models.

Lending Operations

The World Bank provides financing to expand SME lending and support the development of sustainable financial institutions. Key facilitated instruments include:

• SME Lines of Credit that facilitate dedicated, often longer-term, financing to support SME investment, growth, and diversification;
  

• Partial Credit Guarantee Schemes (PCGs) that help unlock private lending by mitigating credit risk and attracting more financing to the SME sector;

• Early-Stage and Innovation Finance that offers equity, quasi-equity, or hybrid instruments to start-ups and high-growth firms, often in partnership with fintech platforms and venture funds.

These instruments complement efforts to modernize financial infrastructure, foster digitalization, and strengthen the capacity of banks and non-bank financial institutions to serve SMEs effectively and responsibly.

Partnerships and Impact

The World Bank Group works with governments, central banks, financial institutions, fintech providers, and development partners to improve SME access to finance through policy reform, financial support, and knowledge sharing. Collaboration with the SME Finance Forum, IFC, and other multilateral and bilateral partners helps scale innovative solutions that leverage technology and data to reach underserved SMEs.

Last Updated: Oct 07, 2025