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Financing Gap for Small Firms in Developing Economies Remains Close to $2 Trillion, New IFC Study Says


In Washington, D.C.:
Sona Panajyan
Phone: (202) 473-9751
E-mail: spanajyan@ifc.org

Washington, D.C., October 16, 2013—IFC, a member of the World Bank Group, released today a new study, Closing the Credit Gap for Formal and Informal Micro, Small, and Medium Enterprises that reports on the state of the credit gap for micro, small and medium enterprises (MSMEs) in developing economies. The report draws on additional data on the sizable informal enterprise sector, building on previous research in 2010 where estimates on the MSME financing gap were made for the first time.



Study findings indicate that the financing gap for MSMEs in developing economies remains around $2 trillion, which is about one-third of outstanding MSME credit in these countries. Over 200 million formal and informal MSMEs in developing countries are estimated to be either unserved—do not have a loan or overdraft—or underserved—have a loan or overdraft, but still find access to finance as a constraint. An estimated 80 percent of all enterprises in developing economies—about 300 million of them—are informal MSMEs or nonemployer firms. These firms, together with formal microenterprises, account for more than 90 percent of all unserved MSMEs in developing economies.

“MSMEs face many obstacles in developing economies, however, access to finance remains by far the biggest obstacle to their growth to date,” said Peer Stein, Director of IFC’s Access to Finance Advisory Services. “On average, about two-thirds of full-time jobs in developing economies are provided by such firms, therefore, urgent action is essential in meeting their financing needs.”

The study also identifies a number of potential improvements in the financial sector infrastructure that can significantly improve access to finance by ensuring accessibility of credit information, enabling movable collateral, and strengthening creditor rights, thus making it less costly and more efficient for financial institutions to lend to MSMEs clients. In this regard, better information and data are key to understand the demand and better segment the informal market, enabling the design of custom-tailored interventions depending on the capacity and willingness of the firms to formalize.


One such key source of information is the IFC Enterprise Finance Gap Database, launched today and publicly available on SME Finance Forum web site (www.smefinanceforum.org). The database is the most comprehensive source of data on number of formal and informal MSMEs along with the size of the credit gap and deposit gap, for 177 countries, segmented by firm size and ownership.

“The web site for the database also offers a new data visualization tool that can help financial institutions, policy-makers and researchers quickly understand and analyze the unmet financing needs of MSMEs,” said Matt Gamser, Head of the SME Finance Forum housed at IFC. “This will facilitate a more comparative analysis of the financing gap by region and country.”

The IFC Enterprise Finance Gap Database can be accessed at: http://financegap.smefinanceforum.org.

About IFC
IFC, a member of the World Bank Group, is the largest global development institution focused exclusively on the private sector. Working with private enterprises in more than 100 countries, we use our capital, expertise, and influence to help eliminate extreme poverty and promote shared prosperity. In FY13, our investments climbed to an all-time high of nearly $25 billion, leveraging the power of the private sector to create jobs and tackle the world’s most pressing development challenges. For more information, visit
www.ifc.org.
 
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