As both developed and emerging market economies struggle to recover from the first phase of the Covid emergency, finding new ways to channel financial support to small and medium-sized enterprises becomes ever more urgent.
The World Bank points out that SMEs account for 50% of employment globally, but are less likely to be able to obtain bank loans than large firms. Instead, they rely on internal funds or cash from friends and family to launch and initially run their enterprises.
The International Finance Corporation (IFC) estimates that 65 million firms, or 40% of formal micro, small and medium-sized enterprises (MSMEs) in developing countries, have a total unmet financing need of $5.2 trillion every year, equivalent to 1.4 times the current level of the global MSME lending.
In developed markets too, the inability of banks to provide sufficient lending to bridge SMEs through the lockdowns soon became evident in the second quarter of 2020.
Banks aren’t good at lending to SMEs at the best of times. They made it clear that regulations forbade them to overburden companies with loans they couldn’t repay and pressed governments to guarantee higher proportions of such emergency credit.
