IFC AND SMALL AND MEDIUM ENTERPRISES AT A GLANCE income and frontier countries. IFC has worked with clients in challenging environments such as Chad, • Small and medium enterprises (SMEs) account for Guinea, and remote areas of India. about 90 percent of businesses and more than 50 • s of December 2011, IFC’s committed SME finance A percent of employment worldwide. They are key portfolio through financial intermediaries was engines of job creation and economic growth in $9.6 billion, excluding trade finance. By December developing countries, particularly following the 31, 2010, IFC investee banks had an outstanding SME global financial crisis. portfolio of $127.8 billion, comprising 1.7 million • Creating opportunities for SMEs in emerging markets loans. In addition, In fiscal 2011, IFC’s trade finance is a key way to advance development and reduce included approximately $3.4 billion in SME poverty, and a strategic priority for IFC. transactions. About 60 percent of IFC Advisory • ccess to financial services for SMEs remains severely A Services portfolio benefits SMEs. constrained in many emerging markets in the wake • I ncreasing access to finance for SMEs is a key focus of the global financial crisis. Even as liquidity is for IFC. It is best achieved by increasing the depth restored to financial institutions, lending volumes are and breadth of local financial markets and boosting lower than before, and SMEs still have limited access competitiveness of the private financial sector. IFC to financing. More than 17 million formal SMEs in is active through investments in existing financial emerging markets have unmet credit needs. The gap intermediaries and accompanying advisory support. is estimated to be between $900 billion and $1.1 • I FC’s Global Trade Liquidity Program, launched in July trillion for SMEs in those markets. 2009 to boost trade finance in emerging markets • T he World Bank Group works with private sector by supplementing bank liquidity, has supported $20 partners to target financial and knowledge billion worth of trade in developing countries. A total bottlenecks to improve finance and business support of 80 percent of this financing supported SMEs. for SMEs. The World Bank Group also works with • FC is developing a supply chain strategy with leading I governments to create a better investment climate global corporations on better SME performance and for SMEs. sustainability practices through their supply chains, • FC has a leadership role in SME finance, as I and innovative solutions to strengthen access to a partner to the G-20 and through its innovative finance for SMEs within the supply chain. products and services that support SMEs in emerging • I FC is a technical advisor to the G-20 on SME and frontier markets. finance. This includes providing leadership to the Global Partnership for Financial Inclusion, and WHAT IFC IS DOING managing the global SME Finance Innovation Fund • Enabling growth and ensuring that poor people can that was announced by President Obama at the participate requires an environment where people 2010 G-20 meeting in Seoul. IFC provides policy are able to start and grow businesses, as well as recommendations and financing, including through create more jobs. SMEs are drivers of competition, the SME Finance Fund, to increase access to finance growth, and job creation, particularly in developing for SMEs in a sustainable and scalable manner and countries where up to 80 percent of economic activity supporting efforts to promote the spread of new takes place in the informal sector. Barriers to entry modes of financial service delivery. Building on its into the formal sector include excessive bureaucracy experience in microfinance, IFC will scale up successful and regulation. IFC, through its programs, promotes models of small-and-medium-enterprise financing. reforms that support and allow private sector • I FC is also leading the SME Finance Forum, announced development to flourish. at the G20 Summit in 2011. This is a knowledge- • FC provides investment and advisory services to I sharing platform for SME finance data, research, SMEs in about 80 countries and focuses on every and good practice for agencies, funders, regional phase of SME development: investment-climate networks, and policy makers to improve the reform, building management skills, access to finance, effectiveness of SME funding. and access to markets. IFC’s SME investment and advisory portfolio extends over six regions globally, with a focus on assisting SME development in low- CLIENT HIGHLIGHT Bank South Pacific Limited—Papua New Guinea Objective and Client Needs: Bank South Pacific Limited (BSP) is Papua New Guinea’s only indigenous bank and is its largest retail and commercial bank with 50 percent market share in loans and deposits. BSP’s banking franchise is underpinned by an extensive branch network of 35 branches in Papua New Guinea and five overseas branches. Underpinning BSP’s strategy is a commitment to improving access to finance for SMEs and the rural poor. The Government of Papua New Guinea has a clear objective of growing the size and economic contribution of SMEs, which form the bulk of the domestic private sector in Papua New Guinea. World Bank Enterprise Survey data has indicated that only 18.1 percent of formal SMEs have access to financial services and 42 percent of SMEs are women owned SMEs. It is expected that SMEs will struggle to grow and take on potential opportunities, unless key constraints, particularly access to finance, are addressed. Partnering with strong local financial institutions such as BSP is critical to promoting this private sector-led growth and improving access to finance for SMEs. IFC’s Involvement: To implement its long term strategic goals of regional and product expansion and increasing access to finance for SMEs and the rural poor, BSP required a clear funding plan that included new capital and long-term debt financing, and technical assistance to expand its operational capacity. IFC assisted BSP in implementing its goal of improving access to finance for SMEs and the rural poor in three key areas: (i) in June 2010, IFC provided BSP with a financing package that included new capital and long-term debt financing; (ii) IFC Advisory Services are working closely with BSP to improve access to financial services for SMEs and the rural poor through provision of technical assistance to its fully owned rural banking arm; BSP Rural to develop a technology based electronic/ mobile banking initiative to increase outreach to up to 200,000 unbanked rural people. And (iii) in June 2011, BSP committed to participate in the Papua New Guinea SME Risk Share Facility, an IFC-IDA Facility set up to promote SME lending by commercial banks by subsidizing the first loss on loans which are made under the facility, thereby encouraging banks to significantly expand their lending to SMEs both within and outside of the extractive industries sector. The Facility also offers technical assistance to participating financial institutions to strengthen their internal capacity to expand SME banking activities. Contact Mengistu Alemayehu | Senior Product Manager | MAlemayehu@ifc.org | (202) 473-5337 Panos Varangis | Head, SME Finance Advisory | PVarangis@ifc.org | (202) 458-7176 Media Contact John McNally | Communications Officer | JMcnally@ifc.org | (202) 458-0723