Global development finance coalition boosts African MSMEs with over $5.5bn

The Coalition for a Sustainable and Inclusive Private Sector Recovery, an international group of 20 development finance institutions that met in 2020, on Tuesday announced commitments of more than $5.55 billion in financing to small and medium-sized enterprises (MSMEs) in Africa between mid-2020 and the end of 2021, exceeding its stated target of USD 4 billion over the period.

The coalition said it had exceeded its initial target by 40 per cent, while the DFIs collectively committed more than $5.55 billion of MSME funding in Africa during the period.

At the first Common Finance Summit in November 2020, the EDFI Association, on behalf of its 15 European member development finance institutions (DFIs), together with the African Development Bank (AfDB), the West African Development Bank (BOAD), FinDev Canada, the United States International Development Finance Corporation (US DFC), and the Islamic Corporation for Private Sector Development (ICD), launched the coalition. The Trade and Development Bank (TDB) joined soon after.

In response to the unprecedented global health and economic crisis caused by Covid-19, the coalition recognized the critical role that DFIs play in supporting crisis response in vulnerable countries.

While MSMEs are the economic lifeblood of emerging and frontier economies, they are also more vulnerable to crises than larger companies. In developing countries, formal SMEs contribute more than a third of gross domestic product and account for 52% of formal employment.

Improving access to finance for MSMEs is critically important to boosting the growth and prospects of the 450 million young Africans expected to enter the labour market by 2050. The COVID-19 crisis put the viability of MSMEs under great pressure and efforts to scale up inclusive finance solutions are crucial for a successful recovery.

To address this challenge, the coalition signatories are committed to deepening cooperation between their institutions; focusing on inclusive financial solutions for the private sector; supporting customers with technical assistance and advisory services when needed. Consequently, the 1,400 contracted projects demonstrate a strong focus on smaller, more inclusive projects, as well as a wide spectrum of SMEs, from small businesses/start-ups to medium-sized companies with high growth potential. In addition, the signatories mobilized €23 million of technical assistance, including capacity building and advisory services for MSMEs.

African Development Bank President Akinwumi Adesina said: “Micro, small and medium-sized enterprises are vital to Africa’s prosperity, accounting for 90% of all businesses and generating more than half of all jobs. Many small business owners will tell you that limited access to finance is a major obstacle to growth. The $5.5 billion we are committing together will go a long way toward overcoming this hurdle. I am confident that our initiative will make a significant contribution to the success of micro, small and medium-sized enterprises throughout Africa. If they grow up, we all do.”

“MSMEs are vital to the economy of Sub-Saharan Africa, they represent 90% of trade and more than half of the jobs in the region. As these businesses were disproportionately impacted by the health crisis, we joined forces to provide capital and advisory services to support economic recovery. Exceeding our initial target further motivates us to collaborate with our partners to promote sustainable and inclusive economic growth in sub-Saharan Africa,” added Lori Kerr, FinDev Canada Executive Director.

Ayman Sejiny, CEO of ICD, commented: “I would like to congratulate all the coalition partners and the ICD team for exceeding the coalition target by committing more than USD 5 billion for MSME financing in Africa. It is a great achievement and a culmination that will inspire our coalition of development partners to collaborate more to continue achieving more ambitious goals for sustainable development in Africa and our member countries.”

“The impressive results of this coalition demonstrate the kind of collaboration between DFIs that is needed to support private sector companies in Africa. European DFIs increased SME financing to a record level in 2021. While this progress represents an important milestone for us, it is by working together with African and international partner institutions that we can mobilize financing at the scale needed to ensure an economic recovery. inclusive”. concluded Søren Peter Andreasen, CEO of EDFI.