New Global SME Finance Initiative

The Secretary of State for International Development Andrew Mitchell, announced during the World Bank Spring meetings, a new DFID initiative to support Small and Medium Enterprises (SMEs) in the fight against poverty.

DFID will contribute £75 million to the new Global SME Finance Initiative to be used over a seven year period to help increase employment and investment opportunities for SMEs. The Initiative responds to the G20's call at the Cannes Summit in 2011 to scale up financing for SMEs.

What will the initiative deliver?

The Global SME Finance Initiative is designed to enable the following results:

• create over one million new jobs 
• at least £5 billion of additional finance to over 200,000 SMEs across 15 DFID priority countries
• at least a quarter of loans will be for women-headed SMEs
• at least a quarter of all results are expected in fragile states

What is the challenge?

Developing countries in Africa and South Asia, especially the frontier markets and conflict affected markets, need more jobs for their young populations. One estimate suggests Africa will require roughly seven to ten million jobs per annum to absorb new entrants into the labour market.

If unaddressed, increasing unemployment could disturb social stability and undermine the prospects for finding lasting solutions for peace in conflict and post-conflict countries.

How will we help and where?

SMEs can play a major role in job creation and economic development, especially in developing countries where they employ on average 66% of the total permanent, full-time workforce. However, banks do not lend enough to SMEs because of high transaction costs and the high perceived risks which they are unable to assess. The perception of risk is exacerbated by lack of collateral from SMEs who also receive very limited advice.

Our support takes a new risk capital approach to harness the network of banks in lending to SMEs. It will provide banks (a) with risk sharing as well as liquidity, and funding for technical advice and technological innovations and (b) improved information about SMEs' credit-worthiness.

The Initiative will target 15 DFID priority countries - South Sudan, Malawi, Ghana, Sierra Leone, Liberia, Uganda, DRC, Tanzania, Mozambique, Kenya and Nigeria in Africa and Bangladesh, Nepal, Pakistan and India (poorest states) in Asia.

The Global SME Finance Initiative will have three components:

• An investment facility - combining grant funds from donors and investments from development finance Institutions
• Advisory services to improve the performance of partner financial institutions and to help improve financial market infrastructure
• A G20 SME finance challenge winners - funding to support innovative technology based solutions including using psychometric models for assessing the risk profile of SME entrepreneurs.