DFI commits USD5.55-billion for MSME recovery in Africa

DFI commits USD5.55-billion for MSME recovery in Africa  

The coalition for a sustainable and inclusive recovery of the private sector, an international group of 20 development finance institutions that came together in 2020, last week announced commitments of more than USD5.55-billion of financing to micro, small and medium enterprises (MSMEs) in Africa between mid-2020 and end of 2021, beating their set target of USD4-billion over the period.

The impressive results of this coalition demonstrate the kind of collaboration between Development Finance Institutions (DFIs) that is needed to support Africa’s private sector enterprises. 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 mobilise finance at the scale needed to secure an inclusive economic recovery,” says Søren Peter Andreasen, CEO of EDFI, one of the financing partners of the coalition.

The coalition exceeded its initial target by 40%, while development finance institutions jointly committed more than USD5.55-billion of financing of micro, small and medium enterprises in Africa over the period.

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

In response to the unprecedented global health and economic crisis caused by covid-19, the coalition recognised the critical role development finance institutions play in supporting the 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 enterprises. In developing countries, formal small and medium enterprises contribute more than one third of gross domestic product and account for 52% of formal employment.

Improved access to finance for micro, small and medium enterprises is critically important to boost growth and the prospects of the 450 million young Africans projected to join the labour market by 2050. The covid-19 crisis put the viability of MSMEs under acute pressure and efforts to expand inclusive financial solutions are crucial for a successful recovery.

Committed to inclusive growth

To address this challenge, the coalition’s signatories committed to deepen cooperation among their institutions; focus on inclusive financial solutions for the private sector and to support clients with technical assistance and advisory services when needed.

Consequently, the 1400 projects contracted demonstrate a strong focus on smaller and inclusive projects as well as on a broad spectrum of small and medium enterprises, from small enterprises/start-ups to mid-sized firms with strong growth potential. In addition, signatories mobilised about €23-million of technical assistance, including capacity building and advisory services to MSMEs.

According to the African Development Bank President Akinwumi Adesina, micro, small, and medium-sized enterprises are vital to Africa’s prosperity, representing 90% of all businesses and generating more than half of all jobs.

“Many small entrepreneurs will tell you that limited access to finance is a major hurdle to growth. The USD5.5-billion that we are committing together will go a long way in overcoming this hurdle. I am confident our initiative will make a major contribution to the success of micro, small, and medium-sized enterprises all over Africa. If they grow, we all do,says Adesina.

“MSMEs are vital to Sub-Saharan Africa’s economy, representing 90% of trade and more than half the jobs in the region. As these businesses disproportionately suffered the impacts of the health crisis, we joined efforts to provide capital and advisory services to support the economic recovery. Surpassing our initial goal further motivates us to collaborate with our partners to promote sustainable and inclusive economic growth in Sub-Saharan Africa,” adds Lori Kerr, CEO at FinDev Canada

It is a great accomplishment and a culmination that will inspire our coalition of development partners to collaborate more to continue achieving ambitious goals for sustainable development in Africa and our member countries,says Ayman Sejiny, CEO of ICD.   

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