4 min read 27 Aug 21
Access to formal sources of finance is often identified as a significant barrier to growth for micro and small enterprises (MSEs), who need financing to invest and advance their businesses, and allow entrepreneurs and small business owners to create employment opportunities for others – with increasing labour income critical for the very poorest in society.
Many micro and small entrepreneurs and low-income households in developing markets tend to have limited or no access to banking resources or affordable financial products and services that meet their needs and are delivered in a responsible and sustainable way.
Microfinance – which involves the provision of loans and other responsible financial products and services, typically through microfinance institutions (MFIs) – can play an important role in enabling financial inclusion globally for underserved groups of society and low-income borrowers. Many MSEs are women-led and owned, so providing them with better financial options can improve women’s livelihoods and incomes, reduce inequality and help to break the cycle of poverty through economic empowerment.
As microfinance can enable self-employment and create jobs for others, it is often seen as a vital tool for tackling extreme poverty.
The Covid-19 pandemic has, however, reversed two decades of progress in tackling global extreme poverty – measured as the share of the world’s population living below the poverty line of $1.90 per day – putting the UN’s SDG target to eradicate extreme poverty by 2030 into sharper focus.
According to figures contained in the UN’s “The Sustainable Development Goals Report 2021 ”, between 119 and 124 million people were pushed back into extreme poverty globally in 2020 (of which two-thirds are in Southern Asia) and 255 million full-time jobs were lost from the pandemic – four times the number of jobs lost during the global financial crisis during 2007-2009. The numbers of people living in poverty across the globe are forecast to rise, even as economies start to recover post-pandemic. In the absence of immediate and significant action to tackle poverty, current projections suggest that the global poverty rate will be 7% in 2030, equivalent to around 600 million people1.
There is a growing body of research that suggests the livelihoods of women have been disproportionately affected by the Covid-19 pandemic. An International Trade Centre survey on Covid-19 impact among businesses in 136 countries has shown that nearly 62% of women-led small businesses have been strongly affected by the crisis, compared to just over half of firms led by men2. Addressing the need for financing at a time when its urgently required could help to strengthen global economic prospects, promote social development, and maintain a strong foundation for micro and small entrepreneurs to contribute to an inclusive and sustainable recovery.
The Microfinance Enhancement Facility (MEF) is a global microfinance debt fund that was established in early 2009 to provide finance to MFIs in a wide range of developing countries when capital markets largely closed to these institutions in the wake of the global financial crisis. MEF re-asserted its role as a crisis response vehicle in 2020 by providing finance to MFIs whose access to finance greatly diminished during the Covid-19 pandemic.
MEF seeks to support economic development and prosperity globally, by providing short and medium-term funding to MFIs, which in turn, provide loans and other financial services to thousands of MSEs and low income households. The activities of MEF and its partner MFIs also have a strong developmental profile, with the majority of the loans provided to women and to borrowers in rural areas that tend to lack access to conventional finance.
This investment is aligned with the UN’s Sustainable Development Goals 1 (No poverty), 8 (Decent work and economic growth) and 10 (Reduced inequalities)5
The views expressed in this document should not be taken as a recommendation, advice or forecast.
The value of investments will fluctuate, which will cause prices to fall as well as rise and investors may not get back the original amount they invested.