Unlocking SME finance in fragile and conflict affected situations


Small businesses can play an impactful role in fragile and conflict affected situations (FCS). They can create jobs and directly provide necessity goods and services such as food, water, health, education, and transportation. They can also contribute to the resilience of local populations during periods of conflict.

However, small businesses operating in FCS countries endure numerous setbacks to their activity, from frequent electricity cuts to bribery to armed attacks. Surviving and growing in these situations is difficult. Navigating daily challenges without access to affordable credit is almost impossible.

As it turns out, access to bank credit is consistently reported as a key business environment constraint for small- and medium-sized enterprises (SMEs) in FCSs countries. True, access to finance is a problem for SMEs in every country, including in advanced economies, but it is particularly acute in FCS countries  (figure 1).

Figure 1. Access and use of financial services by SMEs


Side by side bar charts showing Figure 1: Access and use of financial services by SMEs
Source: Author’s elaboration on WBES data

What drives SME financial exclusion in FCS countries vis-à-vis non-FCS countries? In a recent paper we examine this question, focusing in particular on the role of economic fundamentals and institutional factors. Economic fundamentals matter for SME financial inclusion. Higher incomes and better physical infrastructure increase savings and the pool of funds in the economy and improve access to finance while macroeconomic and financial stability can positively affect credit and other financial services to SMEs.

Institutions—the rules of the game in a society—matter too. Institutions influence the development of entrepreneurship and can support SME financial inclusion by improving the information environment and strengthening contract enforcement, as well as supporting equal treatment of firms in access to financial services.

On both counts, FCS countries generally lag behind non-FCS countries, especially, as would be expected, in terms of institutional development (figure 2). But what do we find in the data?

Figure 4. Macroeconomic, financial sector, institutional and business environment features


A set of four bar charts showing Figure 4. Macroeconomic, financial sector, institutional and business environment features
Source: Author’s elaboration on WDI, GFD, WGI, WDI, Heritage Foundation

The results of our analysis show that output growth has a negative impact on SME financial inclusion in FCS countries, probably reflecting demand for countercyclical finance — typically backed by the government — by financially constrained SMEs that otherwise tend to resort to internal funds to finance their operations and investment. 

On the other hand, price stability, a key sign of macroeconomic stability, is associated with higher SME financial inclusion in FCS countries. Moreover, access and usage of financial services by SMEs in FCS countries tends to increase with economic development, for example, income levels.

Other economic fundamentals also play a role in SME financial inclusion in FCS countries. Economies with large informal sectors tend to face tighter constraints on SME financial inclusion. Similarly, the lack of economic diversification also has a significant impact. Financial sector characteristics also affect SME access and usage of finance. The quantity of financial intermediation, such as deeper credit markets, helps enhance SME financial inclusion, and this is particularly important in FCS contexts.

The quality of financial intermediation is equally important because government and state-owned enterprise financing can crowd out credit to the private sector, including SMEs. In our sample of FCS countries, available credit tends to go proportionally more to the public sector than the private sector compared to non-FCS countries. Our analysis suggests that a significant role is played by crowding out effects in FCS countries.  A lack of competition among banks reduces SME financial inclusion in FCS countries. Reducing banking market concentration is found to have a positive impact on SME access and usage of formal financial services in FCS countries. Finally, banking sector soundness, as measured by the quality of lending (NPL ratio), significantly and strongly supports SME financial inclusion.

Turning to institutional factors, strong governance and stable institutions exert a significant influence on SME access and usage of formal financial services in FCS countries. Voice and accountability, political stability, government effectiveness, and control of corruption are all positively correlated with SME financial inclusion. The importance of government effectiveness and control of corruption is particularly strong for FCS countries.

Credit information is also a key factor for SME financial inclusion. Rules affecting the scope, accessibility, and quality of credit information available through public or private credit registries can greatly facilitate banking relationships, and they are especially important for FCS countries.

Constraints to the quality of contract enforcement, property rights, and the effectiveness of courts, as well as to the ability of the authorities to formulate and implement policies and regulations that permit and promote private sector development, are negatively correlated with SME access and usage of formal financial services. Their impact is significantly stronger for FCS countries, suggesting that improvements in the overall business environment can have relatively sizable effects on SME financial inclusion in those countries.

Our analysis shows that the macrofinancial and institutional constraints that affect SME access and usage of formal financial services are similar across FCS countries and non-FCS countries, with differences in degree rather than in kind , that is, the relative importance of constraints is greater in FCS countries, particularly in middle- income FCS countries. Accordingly, to advance SME financial inclusion it is important to designing and implementing comprehensive strategies that take into account proper macroeconomic and financial policy frameworks and conducive governance, institutional and regulatory arrangements, tailored to country contexts.

eC2: TECHNICAL & E&S CONSULTANTS for Port PPPs, Europe PPP team

Deadline: 06-Jul-2022 at 11:59:59 PM (Eastern Time – Washington D.C.) PPPs

The Government of Serbia (the IFCs Client) aims to attract private investment through a Public-Private Partnership for the development of the Danube riverway corridor port(s). The Client will be assisted by IFC in structuring and implementing the project(s). IFC is hereby seeking the assistance of a Technical Environmental & Social Consultant (the Consultant) for the structuring and tendering of a concession for the ports. The Consultant will report directly to IFC. IFCs advisory mandate will be implemented in two phases and the Consultant will work alongside IFC and the other specialized consultants (legal, etc.), as will be further described in RFP to be sent to short-listed candidates.

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eC2: Study on Climate and Natural Hazard-Induced Migration in Vietnam

Deadline:  20-Jun-2022 at 11:59:59 PM (Eastern Time – Washington D.C.)global-warming-climate-change-tree_1big_stock2

Vietnam is one of the most vulnerable countries in the world to climate change. Given Vietnams concentration of both population and industry in low-lying coastal areas and river
deltas, sea level rise poses a particular risk to continued development in the country.
The World Bank East Asia and the Pacific (EAP1) is conducting a Study on Climate and Natural Hazard-Induced Migration in Vietnam. The objective of the research is to better understand how vulnerable population groups in urban and rural settings projected to see high climate induced in- and out-migration are particularly (and differently) affected by climate change, what adaptation measures are currently being employed, and what policy makers and government programs might do to reduce barriers or facilitate opportunities for more effective and inclusive adaptation to climate change. In so doing, the research would help to better understand and respond to disaster risks, to reduce the number of people adversely affected by disasters, and to promote adaptation that leverages community resilience. The World Bank East Asia and the Pacific (EAP1) is looking for a qualified and experienced research firm or organization based in Vietnam to carry out the analytical work. If you encounter technical difficulties while uploading documents, please send an e-mail to the Help Desk at wbgeconsultant@worldbank.org.

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eC2: Exploring the Links between Climate Change, Migration and Livelihood in Forest Communities in Vietnam

Deadline: 20-Jun-2022 at 11:59:59 PM (Eastern Time – Washington D.C.)Forestry

Vietnam is one of the most vulnerable countries in the world to climate change. Forests play a crucial role in averting climate catastrophe. The World Bank East Asia and the Pacific (EAP1) is conducting a study on Exploring the Links between Climate Change, Migration and Livelihood in Forest Communities in Vietnam. The objective of this analytical work is to understand the links between climate change impacts, migration, and livelihood strategies among forest communities in Vietnam. It will examine the impacts of climate change on forest communities, which include identifying differential vulnerabilities faced by forest communities and exploring communities perceptions, experiences, and responses toward climate change impacts in relation to livelihood strategies (including through migration), food security, and other areas of interest. This in turn would help in identifying

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eC2: Reinforcing the capacities of meteorological and hydrological services and enhancing the early warning systems in Cambodia and Lao Peoples Democratic Republic (CREWS Cambodia and Lao PDR)

Deadline: 16-Jun-2022 at 11:59:59 PM (Eastern Time – Washington D.C.)vn-communitybased-disasterrisk-780x439

The Reinforcing the capacities of meteorological and hydrological services and enhancing the early warning systems in Cambodia and Lao Peoples Democratic Republic (CREWS Cambodia and Lao PDR) project jointly implemented by the World Bank (WB), World Meteorological Organization (WMO) and the United Nations Office for Disaster Risk Reduction (UNDRR) along with the National Meteorological and Hydrological Services (NMHSs) and National Disaster Management Offices (NDMOs) of Cambodia and Lao PDR is aimed at reducing the human and socioeconomic impact caused by disasters such as floods, droughts, landslides and severe weather, through increased access to early warnings and risk information. As part of the CREWS project, the World Bank is conducting needs assessments of the NMHSs to strengthen hydromet networks for end-to-end early warning in Cambodia and Lao PDR and to develop investment plans to address identified needs.

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eC2: Climate Change Impact and Adaptation Modeling for Zimbabwe

Deadline: 07-Jun-2022 at 11:59:59 PM (Eastern Time – Washington D.C.) climate

Climate change is a major risk to good development outcomes, and the World Bank Group is committed to playing a role in helping countries integrate climate action into their core development agendas. The Country Climate and Development Reports (CCDRs) aim to help countries shift from addressing adaptation as an incremental cost and isolated investment to systematically incorporating climate risks and opportunities at every phase of policy planning, investment design, implementation and evaluation of development outcomes.

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eC2: Consulting Services: Disaster Risk Quantification, Financing and Policy Reforms for Resilience Building in Tonga

Deadline: 15-Jun-2022 at 11:59:59 PM (Eastern Time – Washington D.C.)vn-communitybased-disasterrisk-780x439

The objectives of this assignment is to conduct Disaster Risk Management (DRM) and risk financing policy reforms at the national and island levels, specifically to assist with technical inputs on the National DRM Policy; support the design of indicators for monitoring of the DRM Act and DRM Policy Implementation; support the design of strengthening activities and reporting procedures for Island and Village Disaster Risk Management Committees; and provide technical advice on establishing stronger coordination mechanisms between DRM stakeholders and the Ministry of Finance. The assignment will also identify risk quantification and investment needs for resilience-building in one select outer island in Tonga (either Vavau or Eua).This will require the: (i) development of detailed multi-hazard risk information for the select outer island, (ii) prioritization of investment needs in line with the DRM Policy framework, and (iii) identification of risk financing strategies and funding mechanisms for investments in disaster risk reduction and climate resilience in outer islands.

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World Bank Announces Additional $200 Million in Financing for Ukraine

Financing will support essential social services; combined total of World Bank-mobilized support for Ukraine now stands at more than $925 million

WASHINGTON, March 14, 2022— The World Bank today announced nearly $200 million in additional and reprogrammed financing to bolster Ukraine’s social services for vulnerable people. This comes on top of the $723 million mobilized for Ukraine and its people last week, of which $350 million has already been disbursed to Ukraine. This financing is part of the $3 billion package of support that the World Bank Group previously announced it is preparing for Ukraine over the coming months.

The combined total of support mobilized by the World Bank for Ukraine now stands at more than $925 million. As part of the mobilization efforts, Austria has contributed €10 million ($11 million equivalent) to the multi-donor trust fund (MDTF) set up by the World Bank to facilitate channeling grant resources from donors to Ukraine. This raises the current MDTF total to $145 million.

“The ongoing war continues to have severe human costs and has created financing gaps that jeopardize the ability of vulnerable people in Ukraine to meet basic needs,” said World Bank Group President David Malpass“This rapid support will help to bridge those gaps during a time of extreme disruption as we work on broader support efforts for Ukraine and the region.”

While the full impact remains uncertain, the Russian invasion of Ukraine is causing a growing number of civilian casualties, destroying livelihoods, and damaging critical civilian infrastructure, including homes, water and sanitation, schools, health facilities and highways.

The World Bank in Ukraine

Investments in human capital require bold financing actions for a resilient recovery

Inclusive investments in health, early childhood development, learning, and women’s economic 20033631845_d902e0cc95_cempowerment can contribute to an inclusive, resilient, and sustainable recovery.  This was the clear message, focusing on human capital, that the ministers of finance and planning of 81 Human Capital Project HCP countries sent at the last Ministerial Conclave.

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eC2: Offshore Wind Financing for Emerging Markets

Deadline: 03-Aug-2020 at 11:59:59 PM (Eastern Time – Washington D.C.)

Wind turbine farm

The objective of this assignment is to assist IFC staff (primarily investment, credit and management) in understanding: 1) differences between offshore wind and onshore solar/wind/hydro projects in terms of risks, challenges, contractual structures, studies and financing structures, and; 2) potential project financing structures for offshore wind in emerging markets and how IFC can best mitigate any associated risks. Note that the analysis of current projects will focus on fixed foundation rather than floating or intertidal/nearshore projects. The analysis of future projects will consider floating, although to a lesser extent than fixed.

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