How to make India pandemic proof

Solutions to Finance the Energy Transition in Developing Countries


Low- and middle-income countries need to transform their power sector infrastructure at an unprecedented scale and pace to meet climate and development goals. The World Bank’s new framework “Scaling Up to Phase Down” maps out a 6-step virtuous cycle to help these countries overcome critical barriers that are paralyzing their energy transition and catalyze investments.

Despite accounting for two-thirds of the global population, developing countries receive only one-fifth of global energy investment. They need affordable financing, especially at the start of their energy transitions, to improve sector conditions and attract growing volumes of private capital.

Join us live from the headquarters of the World Bank Group. Be sure also to share your thoughts and questions in advance in the chat box! Our team of experts will answer them during the live event.



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.

Climate Change and Paris Alignment: “The Climate is Changing, and So Are We”

Our upcoming Spring Meetings will focus on Reshaping Development for a New Era – this isparisa_hero.jpg an excellent opportunity to take stock of progress being made to tackle the many challenges facing global development, including climate change.

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Remembering the lessons of COVID-19 to build resilience for future shocks in Europe and Central Asia

From January 2020 until recently, COVID-19 dominated international headlines and ourserbiacovidtesting.jpg thoughts. Europe and Central Asia were severely hit by COVID-19, facing among the highest excess death rates in the worldAs we start to mask less and come together more, we should reflect on the ramifications of COVID-19 and how we are helping the most vulnerable in Europe and Central Asia address the human capital losses it induced.   

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Food Security Update | World Bank Response to Rising Food Insecurity

Latest Update – February 27, 2023

Domestic food price inflation remains high around the world. Information from the latest month between October 2022 and January 2023 for which food price inflation data are available shows high inflation in almost all low- and middle-income countries, with inflation levels above 5% in 88.9% of low-income countries, 87.8% of lower-middle-income countries, and 93.0% of upper-middle-income countries and many experiencing double-digit inflation. In addition, about 87.3% of high-income countries are experiencing high food price inflation. The countries affected most are in Africa, North America, Latin America, South Asia, Europe, and Central Asia. 

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Penny for your thoughts? Why coordination among creditors is key to sustainable debt

We know that when used wisely and transparently, debt is important to financedirk_hero.jpg development. Prudent debt can power economies and pave the way for a resilient future—allowing countries to focus on important investments in people and economic growth.   

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