Small and medium enterprises (SMEs) are the backbone of the world economy, accounting for most businesses across nearly every region. In the developing world, SMEs make up 90 percent of the private sector and create more than 50 percent of jobs in their corresponding economies. In Africa, SMEs provide an estimated 80 percent of jobs across the continent, representing an important driver of economic growth. Sub-Saharan Africa alone has 44 million micro, small, and medium enterprises, almost all of which are micro. For these businesses to grow, create more jobs, and generate economic growth, they need access to capital. Fifty-one percent of these vital businesses, however, require more funding than they can currently access. Credit constraints are a serious challenge for SMEs. Without reliable sources of working capital, SMEs are unable to make investments needed for growth, leading to stagnation. Given the importance of SMEs as a source of employment, barriers to accessing financing become barriers to poverty reduction and economic growth. Blended finance can help firms fill this critical gap. Concessional debt and equity give SMEs the ability to expand without bankrupting themselves. Firms that would otherwise become stuck at the pilot stage because of the unavailability of working capital are thereby able to flourish. Technical assistance grants help firms expand their capabilities and improve their performance. Along the way, they gain the confidence of private finance and can eventually attract funding without the need for a blended approach.
Brief
Supporting Small and Medium Enterprises in Sub-Saharan Africa through Blended Finance
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