Regulators urged to boost MSME credit access as COVID lingers

Financial regulators must ramp up efforts to make finance more accessible to micro, small and medium-sized enterprises (MSME), particularly those owned by women, speakers said at virtual member training on 7-10 December.

MSMEs, a vital source of job creation in most economies, have been severely impacted by COVID-19-related movements restrictions, supply chain disruptions and liquidity shortages, causing many to halt business operations or reduce their workforce.

Added to the mix, Rocío Aguilar, superintendent at Costa Rica’s Superintendencia General de Entidades Financieras (SUGEF), told participants were low levels of financial inclusion among MSMEs. This, she said, underpinned the need for regulators and supervisors to promote regulation that helps “close gaps and eliminate possible existing barriers”.

Speaking via live feed to deliver the capacity building event’s opening remarks, Superintendent Aguilar cautioned that any such measures must be done without creating potentially negative impacts, such as increased costs or added risks to credit providers.

“Regulatory frameworks must support access to resources, but also the collection and analysis of data on financial inclusion of MSMEs, since these promote the development of financial products necessary for them,” Superintendent Aguilar explained.

SUGEF co-hosted the member training on MSME access to the finance ecosystem, the superintendency’s first collaboration with AFI on a capacity building event. Showcasing the topic’s relevance in the current climate, it was the AFI network’s third training on SME finance held in 2020 alone. It was also the last of 18 capacity building events held this year, during which over 1,300 member regulators attended.

Special emphasis, Aguilar added, should be given to women-led MSMEs and women-focused initiatives, for which network’s commitments are enshrined in the Denarau Action Plan.

“Multiple studies show that women face additional barriers promoted not strictly by financial factors, but often promoted by cultural or even legal factors,” she said.

AFI Executive Director Dr. Alfred Hannig concurred, explaining that “women MSMEs face huge financing gap in addition to other non-financial barriers in setting up, managing and running their businesses.”

Any policy intervention for MSMEs, he said, must therefore “keep gender at the core while developing specific provisions to meet the needs of the different sub-segments of women as a client base.”

The adoption of a gender-sensitive approach, he said, also extends to areas such as digital financial services and payments systems noting that the advent of e-commerce and platform financing had changed the way that MSMEs conduct business today.

“By leveraging the power of Big Data and digital technologies, we can help MSMEs build a credible database of their business transactions as well as non-financial data or alternative data, thus enabling them to access finance on the strength of their digital footprint,” he said.

The SUGEF-AFI training was based around several AFI knowledge products on SME finance, including a guideline note and a factsheet on COVID-19 in AFI member countries. To accommodate attendees in different time zones, it was held in two rounds over three consecutive days.

Through the training, participants learnt about effective policy frameworks that provide holistic support to MSMEs, analyzed regulatory aspects of alternative financing particularly and identified mitigation measures to sustain MSMEs during COVID-19, focusing on women-led MSMEs and enterprises run by youth.

On its first day, members delved into AFI’s recently published scoping and assessment report on MSME access and the varied experiences of AFI member institutions, including Bangko Sentral ng Pilipinas, Bank of Ghana and National Bank of Cambodia in building up the national MSME financing strategies and implementation.

Further supporting AFI’s peer-to-peer learning model, the second day explored issues and challenges related to credit guarantee mechanisms and financial education initiatives, with contributions from Bank of Zambia, Central Bank of Egypt, Reserve Bank of Fiji, Royal Monetary Authority of Bhutan and SUGEF.

The final day looked at market and policy developments and Costa Rica’s experience in financing women-led MSMEs, offering a holistic approach to the issue with presentations from external speakers including World Bank and various stakeholders and private sector players.

The training was intended by 89 senior officials from 44 AFI member institutions. Participants were involved in the formulation and implementation of policies and regulations for SMEs as well as those managing financial inclusion, COVID-19 response and women empowerment initiatives.

SUGEF is an active member of AFI and has been a crucial contributor in the development of knowledge resources for MSMEs and topics on gender inclusive finance and inclusive green finance. It also chairs the network’s Latin America and the Caribbean regional initiative (known as FILAC) and SME Finance Working Group. It will also co-host of AFI’s Regional Office for Latin America and the Caribbean, due to open in the coming year.