MICROFINANCE PAPER WRAP-UP: “SME Finance Loans for Growth,” Published by Symbiotics

This paper offers an analysis of the impact of the SME Finance Loans For Growth (LFG) fund from its launch in 2016 through 2020. LFG is a collaboration of three Swiss organizations, the Symbiotics Group, the State Secretariat for Economic Affairs (SECO) and UBS (formerly the Union Bank of Switzerland). Symbiotics loaned USD 59.6 million from the fund to financial institutions focused on financing small and medium-sized enterprises (SMEs) in “frontier and emerging markets.” UBS recruited investors for the fund based on features including “a 10-percent, first-loss guarantee, which was equally co-financed by SECO and UBS. This acted as a catalyst to attract private capital to the fund, which ultimately yielded positive returns to investors…”. Although the fund was scheduled to close in 2020, it “still has some outstanding loans to its investees” due to delays caused by the COVID-19 pandemic.

From 2016 to 2020, LFG financed 42 financial institutions in 24 countries. Thirty-nine percent of the financial services providers are in Latin America and the Caribbean; 30 percent are in South and East Asia; 9 percent are in sub-Saharan Africa; and the remainder are in Central Asia, Eastern Europe and the Middle East and North Africa. The fund indirectly financed an estimated 3,744 SMEs with an average retail loan size of USD 55,800.

The sources of the report include interviews from 924 SMEs in 12 developing countries collected from 2017 to 2020. During 2020, the average number of employees hired by participating SMEs was 3.8, up from 3.1 in 2019. Meanwhile, the average number of employees laid off increased to 5.0 from 3.1.

The average number of male employees decreased to 11.2 in 2020 from 13.9 in 2019, while the average number of female employees increased to 10.4 from 9.7. In 2020, 74 percent of the employees of women-owned SMEs were female while 31 percent were female at men-owned SMEs.

Due to the COVID-19 pandemic, the majority of SMEs experienced decreases in revenues and profits, and many had to close temporarily or lay off employees. During 2020, 79 percent of SMEs reported their business worsening due to the pandemic while only 15 percent were not affected and 6 percent reported improvements. Despite that, over the course of four years of LFG, there was an overall positive trend in SME outcomes, especially in terms of asset size, the proportion of women employed and full-time employment. Average wages also increased. The median total assets of participating SMEs grew by 35 percent from 2017 to 2020; excluding weaker performance in China, this figure rises to 44 percent.

This is a summary of a paper published by Symbiotics Group; July 2021; 52 pages; available at https://symbioticsgroup.com/wp-content/uploads/2021/07/LFG_Impact_Report.pdf.

By Harriet Ritchie, Research Associate

Sources and Additional Resources

Symbiotics homepage
https://symbioticsgroup.com/

UN Sustainable Development Goals webpage
https://sdgs.un.org/goals

Did you know that MicroCapital publishes the MicroCapital Monitor newspaper each month? Find out more at https://www.microcapital.org/products-page/.