The Small Loan Guarantee Program offsets risks and boosts the International Finance Corporation’s (IFC) lending to small and medium-sized enterprises in underserved segments of the population in IDA and fragile countries.
Project Background
Access to financial services remains one of the most acute constraints for small and medium-sized enterprises (SMEs) in Africa and in other developing regions in the world. Due to their smaller size, limited experience, and undocumented performance, SMEs can be risky to borrowers—especially when they operate in more challenging environments. IFC’s Small Loan Guarantee Program (SLGP) offsets this risk and boosts lending to SMEs in 54 IDA and fragile IDA Private Sector Window (PSW)-eligible countries—especially female-owned SMEs or SMEs working in priority sectors like climate or agriculture.
Project Objectives
The Small Loan Guarantee Program (SLGP) is an innovative mechanism to pool together a portfolio of IFC Risk Sharing Facilities with IFC’s client financial institutions in IDA PSW-eligible countries. SLGP provides SMEs with access to financial services as well as risk-sharing support to encourage financial institutions in host countries to expand their SME lending portfolio, with a particular focus on the harder-to-reach smaller SMEs.
Why IDA PSW’s Blended Finance Facility?
By providing a first loss guarantee covering the SLGP portfolio, the IDA PSW enables IFC to support higher-risk Risk Sharing Facilities to reach previously underserved and unbanked SMEs in IDA PSW-eligible countries and supports the building of an SME track record and information base in countries where very little or none currently exist. Without IDA PSW and other blended finance facilities, IFC and other lenders would struggle to support SMEs in fragile and frontier markets. Instead, thanks to IDA PSW, IFC is ramping up investments in these markets—helping formalize and legitimize SMEs in emerging economies to create jobs and drive economic growth.
What is the Transaction Structure?
IFC will initially commit US$166 million to cover 50 percent of the risk on loans local financial institutions make to SMEs. IDA PSW will provide a US$50 million first-loss guarantee to offset IFC’s exposure. Such a risk-sharing arrangement allows IFC to charge lower risk-sharing rates, allowing in turn IFC’s partner financial institutions to provide accessible interest rates to SMEs as well as to extend loans that were not previously available. IFC will also provide comprehensive operational and advisory support to grow institutional capacity of the financial institutions covered under the SLGP. The program is expected to catalyze an estimated US$333 million to support around 25,000 loans to SMEs.
To date, the following risk sharing facilities under SLGP have already been deployed:
- Atlantic Business International (ABI), one of the largest African banks with subsidiaries across eight West African countries including Benin, Burkina Faso, Côte d’Ivoire, Guinea, Mali, Niger, Senegal and Togo.
- Société Ivoirienne de Banque Côte d’Ivoire (SIB), one of the largest financial institutions in the country.
It is expected that up to 25 Risk Sharing Facilities will be included into the SLGP program, with the potential for expanding to a subsequent phase before the end of the IDA18 period.
What is the Impact on Markets?
By mitigating risk and increasing access to financial services, the project accelerates sustainable private sector-led growth in underserved segments such as SMEs and micro-enterprises.
Blended Finance Facility-supported projects are made possible thanks to close cooperation from multiple teams across IFC and IDA.