Closing the Credit Gap for Formal and Informal Micro, Small, and Medium Enterprises

This report analyzes the state of the credit gap for MSMEs and offers innovative models and interventions that can be used to more fully meet the financial and non-financial needs of formal MSMEs. It also provides a focus on the sizable informal enterprise sector in the developing world, examines various operational challenges that small and informal firms face, and some formalization obstacles they often cite as the primary reasons for not registering their business. The paper discusses the following in detail:

• Credit gap around the world with a distribution study of formal SMEs and unemployment across regions;
• Role of private infrastructure, partial guarantee schemes, commercial banks, and other financial institutions in closing the MSME credit gap and in creating more jobs;
• Informal MSME landscape and access to finance, opportunity vs. necessity type firms in the informal sector, and a framework for informal enterprises to strengthen their capacity to operate and increase their rate of formalization;
• Challenges to formalize and experiments to induce formalization of informal firms;
• Private sector models and approaches to meet the needs of informal firms.