International Finance Corporation (IFC) has launched a call for eligible financial services providers (FSPs) to become intermediaries under its Catalytic First Loss Guarantee Facility, a crucial initiative aimed at increasing access to financing for Micro, Small, and Medium Enterprises (MSMEs). This initiative focuses on women-owned businesses, agricultural enterprises, and climate financing projects.
Key Highlights
Eligibility for FSPs:
Regulated banks, non-bank financial institutions, digital lenders, leasing companies, and microfinance institutions authorized to conduct lending or leasing activities are eligible to participate. FSPs must meet IFC’s qualification criteria, which include demonstrating:
- Financial capability
- Operational readiness
- Positive environmental and social risk rating (ESRR)
- Adherence to Integrity Due Diligence (IDD) standards.
Objective:
This initiative aims to unlock new sources of capital for underserved businesses, especially those owned by women, and involved in agriculture and climate-focused sectors.
By offering financial guarantees and encouraging innovative lending practices, the IFC hopes to address the financing challenges faced by MSMEs.
Catalytic First Loss Guarantee Facility
Risk-Sharing Tool:
This facility provides a first-loss guarantee to financial institutions, protecting them from some or all of the initial losses incurred when lending to specific projects or sectors, particularly MSMEs in emerging markets.
Primary Goal:
To incentivize FSPs to increase lending to MSMEs by reducing the financial risk, making it more attractive to private investors. This will contribute significantly to job creation and economic growth.
Focus Areas: The facility will prioritize financing for:
- Women-owned businesses
- Agricultural projects
- Climate financing projects
Financial Gap Addressed:
This initiative seeks to bridge the $5.7 trillion financing gap faced by MSMEs worldwide, which grows to $8 trillion when informal enterprises are included.
Importance of MSMEs in Global Economy
- Account for 90% of businesses globally
- Employ 70% of the global workforce
- Contribute to 50% of world GDP
- Yet face significant financing barriers due to perceived risks
About IFC (International Finance Corporation)
Parent Organization: World Bank Group
Formation: July 20, 1956
Headquarters: Washington, D.C., USA
Membership: 186 countries
Mission:
- To create opportunities for people to escape poverty
- To improve living standards
- To promote sustainable, impactful projects
Focus Areas:
- Infrastructure
- Agribusiness
- Climate Change
- Education
- Financial Markets
Services Provided:
- Investment: Loans, equity investments, and other financial products
- Advisory Services: Helping companies evaluate and make responsible decisions
- Asset Management: Assisting companies in managing risk and expanding access to capital markets
India’s Role:India has been a member of IFC since its formation in 1956 and remains a key player in its initiatives.