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MSME Finance Gap

An Updated Estimation and Evolution of the MSME Finance Gap in Emerging Markets and Developing Economies

March 2025

 

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Section A: Overview

 
 
Chart 1: Evolution of the MSME Finance Gap
 
Over a 4 year period (2015 to 2019) the overall MSME finance gap has increased by over US$1.1 trillion, that is, from US$4.4 trillion to US$5.7 trillion, a 27 percent growth. Although the supply of financing has increased by US$991 billion, demand has still outpaced supply, with total demand for credit increasing by US$2.2 trillion. (see figure below). Indeed, the overall gap increased by 27 percent from 2015 to 2019, more than double the growth in GDP, which averaged 13 percent during the same period. The gap as a percentage share of GDP has increased by 2 percentage points, that is, from 17 percent in 2015 to 19 percent in 2019. 
 
 

 

Chart 2: W-MSME Finance Gap

Women-owned businesses account for 34 percent of the MSME finance gap. The total MSME finance gap for women42 is estimated to be valued at US$1.9 trillion, which is over 7 percent of total GDP (figure below).

 

Chart 3: Evolution of the MSME Finance Gap by Region

Regional and income group variations of the MSME finance gap are a result of potential demand and supply variations, as discussed in earlier sections.

 

Chart 4: Growth in Supply of MSME Finance

 

In 2019, the supply of MSME credit in EMDEs showed meaningful growth compared to the 2015 estimate. In the four-year period from 2015 to 2019, the supply of financing grew by an average annual rate of 7 percent (see figure below).37
 
37. All analyses presenting the growth from 2015 to 2019 in this section only consider the 119 common countries covered by both the previous and current reports. Thus, the 2015 numbers here may differ from the aggregate number presented in the previous report due to changes in country coverage.
 
 
Chart 5: Evolution of the MSME Finance Supply by Region
 
At the regional level, the report finds disparities, with some regions seeing a significant increase in the supply of formal finance, whereas others saw a contraction. For instance, the East Asia and Pacific (EAP) region saw a 33 percent growth in supply of formal finance as compared to the previous estimate of an 8 percent average increase per year. This was followed by South Asia at 22 percent. However, Latin America and the Caribbean (LAC) and Europe and Central Asia (ECA) both saw a contraction in supply over the 4-year period, with an approximately 4 percent and 3 percent decrease per year, respectively. Both the Middle East and North Africa (MENA) region and the Sub-Saharan Africa (SSA) saw relatively low overall growth of 7 percent and 2 percent, respectively. However, when taking into account the average growth of supply as a percentage of GDP, almost all regions stayed more or less constant, with the difference of less than 1 percentage point. However, ECA and EAP are the only exceptions, with growth in EAP being approximately 3 percentage points, and ECA, which experienced a decline of approximately 2 percentage points.
 
 

 

 
Chart 6: Growth of Potential Demand of MSME Finance
 
Comparing the potential demand in 2019 with that of 2015, the report finds robust growth of 27 percent over the four-year period, that is, from US$8.1 trillion to US$10.3 trillion. Over the same period, the GDP in these economies grew by an average rate of 12 percent. As a result, the potential demand, expressed as a percentage of GDP, also grew from 31 percent to 36 percent (figure below). Even after considering the case of China, potential demand grew at an even higher rate of 42 percent over the 2015-2019 period, representing an average annual increase of more than 10 percent. The change in GDP over the same period was 9 percent for the EMDEs (excluding China).
 

 

Chart 7: Evolution of the Potential Demand for MSME Finance Gap by Region

 

From a regional perspective, the growth in demand of MSME financing presents an interesting picture. In most regions, the demand has grown relatively modestly (figure below). However, in terms of volume, the demand for financing increased annually by approximately 10 percent in both East Asia and the Pacific as well as South Asia over the 4-year period. This stands in contrast to the annual average increase in GDP during the same time period, which was 4 percent and 7 percent, respectively. As a result, when expressed as a share of GDP, the potential demand for financing increased by only 3 percentage points in South Asia and 7 percentage points in East Asia and the Pacific. However, it shows a decline of 2 percentage points for ECA. Overall, there is an increase in demand in terms of volume across all regions, with the exception of ECA (figure below).

 

 

Chart 8: MSME Finance Gap as % of GDP by Country

(Updating in Progress)

Chart 9: Financially Constrained Enterprises as a % of Total Enterprises of the Same Size

(Updating in Progress)

Section B: Country profile

 

Africa

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      Chart 10: Formal MSME Finance Gap

      Chart 11: Formal Finance Gap by Gender

       

      Section C: Definitions

       

      MICRO enterprises are defined as those with less than 10 employees

       

      SMALL AND MEDIUM ENTERPRISES are defined as those with 11-250 employees

       

      LEVEL OF FINANCIAL CONSTRAINTS

      Fully credit-constrained firms are defined as those that find it challenging to obtain credit. These are firms that have no source of external financing. They typically fall into two categories: those that applied for a loan and were rejected; and those that were discouraged from applying either because of unfavorable terms and conditions, or because they did not think the application would be approved. The terms and conditions that discourage firms include complex application procedures, unfavorable interest rates, high collateral requirements, and insufficient loan size and maturity.

      Partially credit-constrained firms are defined as those that have been somewhat successful in obtaining external financing. PCC firms include those that have external financing, but were discouraged from applying for a loan from a financial institution. They also include firms that have an external source of financing, and firms that applied for a loan that was then partially approved or rejected.

      Non-credit-constrained firms are those that do not appear to have any difficulties accessing credit or do not need credit. Firms in this category encompass those that did not apply for a loan as they have sufficient capital either on their own or from other sources. It also includes firms that applied for loans that were approved in full.

       

      WOMEN-OWNED ENTERPRISES

      At least 50 percent female ownership, OR Sole Proprietorships that are female-owned, OR female participation in ownership and management (top manager).

      Option 1: At least 50 percent female ownership, OR Sole Proprietorships that are female-owned, OR female participation in ownership and management (top manager).

      Option 2: Sole Proprietorships that are female-owned, OR female participation in ownership and management (top manager).

       

      The POTENTIAL DEMAND expresses the amount of financing that MSMEs would need, and financial institutions would be able to supply if they operated in an improved institutional, regulatory and macroeconomic environment.

       

      Section D: Methodology

       

      MSME finance gap is estimated as the difference between current supply and potential demand which can potentially be addressed by financial institutions. The MSME finance gap assumes that the firms in a developing country have the same willingness and ability to borrow as their counterparts in well- developed credit markets and operate in comparable institutional environments — and that financial institutions lend at similar intensities as their benchmarked counterparts. Details are available in Chapter 3 of the Report.
       

      Contact Us

       

      Sandeep Singh

      Sector Economics and Development Impact (IFC)
      ssingh13@ifc.org