The European Investment Bank welcomes the findings of a new report examining the capital needs of small business in developing countries. The study, backed by six leading development finance experts, highlights the continued challenge of filling the funding gap facing small business in many developing countries and the benefit of targeted support by international finance institutions.

According to the report international finance institutions, such as the European Investment Bank, can make a significant contribution to improving access to finance by providing capital and technical assistance to local intermediary banks. It further recognises the role of stimulating small business lending by effective and cost-efficient cooperation with local partner banks, applying strict lending standards and using expertise from similar situations in other markets. The report also highlights the restricted role of small business in developing countries even where many micro enterprises and large companies exist. It calls for efforts to increase the numbers of small and medium sized enterprises to act as stimulus for economic growth.

“Improving private sector access to finance and reducing constraints to small business growth are key goals for the European Investment Bank’s engagement in both Europe and developing countries. We welcome the Dalberg report’s recognition of the wide-ranging benefits gained from working with local intermediary banks and providing technical assistance that improves the efficiency of local lending markets. The European Investment Bank is committed, alongside other international finance institutions, to building strong and sustainable local financial systems in developing economies.” said Plutarchos Sakellaris, European Investment Bank Vice President for Africa, the Caribbean and Pacific.

"Millions of small and growing businesses in emerging markets need capital to grow. With the necessary financing, these firms could create millions of jobs and drive sustainable economic growth in the developing world. We need the global finance community to develop new incentives, new investment models, and new financing mechanisms to drive this growth." highlighted Randall Kempner Executive Director of the Aspen Network of Development Entrepreneurs (ANDE).

“Financing through local financial intermediaries in the developing world is an effective way to support the dynamism and enterprise of the people in these countries and help provide the skills and jobs that are required” said Marc Breij, Fund Manager at Cordaid.

Over the last 5 years the European Investment Bank has provided over EUR 1 billion for small business funding in Africa, the Caribbean and Pacific regions, and South Africa. Experience of working closely with local banks to improve small business lending can be seen in recent lending programmes in Uganda and Kenya to provide long-term funding in Euro and US dollars, as well as local currency, to selected intermediary banks in Uganda and Kenya under the Private Enterprise Finance Facility. This initiative will be expanded in the coming weeks with other local banks.

The Dalberg report was launched in London today by the Aspen Network of Development Entrepreneurs at the Shell Centre in London. The detailed research into the effectiveness of supporting small business in developing countries through financial intermediaries was guided by representatives of Cordaid, the Global Impact Investing Network and ANDE, as well as development finance professionals and a Fellow from Harvard’s Center for International Development.  The study was presented alongside the new Argidius-ANDE Finance Challenge to find innovative financial solutions for small firms in developing countries requiring start-up capital.

Report on Support to SMEs in Developing Countries Through Financial Intermediaries - November 2011