02
Challenges faced by displaced MSMEs
02
Challenges faced by displaced MSMEs
Participation in traditional payment and credit services relies on a number of core requirements: access to a bank account, the ability to confirm one’s identity, assets to use as collateral for lending, a credit history, and a permanent physical location of residence or business. Access to financial services in particular has long been recognised by the United Nations (UN) as a key barrier to economic development in emerging economies.13 This is also confirmed by data from the World Bank’s Findex database, showing that 89% of adults in advanced economies have a bank account, compared to some emerging countries where we see great variations (6% in South Sudan, 21% in Pakistan and 66% in Uganda).14 Access to accounts and services has also declined in many markets as a result of problems in the correspondent banking system.15
These barriers to entry hinder the growth and potential of MSMEs. According to the Organisation for Economic Co-operation and Development (OECD) and the G20, the share of credit to the private sector in relation to GDP is significantly lower in emerging countries than the average in high-income countries (see Figure 1 ).16
89%
of adults in advanced economies
have a bank account
compared to:
6%
in South Sudan
21%
in Pakistan
66%
in Uganda
Figure 1
MSME loans also constitute a smaller portion of business credit in these nations. In Africa, 40% of MSMEs classify access to finance as their top constraining factor for growth.17 Financial exclusion of MSMEs remains high in many EMDEs meaning businesses do not have reasonable and affordable access to capital and resources, and are instead forced to rely on their own funds, or cash from friends and family to launch and sustain their businesses.18 This severely undermines the potential contributions that these MSMEs can make to local communities and the broader economy.
Displacement is on the rise as a result of various factors19 including climate events, natural disasters, poverty, ongoing conflicts and violence, and political instability. Figures from UNHCR show that 117.2 million people globally have been forcibly displaced or were stateless in 2023 alone.20 Climate change might further exacerbate these figures in the future, as around 1.2 billion people are expected to be displaced by 2050 due to natural disasters and other ecological threats.21 Displacement directly impacts access to basic financial services – a study by Consultative Group to Assist the Poor (CGAP) identifies that over 75% of adults living in countries with humanitarian crises remain outside of the formal financial system and struggle to cope with shocks and emergencies.22
Pre-existing challenges around financial exclusion are compounded in crisis situations in these markets by disruptions to traditional financial services providers (FSPs), physical and financial infrastructure, and other legal barriers such as lack of documentation that make it difficult for MSMEs to access finance through traditional channels. Access to core services for businesses, such as payments processing or access to credit is likely to be limited or unreliable.
Furthermore, traditional banks in these markets typically respond to crises by tightening lending criteria or reducing their geographical reach, especially in times of economic uncertainty. This deepens financial exclusion for MSMEs, hindering their capacity to flourish and adjust to evolving market conditions. For example, the destruction caused by the 2010 Haiti earthquake rendered traditional banking infrastructure inoperable, making it nearly impossible for affected individuals and communities, including MSMEs, to access much-needed financial assistance. As a result, microfinance institutions had to collaborate with the US military to deliver financial assistance in cash by helicopter,23 raising numerous risks, including security. The experience of the Haiti earthquake underscores the critical importance of developing resilient and adaptable financial infrastructures capable of withstanding the shocks of natural disasters and other crises.
Established and widely used mobile and fintech solutions have begun to address many of the underlying financial exclusion and economic development challenges in EMDEs. The functionality of many of these, however, remains dependent on traditional banking rails that are susceptible to failure and disruption in crises. Further technological innovation has led to the emergence of new products and services that allow individuals and MSMEs greater access to the services they need to continue to provide economic growth and opportunity in their communities, even in crises. For instance, digital assets have proven helpful during the war in Ukraine, as discussed later in this report. These have enabled Ukrainians to access and transport their savings when traditional financial rails were inaccessible due to Russian attacks.24, 25
40%
of MSMEs classify access to finance as their top constraining factor for growth in Africa
75%
of adults living in countries with humanitarian crises remain outside of the formal financial system and struggle to cope with shocks and emergencies
Despite the growth of these solutions, challenges remain. Primary among these is the provision of sufficient and well-functioning digital infrastructure, which is a key enabler for the adoption of such technologies and solutions. A shortage of reliable internet connectivity and mobile network coverage can make it difficult for MSMEs to use mobile payment systems and cause transactions to be delayed or unreliable. According to a Future of Fintech in Africa report, only 40% of Africans have internet connectivity and over 600 million do not have access to reliable electricity, especially those in rural areas where power outages are a common occurrence.26, 27 Globally, refugees are 50% less likely to have an internet-capable mobile phone compared to the general population.28
Enhanced digital infrastructure and its further development should not be neglected. This is essential to the deployment of newer, innovative digital financial services across EMDE geographies.29 In Africa, internet connectivity varies based on each region, with few countries, such as Morocco, Egypt, South Africa and Nigeria being more advanced, while other countries lag far behind.30
40%
of Africans have internet connectivity
600M
Africans do not have access to reliable electricity, especially those in rural areas where power outages are a common occurrence
Participation in traditional payment and credit services relies on a number of core requirements: access to a bank account, the ability to confirm one’s identity, assets to use as collateral for lending, a credit history, and a permanent physical location of residence or business. Access to financial services in particular has long been recognised by the United Nations (UN) as a key barrier to economic development in emerging economies.13 This is also confirmed by data from the World Bank’s Findex database, showing that 89% of adults in advanced economies have a bank account, compared to some emerging countries where we see great variations (6% in South Sudan, 21% in Pakistan and 66% in Uganda).14 Access to accounts and services has also declined in many markets as a result of problems in the correspondent banking system.15
These barriers to entry hinder the growth and potential of MSMEs. According to the Organisation for Economic Co-operation and Development (OECD) and the G20, the share of credit to the private sector in relation to GDP is significantly lower in emerging countries than the average in high-income countries (see Figure 1 ).16
89%
of adults in advanced economies
have a bank account
compared to:
6%
in South Sudan
21%
in Pakistan
66%
in Uganda
Figure 1
MSME loans also constitute a smaller portion of business credit in these nations. In Africa, 40% of MSMEs classify access to finance as their top constraining factor for growth.17 Financial exclusion of MSMEs remains high in many EMDEs meaning businesses do not have reasonable and affordable access to capital and resources, and are instead forced to rely on their own funds, or cash from friends and family to launch and sustain their businesses.18 This severely undermines the potential contributions that these MSMEs can make to local communities and the broader economy.
Displacement is on the rise as a result of various factors19 including climate events, natural disasters, poverty, ongoing conflicts and violence, and political instability. Figures from UNHCR show that 117.2 million people globally have been forcibly displaced or were stateless in 2023 alone.20 Climate change might further exacerbate these figures in the future, as around 1.2 billion people are expected to be displaced by 2050 due to natural disasters and other ecological threats.21 Displacement directly impacts access to basic financial services – a study by Consultative Group to Assist the Poor (CGAP) identifies that over 75% of adults living in countries with humanitarian crises remain outside of the formal financial system and struggle to cope with shocks and emergencies.22
Pre-existing challenges around financial exclusion are compounded in crisis situations in these markets by disruptions to traditional financial services providers (FSPs), physical and financial infrastructure, and other legal barriers such as lack of documentation that make it difficult for MSMEs to access finance through traditional channels. Access to core services for businesses, such as payments processing or access to credit is likely to be limited or unreliable.
Furthermore, traditional banks in these markets typically respond to crises by tightening lending criteria or reducing their geographical reach, especially in times of economic uncertainty. This deepens financial exclusion for MSMEs, hindering their capacity to flourish and adjust to evolving market conditions. For example, the destruction caused by the 2010 Haiti earthquake rendered traditional banking infrastructure inoperable, making it nearly impossible for affected individuals and communities, including MSMEs, to access much-needed financial assistance. As a result, microfinance institutions had to collaborate with the US military to deliver financial assistance in cash by helicopter,23 raising numerous risks, including security. The experience of the Haiti earthquake underscores the critical importance of developing resilient and adaptable financial infrastructures capable of withstanding the shocks of natural disasters and other crises.
Established and widely used mobile and fintech solutions have begun to address many of the underlying financial exclusion and economic development challenges in EMDEs. The functionality of many of these, however, remains dependent on traditional banking rails that are susceptible to failure and disruption in crises. Further technological innovation has led to the emergence of new products and services that allow individuals and MSMEs greater access to the services they need to continue to provide economic growth and opportunity in their communities, even in crises. For instance, digital assets have proven helpful during the war in Ukraine, as discussed later in this report. These have enabled Ukrainians to access and transport their savings when traditional financial rails were inaccessible due to Russian attacks.24, 25
40%
of MSMEs classify access to finance as their top constraining factor for growth in Africa
75%
of adults living in countries with humanitarian crises remain outside of the formal financial system and struggle to cope with shocks and emergencies
Despite the growth of these solutions, challenges remain. Primary among these is the provision of sufficient and well-functioning digital infrastructure, which is a key enabler for the adoption of such technologies and solutions. A shortage of reliable internet connectivity and mobile network coverage can make it difficult for MSMEs to use mobile payment systems and cause transactions to be delayed or unreliable. According to a Future of Fintech in Africa report, only 40% of Africans have internet connectivity and over 600 million do not have access to reliable electricity, especially those in rural areas where power outages are a common occurrence.26, 27 Globally, refugees are 50% less likely to have an internet-capable mobile phone compared to the general population.28
Enhanced digital infrastructure and its further development should not be neglected. This is essential to the deployment of newer, innovative digital financial services across EMDE geographies.29 In Africa, internet connectivity varies based on each region, with few countries, such as Morocco, Egypt, South Africa and Nigeria being more advanced, while other countries lag far behind.30
40%
of Africans have internet connectivity
600M
Africans do not have access to reliable electricity, especially those in rural areas where power outages are a common occurrence