WBG management should refine its SME approaches to enhance relevance and additionality by shifting benefits from better-served firms and markets to frontier states (those with underdeveloped financial systems, especially low income and FCS countries), frontier regions and underserved segments.
A key indicator of whether such a shift is occurring would be the evolution of the distribution of the TSME portfolio as well as the composition of beneficiary institutions and firms.
WBG relevance is greater when it operates at or near the frontier, especially in low income and FCS countries or regions where SMEs are not served and in countries where the financial sector has not yet developed to serve SMEs. For example, the current portfolio commitment value is relatively concentrated in upper middle income countries, so careful attention is needed to relevance and additionality, to assure resources are being used to fully realize their benefit for addressing market failures and making markets and services more equitably available to smaller enterprises, thus maximizing poverty alleviation and shared prosperity. Sequencing can be important to build basic system capacities and legal frameworks in low capacity countries to ensure a reasonable opportunity for success of targeted investments.
Management agrees with the thrust of this recommendation, notably of enhancing the relevance of WBG interventions when it operates in frontier, and especially FCS markets, but with caveats outlined below.
The WBG is increasing its focus on frontier segments and markets, for example women-led enterprises, smaller firms, and underserved markets. Over half (40 out of 73) of WB targeted SME projects are already in IDA countries, as well as 156 of 349 TSME IFC projects. The report does not appear to have conducted sufficient analysis on these trends to underpin this recommendation. It is important to note that there are also frontier markets and underserved segments in Middle-Income Countries.
For IBRD/IDA, as highlighted in the text, systemic programs of support can be more appropriate than standalone targeted SME activities in some low-income and fragile and conflict state contexts, given the need to first put in place a basic enabling environment (legal, regulatory, institutional, policy), and the relative prominence of micro and informal enterprises. Additionally, as noted in the IEG report, informal and microenterprises employ more workers than SMEs in low income countries. Thus, approach in lower income and FCS countries will continue to comprise targeted interventions as part of a broader set of support activities.
IFC will continue to emphasize frontier geographies and segments in its targeted SME work through, for example, (i) its products targeting women, climate, and agribusiness SMEs (ii) its blended finance programs (iii) its increased focus on FCS and (iv) its increased focus on financial technology and innovation. In addition, the Financial Institution Groups new focus on Partners in Development is designed to work more intensely with clients that are aligned with IFC in their interest and ability to have development impact and where IFC can have strong additionality.
MIGA will continue to focus on frontier markets and FCS for targeting SMEs as part of its internal review of SIP.
Also in FY13, MIGA launched the multi-country Conflict Affected and Fragile Economies Facility (CAFEF) to further expand MIGA operations in FCS, which has the potential to increase MIGA support for SMEs in FCS. MIGA has developed a Business Development (BD) strategy for FCS, which will be rolled out over the next few years with the help of CAFEF.
Action 2: [MIGA]: Increased MIGA efforts to support SMEs in frontier markets (IDA, FCS)
Indicator: Greater selectivity applied while supporting SMEs, with a focus on frontier markets
Baseline: SME projects supported in frontier and non-frontier markets
Target: Of the SME projects supported by MIGA, maintaining/increasing the share in frontier Markets
MIGA has provided IEG with no evidence on any action it may have taken toward the implementation of this action item.