KEY POINTS
- The World Bank Group is promoting digital technology and data-based solutions to expand financing for small businesses in developing economies.
- MSMEs account for nine in 10 businesses and three-quarters of workers in developing economies, according to the Bank.
- About 1.2 billion young people are expected to reach working age in developing countries over the next 10 to 15 years, while only around 420 million jobs are projected.
- The World Bank says MSMEs face an annual financing gap exceeding $4 trillion.
- Ajay Banga says better payment systems, business data and risk-sharing arrangements can help lenders serve businesses excluded by traditional lending models.
MAIN STORY
The World Bank Group is seeking to expand access to finance for micro, small and medium enterprises (MSMEs) in developing economies through digital technology, improved business data and stronger connections between small businesses and financial institutions.
World Bank Group President Ajay Banga outlined the approach at the Bank’s MSME Finance: Leveraging Data for Jobs event in Bangkok, Thailand, on Tuesday, October 13, during the institution’s Annual Meetings.
The initiative aims to make small businesses more visible to lenders, connect them to markets and services, strengthen their capacity to grow and improve their access to funding.
According to the World Bank Group, MSMEs account for nine in 10 businesses and three-quarters of workers in developing economies. The institution considers their ability to expand and employ more people important to addressing a growing jobs challenge.
The Bank estimates that 1.2 billion people in developing countries will reach working age over the next 10 to 15 years, while only around 420 million jobs are projected to be created during that period.
Banga identified energy and infrastructure, agribusiness, primary healthcare, tourism and value-added manufacturing as sectors with substantial potential to create jobs. He said small businesses were central to these sectors but needed financing and capacity-building support to expand their operations.
The World Bank Group has also been directing resources towards infrastructure, governance and private capital mobilisation to improve the conditions businesses need to grow. Banga said the institution committed $40 billion to infrastructure and a further $24 billion to governance improvements in the previous year. Those figures require confirmation against the Bank’s relevant financial-year records before publication.
A major obstacle facing MSMEs is the difficulty of obtaining loans on affordable terms. The World Bank Group estimates that businesses in developing countries face an annual financing gap of more than $4 trillion.
Banga attributed the gap to high lending costs, collateral requirements, regulatory constraints and inadequate credit information. Banks often rely on property and other physical assets as security, which excludes businesses that lack substantial assets despite having viable operations.
The Bank’s proposed approach involves using digital payments, electronic invoices and tax and utility payment records to help lenders assess businesses through their cash flows and transaction histories.
These records could give financial institutions a clearer picture of a business’s financial activity and repayment capacity, reducing their dependence on traditional collateral requirements.
The strategy also includes digital platforms intended to connect MSMEs with customers, suppliers, logistics providers, professional services and potential financiers. The Bank says governments can support the process by simplifying business registration, licensing and other regulatory procedures.
Banga said the institution had supported 35 countries in reducing bureaucratic bottlenecks, 10 in improving insolvency frameworks and seven in reforming procurement and competition regulations over the preceding three years.
The World Bank Group has also invested in more than 100 fintech companies and aggregators, according to Banga. It is exploring additional financing arrangements, including equity investments, loans backed by MSME receivables and risk-sharing mechanisms designed to encourage lending to underserved businesses.
Private capital mobilisation is another part of the approach. The World Bank Group reported that it mobilised $112 billion in private capital in fiscal 2026, alongside $123.5 billion in financing from its own resources.
Banga acknowledged that more investment was needed, particularly in fragile and conflict-affected countries, where businesses often face greater barriers to finance.
THE ISSUES
The central problem is that many small businesses struggle to obtain credit not necessarily because they lack customers or revenue, but because lenders cannot adequately assess their financial records or consider them worth the cost of servicing.
Traditional lending can favour businesses with property, extensive documentation and established credit histories. Smaller enterprises, informal businesses and young firms may lack those requirements even when they have regular sales.
Digital records could help address this information gap. A business with a consistent history of electronic payments, invoices and utility bills may be able to demonstrate its financial activity more clearly than one whose transactions are largely undocumented.
However, access to digital data does not automatically guarantee affordable credit. Lenders must still assess repayment risks, and businesses need reliable payment systems, appropriate digital infrastructure and safeguards for their financial information.
The cost of borrowing also matters. Better records may help a lender assess a business, but they do not eliminate high interest rates, weak demand, currency risks or other factors that affect lending decisions.
For Nigeria, the strategy is relevant to small businesses that have limited access to formal credit despite contributing to employment and commercial activity. Wider use of digital payments and more reliable business records could improve their visibility to lenders, while simpler registration and regulatory processes could reduce some barriers to formalisation.
The challenge will be ensuring that digital lending solutions reach smaller enterprises rather than mainly benefiting businesses that are already connected to formal financial services. The effectiveness of the approach will ultimately depend on whether it leads to more accessible financing on terms businesses can sustain.
WHAT’S BEING SAID
“MSMEs are the backbone of all five of these. They can not create jobs without funding. They can not create jobs without the right capacity building,” Banga said.
“More investment is needed, particularly in fragile and conflict-affected countries. The 112 billion dollars mobilised in private capital has not been enough because MSMEs are not just part of these economies; they are the backbone,” he said.
“We must reach the roadside mechanic in Nairobi, the seamstress in Lagos, and the exporter in Dakar; entrepreneurs that the traditional model was never designed to serve,” Banga said.
“We can not do this alone. We must build an ecosystem of fast payment systems, stronger local financial institutions, trusted intermediaries, and risk-sharing mechanisms that unlock private investment where it is needed most,” he said.
WHAT’S NEXT
The focus will be on whether digital data and payment infrastructure can translate into more lending for businesses that have historically struggled to obtain finance.
Progress will depend on cooperation between governments, banks, fintech companies, payment providers and other financial intermediaries. The proposed changes will also need to address regulatory barriers and ensure that lenders can use business data responsibly.
For developing economies, the key measure of success will be whether more small businesses can secure suitable financing, expand their operations and employ additional workers.
BOTTOM LINE
The World Bank Group wants digital records, improved business connections and risk-sharing arrangements to help close the financing gap facing MSMEs. The approach seeks to make small businesses easier to assess and finance, but its impact will depend on whether these measures translate into accessible, affordable credit and sustainable job creation.
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