U.S. Investments Help Boost Global Economic Growth

23 May 2014

As Americans celebrated National Small Business Week, the U.S. government pointed to its support for small businesses beyond U.S. borders through its investments in the multilateral development banks (MDBs).

The MDBs, including the World Bank and regional development banks, "work to strengthen business environments in developing countries so that small and medium-sized enterprises (SMEs) can grow and thrive," says a May 15 article on the U.S. Treasury Department website. Promoting SMEs around the world creates jobs and is the foundation for lifting millions of people out of extreme poverty and into the middle class, it said.

President Obama, in a statement on Small Business Week, said "small businesses represent what is best about America — that with hard work and ingenuity, anyone — no matter their background — can build a better future for themselves and their families."

In developing and emerging economies, SMEs account for more than 80 percent of employment opportunities and are crucial for growth, the Treasury Department article said, but they often lack access to the capital they need to operate and expand. The United States promotes efforts at the MDBs to address the systemic financial constraints on SMEs, addressing such issues as insufficient track records of creditworthiness, absence of credit information, lack of traditional collateral and high transaction costs.

The article highlighted a few examples of the MDBs' work to promote small businesses around the world:

• The Small and Medium Enterprise Department of the World Bank's International Finance Corporation provides investment and advisory services to SMEs in more than 70 countries, and a World Bank report helps identify bottlenecks to starting new SMEs. The report ranks countries across the world by ease of doing business and helps foreign investors assess market opportunities.

• The United States has directly supported the European Bank for Reconstruction and Development's SME Trust Fund, which supports local bank lending to SMEs. The fund has also financed business advisory services that help small businesses boost their export competitiveness.

• The Inter-American Development Bank's Inter-American Investment Corporation is the only multilateral private sector financing institution in Latin America and the Caribbean that focuses specifically on SMEs. Over its 30-year history, it has approved nearly 800 direct loans to SMEs and financial intermediaries, totaling more than $4.8 billion. This includes a growing local-currency lending program that allows it to lend directly to small businesses. It also offers technical assistance and help in reducing energy costs.

• The Inter-American Development Bank's Multilateral Investment Fund places special emphasis on identifying, developing and promoting innovative SME business models and creative, market-based solutions to development challenges in areas such as microfinance, mobile banking, microinsurance, women's empowerment through business and youth training. Focusing on low-income populations, it has approved more than 1,600 projects totaling more than $1.9 billion since 1993. It also supports SMEs through venture capital and business incubators and by helping financial institutions increase their lending to SMEs.

• The African Development Bank supports a wide variety of micro-, small and medium-sized enterprises through lines of credit and guarantee facilities for local banks. It also provides policy advice and resources for technical assistance and capacity building. From 2008 to 2012, 34 percent of the its private sector operations targeted microenterprises and SMEs, and it has set a goal of scaling up its financing. It recently launched a $125 million SME program to support local financial institutions (including banks, microfinance institutions and leasing companies) through letters of credit for on-lending to SMEs. It also has programs to develop local businesses and expand financial access for female entrepreneurs.

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