COVID RESPONSE

A select group of members of the THK Roadmap for Blended Finance has published a Statement comprising key recommendations for DFIs, MDBs and Shareholders to best speed up a sustainable and resilient recovery in developing economies. The aim of the Statement is to inform discussion and action by THK members and other interested stakeholders in relation to the role of DFIs, MDBs and Shareholders in the wake of Covid-19. The Statement is informed by a background report on the topic written by the same Group.

All THK members and other stakeholders are encouraged to publicly support the Statement by signing up either as an individual or as a representative of an organisation. Furthermore, any comments on the Statement are welcome as an input to the discussion on the role of DFIs, MDBs and Shareholders in the wake of Covid-19.

A list of signatories and comments will be published in due course, and comments on the Statement reviewed to inform further work undertaken by the THK Platform.

The introduction outlines the predicted impact of the Covid-19 crisis for developing countries, in particular MSMEs, which act as the backbone of their economies. It demonstrates the critical need to use development finance in order to recalibrate these economies back towards achievement of the sustainable development goals (SDGs) and 2030 Agenda.

Section 1: The initial DFI response, including action taken to support existing and new clients through the maintenance of local presence and greater collaboration.

Section 2: Structural constraints preventing DFIs from harnessing their full development potential, including balance sheet concerns, limitations on the use of catalytic blended finance, as well as general risk aversion and a tendency towards conservative lending practices.

Section 3: What needs to change, including the creation of better enabling environments, the strengthening of local partnerships and the mobilisation of private finance at scale to invest in MSMEs, with a focus on sustainability and resilience, as well as gender.

Section 4: How such reforms can be realised, most notably in the creation of a Covid-19 stretch fund.

The conclusion distils the findings of the paper into recommendations for stakeholders across DFIs and their shareholders, with a view to triggering discussions amongst stakeholders.

Devex | Opinion: How can DFIs do more to help MSMEs survive COVID-19?

The global scale of the COVID-19 crisis threatens micro-, small-, and medium-sized enterprises, which dominate employment around the world — especially in lowest-income countries.

In comparison with large organizations, MSMEs are seeing larger drops in sales, reduced retained earnings, less access to external finance, and fewer ways to adapt and adjust, while also employing a larger share of the most vulnerable populations. Women MSME owners are particularly hard hit by the pandemic, especially as their businesses are often in retail service industries that involve direct contact with customers.

With tight constraints on fiscal space and urgent social spending needs, the governments of most low-income countries are not able to extend support to MSMEs, while governments in more advanced economies, also hit by the recession, may likely opt to cut their development assistance.