Sustainable MSME Finance Reference Guide

Micro, small and medium enterprises (MSMEs) are essential in the transition to a more sustainable economy. They comprise 90% of businesses worldwide and make up more than 50 percent of all employment.

However, MSMEs' access to finance in emerging markets remains severely constrained, restricting not only business growth but also their sustainability efforts. Financial institutions (FIs) have an important role in bridging the MSME finance gap while enabling their green and just transition. Sustainable finance can be used to fill this gap while benefitting FIs themselves by expanding their portfolios and diversifying their investors.

Sustainable finance has rapidly developed in the last few years. Nonetheless, there is a lack of market guidance on sustainable finance applied to the specific context of MSMEs. Their typical financing needs comprise operational expenditures of smaller amounts, contrasting with the large capital expenditure projects of bigger companies.

To help financial institutions to translate sustainable finance principles to the operations they have with MSMEs, IFC Green Bond Technical Assistance Program (GB-TAP) has developed the Sustainable MSME Finance Reference Guide.

This first-of-its-kind Guide sets out a practical approach for FIs in emerging markets on how to implement sustainable finance for MSMEs. It does this by developing a suitable use of proceeds list for capital expenditures, select operational expenditures, and an approach for supporting MSME operational finance needs more broadly. It also supports steps for project identification and evaluation, provides resources for governance processes for FIs, and provides guidance on potential reporting metrics that could be used for sustainable MSME finance.

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