The International Finance Corporation has launched a US$6 billion risk sharing mechanism in partnership with international insurers to expand access to financing for small and medium sized enterprises across emerging markets.
The initiative, unveiled by the private sector arm of the World Bank Group, is designed to address one of the most persistent barriers to private sector growth in developing economies, limited access to affordable credit for SMEs. By leveraging insurance backed risk coverage, the programme aims to unlock additional lending capacity from financial institutions while mitigating credit risk.
Under the structure of the mechanism, participating insurers will share a portion of the credit risk associated with loans extended to eligible SMEs. This arrangement allows banks and other lenders to expand their loan portfolios without bearing the full exposure to potential defaults. The model effectively uses private insurance capital to crowd in more financing for businesses that are often considered too risky or insufficiently collateralised by traditional lenders.
The IFC said the programme is intended to support job creation, stimulate entrepreneurship and strengthen local private sectors in regions where SMEs account for a significant share of employment and economic output. In many emerging markets, small and medium sized businesses contribute more than half of formal jobs but face chronic funding gaps estimated in the trillions of dollars globally.
By transferring part of the credit risk to insurers, the mechanism reduces the capital intensity of SME lending for partner banks. This can improve balance sheet efficiency and encourage greater participation in segments that might otherwise be underserved. The approach reflects a broader trend among development finance institutions to use blended finance and risk mitigation tools to mobilise private capital at scale.
The insurance backed structure also provides greater predictability for lenders, particularly in volatile economic environments where currency fluctuations, inflation and interest rate pressures can heighten default risks. For insurers, the programme offers exposure to diversified SME loan portfolios supported by IFC’s due diligence and monitoring frameworks.
Access to finance remains a major constraint for businesses in Africa, Asia and Latin America, where SMEs frequently cite high borrowing costs and limited credit availability as key obstacles to expansion. Development institutions have increasingly prioritised mechanisms that leverage private sector participation rather than relying solely on direct lending.
The IFC has emphasised that strengthening SME ecosystems is essential for inclusive growth. By improving financing channels, policymakers and development partners aim to empower local enterprises to invest in productivity, technology adoption and workforce development.
The $6 billion facility underscores the IFC’s strategy of mobilising third party capital alongside its own investments. Rather than acting solely as a lender, the organisation is positioning itself as a catalyst that structures transactions capable of attracting commercial insurers and financial institutions into higher risk markets.
As global economic uncertainty persists, innovative risk sharing arrangements are becoming central to sustaining credit flows to smaller businesses. The success of the new mechanism will depend on uptake by insurers and partner banks, as well as the quality of underlying loan portfolios. If effectively implemented, the programme could serve as a model for scaling SME finance in other emerging regions.
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