Strategic Focus Areas  |   Pillar 3

Financing the Real Economy

Objective
Reduced financing gaps and broader coverage for business.

Overview
Emerging markets and developing economies (EMDEs) require private sector financing to support vital sectors like corporations, Micro, Small & Medium Enterprises (MSMEs), infrastructure, housing, and agriculture. F4D aids countries in filling these critical gaps by focusing on corporate and MSME finance, corporate debt restructuring, and insolvency regimes.

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Priority areas section

Priority Areas

Corporate and MSME Finance: F4D facilitates access to tailored financial services for MSMEs, including support for community-based financial institutions and microfinance. It promotes transparent financial reporting by SMEs, women entrepreneurship, and reforms in Development Finance Institutions. The initiative diversifies funding sources with innovative capital market solutions and equity funding options like angel funds, private equity, venture capital, and dedicated stock exchange compartments.

Corporate Debt Restructuring and Insolvency: F4D supports countries in developing insolvency and debt resolution regulatory frameworks. Activities encompass analysis of the legal framework, training for regulators and judges, and the establishment of asset management companies.

Infrastructure Finance: F4D focuses on addressing market constraints in infrastructure finance, including deepening local currency markets, aligning projects with SDGs and climate change goals, and enhancing capacities among domestic investors.

Housing Finance: F4D aims to create resilient and affordable housing finance markets through diagnostics and knowledge dissemination, linking with financing operations, and leveraging the private sector.

Agricultural Finance: F4D provides policy advisory, strengthens stakeholders, and develops innovative products to improve access to finance for farmers and agribusiness SMEs.

Global Initiatives: F4D is developing a toolkit for enhancing SME financing through lending operations. This toolkit offers a framework for addressing SME financing gaps and assessing interventions' impact, challenges, and design lessons.

F4D aims to assist policymakers in designing SME finance programs that foster SME sector growth, resulting in higher overall economic growth, increased productivity, and job creation.

For example, at the global level, the team is developing a practical toolkit on how to design lending operations to enhance SME financing. The toolkit will help World Bank teams provide better support to governments of EMDEs as they seek to bridge the SME finance gap. It will provide a framework to evaluate typical SME financing interventions, identify the specific challenges or market failures they target, their pros and cons, and present global evidence of their effectiveness. Additionally, it will provide insights and lessons learned from the implementation of these types of interventions across countries.

IN FOCUS: Providing Access to Financing for Critical Sectors for Economic Growth in India

India's Systematic Country Diagnostic emphasizes the country's need to accelerate infrastructure investment to 8.8 percent of GDP, on a climate-adjusted basis, from 2016 to 2030, to achieve its growth agenda. The Country Partnership Framework highlights the importance of increased infrastructure investment to support rapid urbanization and address the resulting pressure on urban services such as water, housing, and transportation. Additionally, it recognizes the role of the private sector in catalyzing investments for critical infrastructure development.

The F4D grant is providing analytical work and technical support to the Government of India to address the significant financing gap in infrastructure and to advance the ecosystem for green financing.

In FY23, the team initiated research on the operational model of the Credit Enhancement Fund. This fund could be established either as a separate company or as a fund under NaBFID (a development finance institution in India, specifically for the infrastructure sector). A new facility is also being considered to support state governments and municipalities in improving infrastructure planning and financing. The team is currently working on a report on municipal bonds and other innovative mechanisms.

To support the government’s green finance agenda, the team provided support to the Ministry of MSMEs in defining a green taxonomy for green projects. A report on energy service companies has also been shared with the Ministry to inform their decarbonization plan.