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ADB and Mastercard to Mobilize Funding for Women-Led MSMEs and Climate Finance

Date Published
December 4, 2024

Increasing access to bank credit for qualified MSMEs boosts their development and contributes to more resilient, inclusive growth. Photo credit: ADB.

The Asian Development Bank (ADB) and Mastercard Impact Fund have launched a partnership to bridge the financing gap for micro, small, and medium-sized enterprises (MSMEs) in Asia and the Pacific. The initiative will initially target five countries in Southeast Asia—Indonesia, Malaysia, the Philippines, Thailand, and Viet Nam—and Georgia and India, which are all developing member countries of ADB. It will focus on women-led or -owned MSMEs and climate-focused initiatives among small businesses.

Mastercard Impact Fund, which is administered by the Mastercard Center for Inclusive Growth, will provide a $5-million grant to encourage financial institutions to extend credit to MSMEs through mitigation of credit risk, performance incentives, and capacity building. The grant will support up to $1 billion of ADB financing over a 4-year period to financial institutions for on-lending to MSMEs. Mastercard Center for Inclusive Growth is a philanthropy established by Mastercard International.

ADB and Mastercard signed a memorandum of understanding to establish the groundbreaking partnership on 26 November.

$2.5 trillion credit gap

MSMEs in Asia and the Pacific face significant financing challenges, with nearly half either unserved or underserved—resulting in a credit gap estimated at $2.5 trillion. This is despite the sector’s pivotal role in driving economic growth, job creation, and in achieving regional development goals.

MSMEs play an important role in Southeast Asia, including in the BIMP-EAGA subregion. A mid-term review of the subregion’s economic and development agenda recommended broader support to MSMEs, particularly microenterprises, in the wake of the COVID-19 crisis. The scope of support will include, among others, capacity building for MSMEs on management; application of digital solutions; and better access to finance, technology, and international markets.

"MSMEs are the backbone of economies across Asia and the Pacific, yet many struggle to obtain adequate finance," said ADB’s Vice-President for Market Solutions Bhargav Dasgupta. "By combining the resources and expertise of ADB and Mastercard, this facility will unlock the potential of MSMEs, particularly those run by women or supporting climate finance, empowering businesses, and fostering inclusive and sustainable economic growth across the region.”

Mastercard Vice-Chairman and Mastercard Impact Fund Board Director Jon Huntsman said the partnership deepens the work the payments company is doing in Asia and the Pacific to support entrepreneurs and small businesses. “By bolstering resilience to climate and economic shocks, we are putting more people, communities and entrepreneurs on the path to financial inclusion and prosperity.”

In May, ADB and Mastercard Asia–Pacific signed a memorandum of understanding to cooperate on initiatives that promote financial and digital inclusion in the region. The two organizations agreed to raise awareness and exchange knowledge, share best practices, and conduct research to support and scale financial inclusion and access to finance for MSMEs, including women-owned businesses.

Financial inclusion

A new report from ADB said access to formal financial services is critical for MSME development. Unserved and underserved MSMEs use informal, unregulated financial markets that typically have higher funding costs with no client protection. “This is why financial inclusion is essential for sound finance and private sector development nationally,” the report said.

Banking dominates the region’s financial systems, so increasing access to bank credit for qualified MSMEs boosts their development and contributes to more resilient, inclusive growth, it added.

Despite challenges facing MSMEs, developing Asia’s growth momentum stems in part from the sound development of MSMEs, which generate more jobs and production in goods and, in particular, services.

Among MSMEs, women-owned enterprises represent the most underderserved group. Addressing this gap is imperative to boost the economy and promote positive societal outcomes, including women's empowerment, increased women's employment, and enhanced labor participation rates.

Based on available data from 24 countries in the region, MSMEs accounted for an average 98.7% of all enterprises, 64.6% of the workforce, and 38.3% of the national economic output.

Climate resilience

According to UNESCAP, MSMEs in developing countries are often found in climate-dependent sectors like agriculture, fisheries and tourism. However, many MSMEs do not see climate change as an immediate concern.

"In a world of rising temperatures and sea levels, unpredictable rainfall, and extreme weather events growing in frequency and intensity, the current and future challenges faced by MSMEs are daunting," the UN agency said.

It noted though climate change offers opportunities for MSMEs to increase their competitiveness, both in the domestic market and overseas. It urged governments to provide financial incentives for MSMEs to reduce their carbon footprint and implement best practice models.