On Friday, the Reserve Bank of India moved to expand liquidity for non-banking financial companies (NBFCs). That’s a powerful signal that commercial banks, debt funders, and development finance institutions must support frontline lenders for the world’s micro, small, and medium size enterprises (MSMEs), essential to economies everywhere.  According to the World Bank Group, MSMEs account for a staggering 9 out of 10 of businesses and half of all jobs globally. As COVID-19 has spread from a few hotspots into a global pandemic and lockdowns are in place to protect health and preserve life, we need to act to soften the blow to communities where the world’s most vulnerable people live.

Debt and equity funders must act now to stabilize and support the frontline financial service providers that empower the world’s MSMEs. These providers – modern microfinance banks, fintech lenders – are now in an unsustainable position – unable to collect loans or make new disbursements, but still expected to make debt payments to their creditors: commercial banks, development finance institutions (DFIs), and debt investors. A small business that has seen its revenue collapse can’t pay its debts; the same is true for a lender. A moratorium is essential.

Accion partners with frontline financial service providers around the world who support people historically overlooked – or poorly served – by traditional banks. Even as they face their own liquidity concerns, these providers are doing everything they can to continue serving their clients. In response to the pandemic, they are rapidly experimenting with new digital products, training clients to use digital tools, and setting up safe ways to serve clients who still need in-person interactions to do business. Many of their clients are essential businesses – mom-and-pop shops that sell food and medicine, for example.

The good news is that there are clear actions for funders and policymakers to take that could give these providers a chance at survival – and in so doing – prevent the collapse of MSMEs and defend a decade of job creation and financial inclusion of which so many countries are rightly proud:

Financial service providers must protect the small business owner and their employees. Offering a grace period on repayment of loans to MSMEs is not only compassionate, it makes good business sense. As with any crisis, this pandemic will eventually pass, and communities will recover. Now is the moment for lenders to be flexible, fair, and transparent with their customers.

Institutional creditors – possibly backed by central bank or DFI support – should extend repayment moratoria on their loans. Some funders, notably the International Finance Corporation, are doing this with their existing clients, having committed $8 billion so far. Much more needs to be done in this regard. Commercial banks and debt investors should seize this moment to take a leadership role and make a real difference for millions of hardworking men and women who depend on the lenders they finance.

Governments should act now to protect jobs and families through fiscal and monetary actions to increase liquidity for providers and the survival of their MSME sector. Providers who serve nontraditional MSMEs – microfinance, NBFCs, fintech lenders, and, in the US, Community Development Financial Institutions (CDFIs) need special attention. It is heartening that several countries have taken swift action to maintain liquidity for lenders who service these frontline providers. In addition to India’s move on Friday, Colombia has established new credit lines for payroll and loan payments for SMEs, throwing a lifeline to these firms and their employees. Peru has approved the creation of an $88 million fund to help qualified SMEs to secure working capital and/or refinance debts. Countries that have taken action must do more and others who are waiting to get engaged need to act before irreparable long-term damage is done.

The world’s financial engine for job creation need not seize up. The human toll will be extreme if it does. Getting that engine restarted after the pandemic eases will be that much harder if MSMEs and their financial service providers don’t get the support they need to survive.

We have all come to cherish and depend on small business owners and the people they employ and serve. Whether it be the Brooklyn deli near my home where my family can get a classic egg-and-cheese sandwich, or a furniture store in Lagos, or an internet café in Mexico City, let’s stand with the men and women everywhere who create jobs and provide needed services and goods to their communities. Looking ahead to when lockdowns begin to ease up and we move toward recovery, these communities – and the small businesses that serve them – will need financing to get back up and running. MSMEs and their funders are the key to recovery.

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