Promoting Micro, Small, and Medium Enterprises’ financial access to boost growth and jobs in Ecuador – World Bank Group

Report on the MSME Financial Access Project in Ecuador

Development Context and Challenges

An analysis of Ecuador’s economic landscape reveals significant challenges impacting the achievement of Sustainable Development Goals, particularly SDG 8 (Decent Work and Economic Growth). Key issues include:

• Micro, Small, and Medium Enterprises (MSMEs), which represent 99 percent of firms and 60 percent of formal employment, face persistent financing gaps.
• Systemic shocks, including political turmoil and energy crises, have strained credit provision for this vital sector.
• The national financial system operates under constraints, such as interest-rate caps, that preclude the efficient capital allocation necessary for sustainable economic growth.
• Historical weaknesses in the design and oversight of development bank lending programs have led to ineffectiveness.

Project Outcomes and Alignment with Sustainable Development Goals

Now in its fifth year of implementation, the project has demonstrated significant progress in advancing several SDGs through targeted interventions.

SDG 8: Decent Work and Economic Growth

The project has directly contributed to fostering sustained, inclusive, and sustainable economic growth, full and productive employment, and decent work for all.

1. Financial Access and Enterprise Growth: Financial access was provided to 24,522 MSMEs, representing 315 percent of the initial target. This has enhanced their growth in terms of employment, sales, and assets.
2. Job Creation: An impact evaluation revealed the creation of an average of 1.5 new jobs per beneficiary firm, directly addressing employment targets.
3. Loan Disbursement: The National Finance Corporation (CFN) issued 26,169 loans, a substantial increase from the 3,000 firms that received credit when the project began in 2020.

SDG 5: Gender Equality

The project has made significant strides in achieving gender equality and empowering women-led enterprises.

1. Support for Women-Led Firms: 59 percent of all beneficiary firms (14,410) are women-led or women-owned.
2. Equitable Growth: The project successfully reduced the gender gap in economic outcomes, with impact evaluations showing similar growth in jobs and sales for both female- and male-led firms.

SDG 10: Reduced Inequalities

A primary achievement has been the reduction of inequality by providing access to finance for previously excluded enterprises.

1. Impact on Unbanked Firms: The project had a profound impact on firms without previous access to credit.
2. Enhanced Performance: These firms doubled their sales and created an average of 2.5 jobs, demonstrating the project’s effectiveness in promoting financial inclusion and reducing economic disparities.

SDG 16 & 17: Strong Institutions and Partnerships for the Goals

The project’s approach focused on building effective, accountable, and inclusive institutions and strengthening partnerships to achieve the goals.

1. Institutional Strengthening: The project supported the financial and institutional turnaround of the CFN, which has become a key driver of MSME credit. CFN was awarded a AAA- credit rating, placing it at the same level as the largest commercial banks in Ecuador.
2. Strategic Mandate Shift: CFN’s mandate shifted to focus solely on second-tier operations, enabling a sustainable change in its statutes and staffing structure.
3. Private Capital Mobilization: The modernization of regulations on partial credit guarantees has enabled large commercial banks to join the scheme, underscoring a successful drive to mobilize private capital for the productive sector, in line with partnership goals.

Identified Sustainable Development Goals (SDGs)

• SDG 8: Decent Work and Economic Growth

  The article directly addresses this goal by focusing on Micro, Small, and Medium Enterprises (MSMEs), which are critical for employment and economic activity in Ecuador. The project’s success in creating new jobs (an average of 1.5 per firm), increasing sales and assets for beneficiary firms, and providing financial access to over 24,000 MSMEs are all core components of promoting sustained, inclusive, and sustainable economic growth and decent work.

• SDG 5: Gender Equality

  This goal is explicitly mentioned in the article under “Contribution to WBG Targets and Jobs.” The project demonstrates a strong commitment to gender equality by ensuring that 59% of the beneficiary firms (14,410 in total) are women-led or women-owned. The finding that female-led firms experienced similar growth in jobs and sales as male-led firms indicates the project is effectively reducing the gender gap in economic opportunities.

• SDG 9: Industry, Innovation, and Infrastructure

  The article connects to this goal by highlighting the importance of financial infrastructure for small-scale enterprises. The project’s core activity is to increase the access of MSMEs to financial services and credit. By strengthening the National Finance Corporation (CFN) and modernizing regulations to improve credit provision, the project builds resilient financial infrastructure that supports industrialization and enterprise growth.

• SDG 17: Partnerships for the Goals

  The project itself is an example of a partnership between the World Bank Group (WBG) and a national institution in Ecuador (CFN). Furthermore, the article mentions the modernization of regulations on partial credit guarantees, which has enabled “large banks to join the scheme, underscoring the drive for private capital mobilization to the productive sector.” This mobilization of private capital is a key aspect of strengthening the means of implementation and revitalizing global partnerships for sustainable development.

Identified SDG Targets

• Target 8.3: Promote development-oriented policies that support productive activities, decent job creation, entrepreneurship, creativity and innovation, and encourage the formalization and growth of micro-, small- and medium-sized enterprises, including through access to financial services.

  The entire project described in the article is an embodiment of this target. It directly supports MSMEs by providing them with crucial “access to financial services” (26,169 loans), which in turn fosters “decent job creation” (1.5 new jobs per firm) and promotes their growth in “sales, and assets.”

• Target 5.a: Undertake reforms to give women equal rights to economic resources, as well as access to ownership and control over… financial services.

  The project actively works towards this target by ensuring a significant portion of its beneficiaries are women. By providing financial access to 14,410 women-led/owned firms, the project directly enhances women’s access to financial services, which are a critical economic resource for empowerment and enterprise growth.

• Target 9.3: Increase the access of small-scale industrial and other enterprises… to financial services, including affordable credit, and their integration into value chains and markets.

  The article’s central theme is increasing financial access for MSMEs. The project provided 26,169 loans to 24,522 MSMEs, a substantial increase from the 3,000 firms that received credit at the project’s start. This directly addresses the target of increasing access to financial services and credit for small-scale enterprises.

• Target 8.10: Strengthen the capacity of domestic financial institutions to encourage and expand access to banking, insurance and financial services for all.

  The project supported the “institutional strengthening and financial turnaround” of the National Finance Corporation (CFN). This is evidenced by CFN achieving a “AAA- credit rating,” shifting its mandate to become a more efficient second-tier lender, and modernizing its regulations. These actions directly strengthen a domestic financial institution to expand financial access.

Identified Indicators

• Number of MSMEs receiving financial access

  The article explicitly states that the project “provided financial access to 24,522 MSMEs.” This is a direct quantitative indicator of progress towards providing financial services to small enterprises (Targets 8.3 and 9.3).

• Number of new jobs created

  The impact evaluation mentioned in the article provides a clear indicator: “the project created an average of 1.5 new jobs per beneficiary firm” and “2.5 jobs on average” for firms without prior credit access. This metric directly measures the project’s contribution to decent work and employment (Target 8.3).

• Proportion of women-owned/led enterprises among beneficiaries

  The article specifies that “59 percent of beneficiary firms are women-led or women-owned,” and provides the absolute number of “14,410 women-led/owned firms.” This serves as a key indicator for measuring progress towards gender equality and women’s economic empowerment (Target 5.a).

• Growth in sales and assets of beneficiary firms

  The article mentions that the project enhanced MSME “growth in terms of employment, sales, and assets” and that firms without previous credit “doubled their sales.” While not fully quantified for all firms, these are clear indicators of economic growth and enterprise development (Target 8.3).

• Credit rating of the supported financial institution

  The article states that “CFN was awarded a AAA- credit rating.” This is a specific indicator of the strengthened capacity and stability of a domestic financial institution, which is crucial for sustainable credit provision (Target 8.10).

Summary of SDGs, Targets, and Indicators

Source: worldbank.org