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Small Projects, Big Impact

April 22, 2009—In the world’s poorest countries, where nearly all business is small business, encouraging the growth of small and medium-size enterprises (SMEs) is critical to the creation of jobs, economic growth, and poverty reduction. This is especially true when countries are experiencing additional challenges resulting from the current global economic crisis. According to the World Bank Institute, SMEs account for over 60 percent of GDP and 70 percent of total employment in low-income countries. In middle-income countries, they produce close to 70 percent of GDP and 95 percent of total employment.

To facilitate foreign direct investment into this critical sector of the economy, MIGA launched its Small Investment Program (SIP) in 2005. The SIP offers investors investing in SMEs a standardized package of risk coverage, including currency inconvertibility and transfer restriction, expropriation, and war and civil disturbance. Applicants for MIGA’s cover under the SIP benefit from a streamlined underwriting process, discounted premiums, and there is no application fee for small and medium investors.

Since inception, a diverse group of investors has elected to receive coverage under the SIP. A significant number of these investors are from emerging market countries, thereby supporting MIGA’s priority of encouraging South-South investments.

Supporting microfinance in Pakistan 

Traditionally, banks have not considered poor people to be a viable market, forcing millions throughout the world to address their need for financial services through a variety of informal financial relationships with moneylenders, savings clubs, and credit associations. But these tend to be erratic and somewhat insecure. Microfinance offers vulnerable people access to basic financial services such as loans, savings, money transfer services, and micro-insurance to enable them to run their businesses, build assets, and manage risks.

MIGA’s guarantees totaling $1.74 million supported the establishment of Kashf Microfinance Bank to make financial services available to the majority of unbanked population. Over the next five years, KMB will reach one million small depositors and 350,000 entrepreneurs through a network of over 100 branches across Pakistan. The network will be supplemented by 300 service sites closer to low-income communities.

At the inauguration of the first branch of Kashf Microfinance Bank in Lahore on December 2, 2008, the Governor of the State Bank of Pakistan, Dr. Shamshad Akhtar, said microfinance is the only way to reduce widespread poverty in the country.“Microfinance will help Pakistan tremendously by providing financial services to the poor.” 

Fostering electronic banking in Rwanda

As the concept of plastic money begins to take hold in sub-Saharan Africa, Rwanda’s financial sector is among those that have joined the growing number of countries embracing electronic banking.

SIMTEL, the country’s electronic payments service provider, is hoping that one million Rwandans will be ATM cardholders by 2010. Statistics indicate that currently only 12,000 people in Rwanda have ATM cards. The company plans to increase the number of ATM machines and sale points to help it attract more users.

The SIMTEL consortium recently recapitalized, with the African Development Corporation (ADC) IT & Payment Solutions acquiring a 70 percent stake after receiving a $9.5 million guarantee under MIGA’s SIP program.

Rogers Munyampenda , SIMTEL’s Managing Director, says the new partnership with ADC will enable the company to build on existing structures, expand the number of ATMs and increase the number of terminals, and extend services to customers. "Today our vision is to maximize the economic benefits of an ICT based payment system fully compliant with international principles and standards.”

The advantages spinning from electronic banking have the potential to increase domestic sales volumes, impact positively on GDP, reduce the huge amount of cash in circulation, and save on notes printing, increase the banking population, attract more foreign income for the tourism sector, and stimulate the creation of new types of businesses. Bringing a large segment of the population into the formal economy is expected to have a positive impact on Rwanda’s development.

Expanding tourism and generating jobs in Benin

While the financial crisis has had an impact on tourism, developing country markets still represent significant untapped potential in this sector. Benin is a case in point as a country considered a “nature and adventure” tourism destination—but with ageing facilities.

MIGA is providing political risk insurance that will support the upgrade of the Hotel de la Plage in Cotonou, located on the Gulf of Guinea coast near the city center. The upgraded 100-room, four-star hotel will cater to the needs of business travelers and tourists. MIGA has already issued two guarantees to the same Malian investor for its investments in hotels in Burkina Faso and Guinea-Bissau.

Tourism is a significant vehicle for economic progress.  It generates employment, foreign exchange, tax revenues and contributes to poverty alleviation by having a direct and indirect impact on a number of industries, such as: catering, transportation, construction, tour operators, hospitality services and retail.

Since its launch, MIGA has issued more than $62.7 million in guarantees for 26 projects under the SIP. The program underscores the agency’s commitment to supporting smaller projects that can demonstrate big development impact, while adhering to another priority of promoting investments in the world’s poorest countries.

Click here to learn more about the SIP.

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