Problem description

Public measures taken to curb the spread of Covid-19 are causing significant operational disruption for many actors. Self-employed women and men not being able to leave their home and to generate their daily income, quarantined employees, failing supply chains, and sudden drops in customer demand are causing serious problems for businesses across a wide range of sectors. As can be observed in many SDC private sector development (PSD) projects, this results in unanticipated pressure on working capital and liquidity, in particular on organisations with low cash flows such as micro, small, and medium enterprises (MSMEs). These pressures can lead, in worst cases, to MSMEs going bankrupt and to entrepreneurs and employees losing their income source. According to the UN and UNCTAD, women and girls are disproportionally affected by the pandemic as they generally earn less, save less, have lower ownership of assets (e.g. land), hold insecure jobs in the informal sector and have limited access to credits. Regulations on obligatory levels of liquidity constrain financial institutions, which in turn are unable to finance beneficiaries (households, smallholder farmers and MSMEs). The recovery of MSMEs is critical, as small businesses account for two-thirds of the globe’s jobs and half of its GDP as stated by IFC.   

While most European countries have taken some form of measure to protect businesses from the effects of the coronavirus crisis, governments in many of SDC's partner countries are struggling to provide emergency support, especially for MSMEs. Further, most of the micro and small enterprises are on the margins of the formal economy or trade informally. For the majority of them it will therefore be difficult or impossible to access emergency support provided by some governments. They will rely on external assistance. 

Micro and SME finance through specialized investment managers such as BlueOrchard or responsAbility Investments is an important liquidity source for MSME financial institutions, which then provide loans to their MSME clients. Yet, in times of crisis investors often try to move their assets into ‘safe havens’, reducing their investments in emerging markets. This could consequently put more pressure on the liquidity of MSMEs. The MSME finance industry has reached a notable memorandum of understanding for coordination in response to Covid-19, which shall support their MSME clients to adequately respond to temporary changes in business conditions. However, the MoU is only a collection of recommendations and has no binding character. In addition, communication such as from the GIIN, and initiatives, like a proposal by responsAbility for a donor-backed emergency liquidity facility, have emerged among the actors within the MSME finance industry to respond in an adequate manner to the liquidity crisis.

Possible Solutions for SDC projects

SDC projects can provide a wide range of support in this respect, such as 

• Support and catalyse access to emergency funds, both national and international, Provide information to private sector partners on available funds, their access requirements, and support access process etc. 
• Support the negotiations for controlling interest rate to avoid abusive increase, grace periods, debt restructuring, etc.
• Propose specific technical support to financial institutions in liquidity and risk management.

Best practices

Governmental support to MSMEs: The Peruvian Government has created the Programme Reactiva Perú to guarantee working capital loans of any type of business as well as a Business Support Fund for MSME to facilitate access to finance to cope with the economic problems generated by the state of emergency due to the Coronavirus pandemic.

Funding Opportunities

• COVID-19 Innovation Hub: The Covid-19 Innovation Hub is powered by Global Innovation Exchange (GIE) and is a Joint Initiative of USAID, Australian Aid, KOICA and Results for Development. The key objective is to celebrate, source, and supply innovations across 12 Covid-19 categories. It also includes a page on funding calls for Covid-19 innovation activities. 
• Leverist.de: Seek and find solutions to challenges arising through Covid-19: The current health crisis creates new needs every day in Europe and in developing and emerging countries. Companies worldwide are looking for new reliable partners or suppliers in times of crisis. leverist.de is an online platform that combines demands and solutions to directly support developing and emerging countries in overcoming the crisis.
• lab of tomorrow: In response to the Corona crisis, BMZ’s lab of tomorrow project offers a quick and digital format of its innovation process for co-creating and scaling sustainable business-driven solutions for developing countries. Currently, it is searching for challenges that are related to the Corona pandemic as well as dedicated entrepreneurial actors that are ready and eager to develop fitting solutions in interdisciplinary teams and bring them to market with the help of such a shortened and remote lot process. 
• develoPPP.de: In addition to projects from the ongoing quarterly develoPPP.de ideas competitions, BMZ currently supports measures by privately owned companies that directly and significantly mitigate the negative impact of the corona pandemic in developing and emerging countries. Suitable projects can be funded with up to 200.000 EUR, in exceptional cases and in compliance with EU law higher funding may be possible. The public contribution can reach up to 100% of the project costs. The program is open for European companies as well as for companies from developing or emerging countries that meet certain requirements.