Financial support to informal MSMEs, the case of financial and business development services in Mongolia.
Access to credit is of fundamental importance in the development and sustainability of an entrepreneurial project. In the Informal Economy, this is even more acute since informal microenterprises do not benefit from the necessary recognition and strength to be able to finance themselves on the traditional financial market.
For this reason, some international donors are implementing MSMEs’ assistance projects facilitating the access to credit for not-bankable enterprises.
The project "Support to SME development in Mongolia" funded by the EBRD, aimed to improve the business environment in general, through the provision of financial support and business development services to MSMEs in rural areas.
The approach adopted was mainly based on the concession of low-rate loans and the provision of commercial and financial advisory services to MSMEs that cannot be financed by regular financial institutions because of their poor performance or the nature of their business.
The effectiveness of this approach in the informal economy should, however, be adapted to the characteristics of these enterprises, such as the small size of businesses, their fragility, and their status as entities outside the legal framework of reference...
Therefore, for the project to benefit informal MSMEs, it is necessary for the service provider organizations, for example, to have an operational framework adapted to the specificities of the informal economy.
Moreover, the sizing of the loans granted and the terms of repayment should be subject to a preliminary reflection during the conception phase of the project, that allows to go beyond the traditional framework.
More detailed information on this good practice is available at the page 45 of the volume 4.3 “Good Practices and Lessons Learned – Case studies of 15 EC-funded projects”.