Caribbean & Central America - September 2021

Micro, small, and medium-sized enterprises (MSMEs) play an important role in developing economies, and a series of regional initiatives in Central America are seeking to improve their prospects following the shock of the coronavirus (Covid-19) pandemic.

A report dated 25 August from the Centro para la Promoción de la Micro y Pequeña Empresa (Cenpromype), an MSME-focused organisation that is part of the Central American Integration System (Sica), revealed that the pandemic had caused a sharp drop in income for MSMEs. The authors spoke to 1,351 business owners in Costa Rica, El Salvador, Guatemala, Honduras, and Panama, reporting that 64.7% of respondents said their sales had fallen in 2020, 19.3% had maintained sales, and 16% improved sales. The average drop in sales was 37.8%, according to the report, and young businesses that had been operating for ten years or less were hit harder in terms of investment and debt levels. On the flip side, 29.8% of MSMEs reported that Covid-19 has had a positive effect on productivity while 25.6% reported improved profitability.

The report also revealed that 29% of MSMEs asked for access to lines of credit in 2020 to deal with the effects of pandemic. Of that number, 47% did not receive financing, 23% received financing on the same terms as previous years, and 17% received financing with tougher conditions than previously, while 13% said they were still waiting for a response from creditors. “There is a very limited offering of financial resources that deal with the specific needs of MSMEs,” said the study. 

The need to boost financial inclusion through the use of different instruments was addressed at a high-level Cenpromype forum which took place from 20-22 July. Supported by the US State Department and Taiwan, the forum agreed measures to promote coordination between public financing bodies and MSME business groups. Participants also outlined plans to examine the possibility of creating regional innovation labs in order to transform the MSME sector in Central America and adapt it to global demands, as well as improving knowledge sharing with other countries on regulation and innovation in financial technology.

Assistance for MSMEs also came on 21 June in the shape of an agreement between the Central American development bank (BCIE) and the US government’s International Development Finance Corporation (DFC) for a new US$100m credit line. It will provide funding to financial intermediaries with a focus on lending to businesses in Guatemala, Honduras, and El Salvador, according to a press release. The US Agency for International Development (Usaid) will “maximize the impact of the funds” by providing technical assistance to businesses and lenders. “MSMEs contribute 33% of the region’s GDP and are a key driver in creating jobs, employing around 45% of the workforce,” said BCIE’s executive president Dante Mossi. “These investments will generate more employment in our region.”

And these efforts also received a boost with the release of a Cenpromype assessment of MSMEs in the region on 28 June. The document is designed to provide an overview that will help national and international bodies better focus initiatives that affect the sector. Key areas of improvement are related to workers qualifications and their adaptation to the demands of the labour market, as well as improving productivity in order to increase salary levels, according to the report.