SME Facilities in Fragile and Conflict-affected Settings: Contributing to Peace?

There is increasing interest by investors in supporting small and medium-sized enterprises (SMEs) to foster both development and stability in emerging markets and fragile and conflict-affected settings (FCS). Finance for Peace commissioned Trustworks Global to conduct a mapping of SME facilities in FCS and an analysis of how SMEs could contribute to peace and not exacerbate conflict.

Five key findings emerged:

1. There is a broad geographical distribution and diversity of actors supporting SMEs in FCS. Around 60% of investments identified in the mapping occur in conflict-affected settings, compared to 40% in fragile settings.
2. A wide variety of financial and non-financial support to SMEs is available. According to the mapping, the most common financial tools are equity investments, followed by loans and credit/micro-credit. The mapping also suggests that the most common non-financial tool provided by actors supporting SMEs is technical assistance/capacity development.
3. Most SME facilities focus on jobs as their most important social contribution. There is also a strong focus on supporting women-led businesses/entrepreneurs.
4. A low number of SME facilities go beyond the ESG measures of environmental, social, and corporate governance and explicitly focus on positive impact. Although many generically mention alignment with ESG criteria and/or the SDGs, only few disclose a more precise commitment or dedicated policy. Even fewer are explicit about going “beyond ESG” to have positive social impacts.
5. None of the SME facilities apply a conflict-sensitive approach, although some may be considered ‘conflict-aware'. "Conflict-aware" SME facilities may focus on having a strong comprehension of the context in which they operate, or have enhanced ESG due diligence in place to account for the risk of inadvertently contributing to conflict, and/or measure the negative impacts. However, conflict sensitivity was not mentioned by any of the facilities, nor do they appear to have in place comprehensive policies and processes to minimise the negative and maximise the positive impacts on conflict, peace and stability.