Micro, small and medium enterprises (MSMEs) form the backbone of many developing economies, representing over 90 percent of all businesses. Yet they remain chronically underserved by formal finance. The World Bank estimates the global MSME finance gap at US$8.1 trillion annually, growing by roughly 6 percent each year, with 40 percent of MSMEs capital constrained.

In least developed countries, 69 percent of adults borrow money annually, a much higher percentage than in developed countries, yet only five percent use a bank, microfinance institution or similar formal provider. This figure is not only the lowest in the world, it remains unchanged over the past decade. Thus solutions need to be designed differently and business as usual is obviously not appropriate in these contexts. Scale will only be achieved by crowding in private and commercial capital, managing risk, and better aligning incentives for stakeholders.

FinWise is UNCDF’s flagship programme for its MSME Finance and Digital Finance capabilities. It operates across East and Southern Africa, combining a unique segmenting approach, with UNCDF’s concessional financial tools (investment grants, concessional loans, guarantees) and deep market knowledge to address this MSME finance gap.

FinWise approach

FinWise targets sustainable scale by supporting local financial service providers to improve their services to missing middle and last mile customers. Given the enormity of the MSME sector, FinWise organizes its work around four target segments within the MSME category. The segmentation is based on business size and growth rate as the major determinants of MSME capital needs. This creates alignment through the segmentation with typologies of financial service providers (FSPs) that are best fit to serve those capital needs of each segment, and the specific capital tools UNCDF can deploy to these unique FSPs. Lastly, the segmentation is designed to understand the type of impact that is targeted for distinct segments within the MSME category.

1. Aspiring entrepreneurs: building the first rung
   Many entrepreneurs are simply not ready for debt especially as they launch a new business. They operate informally, lack experience and generate unstable revenues, yet they are often the focus of economic inclusion efforts. FinWise supports their graduation from livelihoods programmes to build relationships with local FSPs that can sustainably serve their financial needs over time. For example, in Uganda, UNCDF blended grants and concessional debt with Opportunity Bank and Equity Bank to extend loans to refugees building businesses in settlements.
2. Microenterprises: data-driven working capital at scale
   Microenterprises generally comprise 90% of the businesses in the MSME category, yet are very difficult to serve given their needs are small, short-term, high-frequency and poorly documented. Traditional providers lack the unit economics to serve them. FinWise partners with fintechs that use alternative data, such as mobile money and supply chain records, to build credit models where none previously existed, particularly for women- and youth-owned microbusinesses. In Uganda, this enabled Flow Global to lend to 2,000 micro-retailers, 94 percent of them first-time borrowers, catalysing $2.5 million in follow-on capital.
3. Small enterprises: unlocking growth capital
   The financial needs of small enterprises are often crowded out by bank’s ability to buy low risk government debt at high rates of return and regulations that force expensive provisioning. Thus, domestic credit is constrained, poorly designed and expensive, and foreign currency loans carry risk, and regulatory and tax barriers which deter investors. FinWise de-risks this segment through supporting local debt funds, co-creating new credit products and derisking domestic and international capital into this segment. In Zambia, a guarantee enabled FINCA to expand lending to more than 250 women-owned businesses, at a utilization rate above 90 percent.
4. High-growth start-ups: financing locally owned innovation
   At the minimum viable product (MVP) and pre-seed stage, African founders face a critical gap: too few angel investors, limited early-stage venture capital and unclear regulatory pathways.

Without early risk capital, innovation is only consumed from foreign multi nationals and not owned as an engine of domestic economic growth.

FinWise mobilizes angel and venture investors, de-risks early investments and supports policymakers in designing innovation-friendly regulation. In Tanzania, this helped grow angel investment activity by 300 percent annually and catalysed $14 million in investments through the PesaTech Accelerator.

How FinWise builds markets, not dependence

Underpinning this portfolio is a deliberate approach to building markets rather than dependence. Each intervention is grounded in market diagnostics across policy, supply, demand and capital constraints, with concessional finance deployed only where it can unlock a sustainable private response. Because debt carries risk, FinWise anchors its lending in real cash flows and growth narratives, uses digital tools to improve accountability and works with regulators to strengthen oversight and consumer protection, so that scale is achieved responsibly rather than at the expense of those it aims to serve.

FinWise is implemented in Uganda, Ethiopia, Tanzania and Rwanda, working closely with governments, regulators and private sector partners.