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Micro and SME finance market outlook

Markets, risk-return profiles, impact

Micro and SME finance in the developing world operates in markets that typically have little connection to the day-to-day volatility of mainstream capital markets. Nevertheless, the long-term influence of global economic fundamentals can still be felt by MSME finance institutions. Different growth trajectories in key economic partners, or changes to prices for key exports, will affect GDP growth and currency performance. This in turn can alter the profitability and portfolio quality of the MSME financial sector.

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After reaching its lowest point for seven years in 2016, global economic growth is expected to accelerate again in 2018, to 3.7%. This increase will occur despite the slowdown in developed markets, where growth will slow to 2%.

Instead developing markets will drive expansion, a trend expected to continue until (and perhaps beyond) 2022, by which point the IMF expects annual growth for this group to have reached 5%.

Surging Asia leading the way

Nevertheless, the GDP outlook varies considerably by region. The emergence from the recession of Brazil, Nigeria, and South Africa has led to a rebound in Latin America and Sub-Saharan Africa as a whole. But while the trend for these two regions should continue in 2018, this will still be at much lower rates of growth than the Asia Pacific region, which will continue to boom despite a moderate slowdown in China.

Commodity prices recovering

Commodity prices continue to be a major influence on growth levels in some developing markets. The moderate price recovery of 2017 is expected to continue in 2018, but not to anywhere near the levels seen at the height of the commodity cycle in 2011.