Micro, Small, and Medium Enterprises (MSMEs) form the backbone of Ecuador’s economy, accounting for 99 percent of firms and around 60 percent of formal employment, or approximately 1.8 million jobs. However, MSMEs have long struggled with limited access to financing, compounded by political instability and recurring crises such as energy shortages. Ecuador’s financial system faces structural challenges, including restrictive interest-rate caps that limit efficient capital allocation. Previous lending programs without strong design or oversight further weakened the performance and credibility of development banks, leaving MSMEs underserved and constrained in growth opportunities.
Now in its fifth year of implementation, the World Bank-supported project to promote MSME financing in Ecuador has achieved remarkable progress, with two years remaining until completion. The initiative has provided financial access to 24,522 MSMEs—exceeding its original target by 315 percent—and has significantly boosted firm growth in employment, sales, and assets. Impact evaluations show that the project created an average of 1.5 new jobs per beneficiary firm, while businesses that previously lacked access to credit doubled their sales and added an average of 2.5 new jobs. The program has also made major strides in advancing gender equality, with 59 percent of beneficiary firms being women-led or women-owned, and similar growth recorded for both male- and female-led enterprises.
Through the project, the National Finance Corporation (CFN) issued 26,169 loans, a sharp rise from only 3,000 firms reached at the project’s inception in 2020. CFN’s transformation has been a cornerstone of the initiative—earning it a AAA- credit rating and positioning it on par with Ecuador’s leading commercial banks. The bank’s mandate was redefined to focus exclusively on second-tier operations, a shift formalized through new statutes and a restructured staffing model. Regulatory modernization around partial credit guarantees has also encouraged large private banks to participate, mobilizing additional private capital toward productive sectors and expanding the reach of MSME financing.
The project’s success lies in its support for institutional reform and financial strengthening of CFN, which has become a central driver of MSME credit provision and job creation. It established a second-tier credit line for MSMEs while facilitating CFN’s full transition into a second-tier development bank. Key milestones include the completion of an Asset Quality Review, the suspension of first-tier lending, and an Executive Decree amending CFN’s legal framework to solidify its new role. These reforms have led to a healthier balance sheet, sustainable intermediation practices, and increased private capital mobilization for small businesses.
Gender equality and job creation have been at the heart of the project’s impact. A total of 14,410 women-led or women-owned firms benefited, recording growth in sales, assets, and employment. On average, each beneficiary firm created 1.5 new jobs, while those without prior access to credit generated 2.5 jobs—demonstrating the project’s strong contribution to Ecuador’s employment agenda.
The transformation of CFN and the project’s overall success were made possible by strong government ownership and close collaboration with the World Bank. Deep-seated financial issues were addressed through major reforms, including an Asset Quality Review that resulted in a US$651 million increase in loan loss provisions and a US$240 million loss reported in 2021, paving the way for institutional stabilization.
Looking ahead, the next steps include leveraging CFN’s enhanced second-tier lending capacity to ease credit constraints in other sectors and expanding the number of MSMEs benefiting from partial credit guarantees. These measures aim to build on the project’s success and further strengthen financial inclusion, job creation, and economic resilience in Ecuador.
