How Did This Play Out? The Impact of the Pandemic on Small Businesses and Micro-Enterprises

ImpactMoney Blog
5 min readMay 13, 2021

About a year ago, I posted a story about the pandemic shockwave that was hitting the developing world entitled “MFIs Are Facing an Economic Tsunami. How Will This Play Out?” This is why when I was asked to reflect on the impact of Covid on micro, small and medium enterprises (or “MSMEs”) in the developing world for a recent webinar hosted by Blue Orchard, a leading global impact investment fund manager, I used the opportunity to try to answer with the benefit of hindsight just how has this pandemic played out? The following are key remarks from my presentation:

When Covid hit, the IFC and others warned that because of the important contribution that MSMEs make to the economies of developing economies, any permanent closures of small businesses due to Covid would result in long-term, deep recessions. Some 80 to 90 percent of all jobs in low income countries are generated by MSMEs, much of it in subsistence agriculture or the informal sector.

While governments did their best to respond with fiscal and monetary support measures, the poorer the country the smaller the fiscal space and capacity to respond. Regulators allowed for, or in some cases mandated, sweeping debt moratoria, which gave breathing room to borrowers and lenders alike. This may have helped save many microfinance institutions (“MFIs”) from the threat of insolvency, but the liquidity squeeze also caused them to temporarily halt lending operations.

Meanwhile, MSMEs faced a “triple whammy.” First, lockdowns caused sales to fall, particularly as consumers cut back on discretionary spending (clothing, restaurants, entertainment, etc.). At the same time, the costs of doing business increased due to covid-related health and safety measures as well as supply chain disruptions. This caused many businesses to operate at a loss. Second, working capital cycles increased due to delays, for example, in obtaining governmental approvals, permits and licenses as well as increased time to import raw materials and other inputs from abroad. Third, just as MSME liquidity needs increased, local lenders became more conservative and stopped disbursing new loans.

We see the impact of this triple whammy in several business surveys. The Center for Financial Inclusion surveyed some 3,000 small businesses in 4 developing countries and the data reveals that 15% of these businesses closed in mid-2020, mainly due to the impact of lockdowns. Of those that did not close, 46% operated at a loss. Alarmingly, roughly half of all persons these businesses employed pre-pandemic lost their jobs due to cost cutting measures and business closures.

Another survey of 30,000 small business in 50 countries conducted by Facebook in cooperation with the World Bank and OECD gives us further confirmation of the devastation. According to this survey, 26% of businesses closed during the pandemic. It also revealed a gender disparity: regardless of the geographic region, women-owned businesses were significantly more likely to close than male-owned ones. While it is difficult to generalize, two factors may have played a role. Female-owned businesses tend to be concentrated in consumer-facing sectors, which were hardest hit (hospitality, tourism, retail trade, etc.), while at the same time women bore the brunt of caring for children out of school or family members that fell ill.

Business closures, increased unemployment as well as falls in remittances from developed countries contributed to significant economic declines across all regions of the developing world in 2020. Moreover, the World Bank told us that for the first time in 20 years, extreme poverty (defined as those living on less than $1.90 per day) would increase in 2020 and we could see an additional 150 million people joining the ranks of the extreme poor by 2021 thanks to Covid.

So, is it all doom and gloom, or are there any silver linings to this pandemic? I have heard from some SME lenders that companies that were able to pivot to digital sales and distribution channels fared better during the pandemic in addition to those that pivoted their supply chains to local sources. This will likely have long-run benefits in terms of productivity and risk reduction after the pandemic has receded.

There is also some reason for cautious optimism in 2021. For one, the IMF is forecasting a strong rebound in economic growth across all emerging and developing regions of the world. Second, the business surveys mentioned earlier suggest that most business owners who closed their businesses last year expect those closures to be only temporary. Third, according to “snapshot” reports produced by CGAP and Symbiotics, a global sample of MFIs have started lending again, suggesting that a “V” shaped recovery had already taken place in monthly loan disbursements by the end of 2020.

So, should we be optimistic or pessimistic? While small business closures may only be temporary and an economic rebound in 2021 could hasten re-openings, extreme poverty has increased across the developing world and second waves of infections and lockdowns still pose risks. A lot will depend on how quickly vaccines are rolled out in low-income countries. While I have not seen reports of large increases in write offs among SME lenders or MFIs at the end of last year, I have seen increases in provisions for potential loan losses. We do not know if debt moratoria have prevented or perhaps just delayed potential insolvencies, particularly with smaller, weaker MFIs. We know from past economic crises that MSMEs are resilient, but resilience has its limitations, and for women-owned businesses it may be too late. Finally, the pandemic exposed weaknesses in national healthcare systems and social safety nets. This underscored the important role that MFIs play in developing countries, particularly those that provide a wide range of financial services such as savings (which provided a lifeline during lockdowns) and health insurance.

As the developed world makes progress in the fight against the pandemic with the rollout of vaccines and stimulus measures, it is important to keep in mind that much of the developing world remains several steps behind. Regardless of how quickly developed economies rebound, the pandemic was a major setback in the fight against poverty, one that may take many years to reverse.

Originally published at on May 13, 2021.



ImpactMoney Blog

Anthony Randazzo, CFA — 15+ years in Impact Investing, sharing insights on social entrepreneurship and impact investing at