A shifting global economic landscape

A modest rebound of the world economy is expected for 2017, with the US likely to be one of the drivers. At the same time, however, the US - in particular the policies of the new administration and their effects on the economy - is also one of the main uncertain factors. Should the new US president follow through on his campaign talk of closing the country’s borders and introducing tariffs, countries that are highly dependent on remittances from workers in the US, such as Guatemala and Nicaragua, could be hit hard. Protectionism could also affect China and other countries that depend on the US for their exports.

In addition, the Federal Reserve is expected to raise its federal funds rate several times through the year to stay ahead of inflationary pressures. In combination with the strength of the US dollar, this could be detrimental to emerging market economies that are highly dependent on capital flows from abroad and/or have a high US dollar debt. In general, however, emerging markets could benefit from slightly stronger global economic growth.

Ongoing growth microfinance and SME finance sector

The microfinance and SME finance sector is expected to grow by between 10 and 15% in 2017, i.e. at a similar rate as in 2016. The development of the market will continue to differ across countries and regions. The fund expects to direct capital towards regions that demonstrate plenty of scope for financial inclusion and have robust domestic economies and strong financial institutions. Growth is expected to be strongest in the Asia Pacific region and specific countries in Africa. Aligned with the strategy, the fund will also continue to allocate funds to financial institutions that focus on the underserved SME sector and, to some extent, to institutions that provide innovative solutions using financial services as a tool to solve sustainable development challenges.

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