A year-end financing partnership between an international development financier and regional commercial banks is expected to improve access to credit for small and medium-sized enterprises across Solomon Islands and Vanuatu, where limited lending capacity has long constrained private-sector growth.
The initiative brings together the International Finance Corporation and regional lenders, including BRED Bank, to expand SME lending through a combination of risk-sharing arrangements and technical assistance. Under the partnership, participating banks receive partial credit guarantees and portfolio support, reducing exposure on SME loans and allowing them to lend more confidently to businesses that would otherwise struggle to meet collateral or credit history requirements.
The focus is on productive investments such as agricultural inputs, equipment upgrades, transport assets and small-scale manufacturing. In both countries, SMEs account for the majority of private employment but operate in environments characterised by high operating costs, small domestic markets and vulnerability to external shocks. Access to finance has remained one of the most persistent barriers, with many businesses relying on personal savings or informal lending to fund growth.
Recent banking developments highlight both the opportunity and the challenge. Commercial banks in Solomon Islands and Vanuatu have generally remained well capitalised, but lending has tended to concentrate on government, utilities and larger corporate clients. Prudential requirements and risk aversion, particularly following the pandemic and natural disasters, have limited appetite for SME exposure despite strong demand.
By sharing risk and providing technical assistance on credit assessment, portfolio management and product design, the partnership aims to shift this balance. Banks are expected to expand SME loan books while improving internal systems to better understand small-business cash flows and sector risks, particularly in agriculture and tourism-linked services.
Business groups in both countries have welcomed the initiative, noting that improved access to finance is critical for diversification beyond a narrow range of sectors. In Solomon Islands, SMEs play a central role in domestic trade, agro-processing and services linked to mining and infrastructure projects. In Vanuatu, small businesses underpin tourism, construction and post-disaster reconstruction activity.
While the partnership will not resolve all structural constraints overnight, it is seen as a practical step towards crowding in private capital and building more resilient local banking markets. For policymakers, expanding SME finance is increasingly viewed as essential to broad-based growth, job creation and economic stability in both economies.
