EU and KfW Partner to Strengthen MSME Financing
The European Commission and Germany’s development bank KfW have announced a major step to support Micro, Small, and Medium-Sized Enterprises (MSMEs) in vulnerable regions. On January 29, 2026, both institutions signed a guarantee agreement worth up to €135 million aimed at expanding access to alternative sources of finance for MSMEs operating in the Western Balkans, Eastern Neighbourhood, North Africa, the Middle East, and Türkiye.
This initiative is part of the European Fund for Sustainable Development Plus (EFSD+), a core component of the EU’s Global Gateway strategy. The EFSD+ is designed to foster sustainable investment in countries neighboring the EU and beyond.
Focus on Vulnerable and Underserved Enterprises
The new funding arrangement specifically targets MSMEs facing significant barriers to traditional finance, such as startups or enterprises led by individuals in vulnerable positions. This includes women-led businesses and those subject to discrimination, who often seek support through non-traditional financial avenues.
The financial support will be delivered through the Scaling Alternative Finance for Entrepreneurs (SAFE) fund. This fund provides guarantees to a range of alternative financial intermediaries such as crowdfunding platforms, microfinance institutions, leasing firms, and venture capital providers. The goal is to diversify financing options and increase the resilience and competitiveness of small businesses in these regions.
High-Level Support and Strategic Impact
Marta Kos, EU Commissioner for Enlargement, emphasized the importance of inclusive economic development: “We are increasing our support to startups and entrepreneurs in candidate countries, especially to companies run by women and those facing discrimination. To make sure that as our Union expands, no one is left on the margins.”
Dubravka Šuica, EU Commissioner for the Mediterranean, highlighted the strategic importance of the agreement: “This addresses one of the major bottlenecks in SME financing—the provision of guarantees for financial institutions to support clients they usually overlook. It’s a powerful mechanism to drive economic growth and regional integration in the Mediterranean.”
Christiane Laibach, a member of KfW Group’s Executive Board, added: “We are delighted to join forces with the European Union in this significant initiative. The flexible guarantee structure empowers alternative financial providers to share risks, enabling them to play a greater role in enhancing capital access for MSMEs. This will help overcome investment barriers and open up new growth opportunities.”
Enhancing Innovation and Inclusivity
By promoting alternative finance, the EU and KfW aim to not only bridge funding gaps but also stimulate innovation, inclusiveness, and market competitiveness. Supporting MSMEs through diversified financial channels is expected to foster more resilient economic ecosystems in the targeted regions.
Many MSMEs in these areas lack access to bank loans or credit due to stringent requirements, lack of collateral, or perceived high risk. The SAFE fund’s guarantee model helps mitigate these hurdles by encouraging financial intermediaries to extend credit where they typically wouldn’t. This approach is especially beneficial for micro-entrepreneurs and startups that operate outside traditional financial systems.
Background: The Role of EFSD+
Launched in June 2021, the European Fund for Sustainable Development Plus (EFSD+) is a cornerstone of the EU’s international investment strategy. The fund supports both public and private investment in partner countries through grants and guarantees offered via International Financial Institutions (IFIs). Between 2021 and 2027, EFSD+ has a global guarantee capacity of €39.8 billion.
The EFSD+ is central to the EU’s Global Gateway initiative, which aims to build sustainable and trusted connections that work for people and the planet. By leveraging public funds to attract private investment, the EFSD+ seeks to address key challenges such as access to finance, infrastructure development, and inclusive economic growth.
Looking Ahead
The newly signed guarantee agreement represents a strategic investment in the economic empowerment of vulnerable businesses. With the backing of the EU and KfW, alternative finance providers can now extend their reach and support a broader range of entrepreneurs across regions that are crucial to Europe’s neighborhood policies.
As the EU continues its enlargement and neighborhood strategies, ensuring equitable access to capital for MSMEs will remain a priority. This initiative not only aligns with the EU’s commitment to inclusivity and innovation but also strengthens its role as a global leader in sustainable development.
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