CGAP Pilots Innovative Digital Credit Models for MSEs

Washington, D.C. July 28, 2022 - CGAP today announced partnerships with five fintech companies with the goal of exploring the potential of technology-enabled business models in expanding access to responsible finance for excluded and underserved Micro and Small Enterprises (MSEs) and deepening financial inclusion. 

MSEs provide an important means to livelihoods and resilience for low-income households in emerging markets, but access to finance remains a significant constraint for MSEs globally to grow their businesses and survive shocks. Despite decades of investments and a vibrant financial inclusion industry, the MSE credit gap—now estimated at almost US$5 trillion globally—remains persistent. 

“While the COVID-19 pandemic has disproportionately impacted MSEs - especially the smallest, women-owned, and informal-sector firms, it accelerated the adoption of digital financial services and digital technologies by MSEs in ways that could expand their access to finance in the long term,” explained Alexander Sotiriou, Senior Financial Sector Specialist at CGAP, who leads the fintech for MSEs work program. “This accelerated digital adoption has also led to the emergence of new business models that can expand MSEs’ access to responsible credit among the underserved MSEs, and we are looking forward to continuing our exploration of how technology can push the barriers of financial inclusion through our collaborations with these fintech firms.” 

Through pilots with five fintech providers, CGAP intends to support, develop and test innovative, inclusive, and responsible digital credit offerings to underserved or excluded MSEs in ways that can help overcome traditional supply- and demand-side barriers. The five pilot partners, listed below, were selected from a pool of over 100 applicants worldwide. Their varied business models and diverse target MSE segments, geographies of operations, and unique customer journeys represent differentiated approaches to serving excluded and underserved MSEs. 

  • Aye Finance, a fintech organization with a strong focus on the smallest MSEs in India, including those in the informal sector. The pilot will test a digital, unsecured loan product targeted at women-owned MSEs using an innovative business cluster-based credit assessment approach that allows Aye Finance to make lending decisions in the absence of traditional business documentation, credit history or collateral. The pilot also uses what Aye calls an “assisted fintech” approach to serve MSE customers who are new to credit and to digital solutions through the right mix of technology, data science models and physical touchpoints. 
  • Boost, a B2B commerce platform with the goal of powering growth for Africa’s 100 million retail entrepreneurs by connecting small-scale retailers to suppliers and providing stock ordering solutions and embedded finance. The pilot will test the combination of digital self-ordering, embedded working capital credit and data-driven insights on business outcomes for small women-owned retail shops in Nigeria.
  • Kaleidofin, a multiproduct fintech company providing a suite of financial products and solutions to underbanked customer segments in India, primarily to microenterprises and informal sector businesses. The pilot will test an on-tap credit product (i.e., a product with flexible credit available on-demand) targeted at financially marginalized microentrepreneurs, with a strong focus on women entrepreneurs, and other low-income borrowers. The product is designed to help target households and businesses cope with short-term cash flow mismatches, emergency expenses and economic shocks in a responsible and sustainable manner. 
  • SympliFi, a fintech company that provides a digital collateral platform to facilitate instant access to affordable credit for unbanked or underserved people in developing countries. The pilot in Nigeria will test an embedded finance plug-in provided via API (Application Programming Interface) for digital financial service providers in Africa like microfinance institutions, digital banks, and e-commerce platforms, to seamlessly offer secured, low-cost loans to micro, small and medium enterprises on their platform.
  • &frnds, a data-driven eB2B commerce platform for digitally transforming emerging market value chains in Southeast Asia. The pilot will test a zero-interest, consignment-based credit product (Buy-Now, Pay-Later) targeted at last mile micro-retailers (such as the widespread Sari-Sari convenience stores) in the Philippines and test whether being a part of the &frnds networks can significantly grow the sales of both local wholesalers and their micro-retailer customers. 

As part of these pilots, CGAP will provide technical assistance tailored to partners’ needs in various areas including market research, product design and development, testing and iteration, marketing and communication, delivery, customer support and education, and post-pilot impact assessment. The results of these pilots will be shared by CGAP and pilot partners in due course.

About CGAP

CGAP is a global partnership of more than 30 leading development organizations that works to advance the lives of poor people, especially women, through financial inclusion. Using action-oriented research, we test, learn and share knowledge intended to help build inclusive and responsible financial systems that enable poor people to capture economic opportunities, access essential services, and build resilience, including in the context of climate change. We research and experiment to establish proofs of concept and extract actionable insights that help our partners implement solutions in the marketplace and take them to scale. In short, we influence through evidence. By doing so, we hope to advance broader development goals and contribute to more prosperous, equal, resilient, sustainable economies and societies.