Millions of low-income households in emerging markets rely on micro and small enterprises (MSEs) to pursue economic opportunity and build resilience. MSEs are very small, semi-formal businesses with few employees, facing a myriad of challenges that constrain their stability and growth, including access to relevant and affordable financing. The global unmet credit needs of MSEs remain persistently high at US$ 4.9 trillion.
Traditional financial service providers find it expensive, risky, and complex to lend to MSEs due to their demand for small loan sizes, limited credit histories, insufficient or inaccurate data, and lack of collateral.
However, technological advances and business model innovations are enabling a new type of providers – fintechs, to use alternative, digital data and underwrite loans, automate credit processes, and combine finance with non-financial services to achieve lower operating costs, improve risk assessment and enhance product offerings for MSEs.
This comes at an opportune time since MSEs are also accelerating their embrace of digital technologies like social media, ecommerce platforms, digital invoicing, and digital modes of payments for their businesses, especially in the wake of the COVID-19 pandemic, positioning them to access newer and alternative sources of finance provided by fintechs.
CGAP’s program on MSE Finance in the Digital Age explores the enabling role of digital finance in strengthening MSEs as a pathway to improved livelihoods.