New report: digital finance linked to MSME growth

A new report named ‘The MSME Access to Digital Finance – in Selected EMDE Countries in Asia’ offers valuable data and insights into how micro, small and medium enterprises (MSMEs) use digital finance channels to meet their financial needs and how digital finance has empowered their financial journey. This empirical study is based on survey responses from 819 MSME users of digital finance platforms operating across 7 emerging markets and developing economies (EMDEs) in Asia:

• Bangladesh
• China
• India
• Kazakhstan
• Mongolia
• Pakistan
• Vietnam

Digital financing positively influences MSME financial health and their business growth and expansion

Overall, MSMEs surveyed noted increased business performance after financing through digital finance platforms. Around 80% of businesses reported enhanced business performance through increase in: 

• revenue
• profit/net income
• customer base

Notably, most businesses managed to repay loans with an overall default rate of less than 1%.

“Fintech companies are providing innovative and tailored products and services catering to the needs of MSMEs, thereby addressing some of the credit constraints, particularly in EMDEs.” said Pavle Avramovic, Head of Market and Infrastructure Observatory at the CCAF. Our report provides valuable insights into the important role that digital finance providers play in improving access to credit for small businesses, which positively impacted their business performance.

Businesses use digital finance to meet short-term working capital needs 

Overall, the loan values among MSMEs were low and were primarily borrowed to meet short-term financial needs such as payment to suppliers, purchase of raw materials and to cover unexpected business cash flow needs (such as customer defaults). Business users of digital finance were strongly influenced by the following when choosing digital finance providers:

• better customer service
• better approval rates
• speed in receiving funds
• simplified application process
• flexible payment terms

Need to promote adequate disclosure and digital financial literacy among digital finance users 

The findings indicate no significant concerns for businesses when utilising digital finance providers. However, they highlight challenges in operating devices, a lack of understanding of fintech products and insufficient transparency in borrowing costs. 

“By understanding the unique needs and challenges of these enterprises, stakeholders can work together to create a more inclusive and dynamic financial ecosystem”, said Peter J. Morgan, Senior Consulting Economist and Advisor to the Dean, ADBI. “The data collected contributes to our understanding of the benefits, challenges and future potential of fintech adoption among MSMEs in the region.”