The SME Access to Digital Finance Study

Highlights from the report

• The results from the study reveal that most respondents (75%) were micro enterprises, supporting the hypothesis that fintechs are a critical component of smaller businesses’ funding cycles. Of the respondent MSMEs, 44% were mature firms that had been operating for more than six years and less than one-third were young firms that had been operating for fewer than three years. Most of the CEOs were men, and one-third had an undergraduate degree and were aged between 35 and 44.
• In terms of the amounts borrowed or raised, the findings suggest that they were concentrated around lower values. Overall, the median amount borrowed or raised was USD3,917 and for 75% of the sample (up to the third quartile), the amounts ranged up to USD20,000. Most MSMEs used the money, with a median value of USD4,023, for working capital. This value was largely influenced by MSMEs that had borrowed from a P2P/marketplace lending platform. By industry, MSMEs operating in traditional industries raised the highest funding amounts, with a median borrowing value of USD8,813. This was followed by MSMEs in the innovative, and commerce and services industries, where the median amount borrowed for both sectors was approximately USD4,000.
• Before receiving funding from a fintech platform, MSMEs had tried to raise funds through different sources, primarily banks or family and friends. Banks were the most popular funding source for those that used P2P/marketplace or invoice trading platforms, while for those MSMEs that used investment crowdfunding or non-investment crowdfunding platforms, it was friends and family. Although many MSMEs sought funding from banks, only approximately one-half received an offer and accepted it. MSMEs that sought funding from family and friends were more successful, especially those that used an investment crowdfunding platform: more than 80% received an offer, all of which were accepted.
• Regarding traditional finance facilities, the type of product used differed by vertical. MSMEs that used P2P/marketplace lending or non-investment crowdfunding platforms relied more on personal financial products, in the form of personal credit cards or personal accounts, to support their business. Conversely, most MSMEs that used invoice trading or investment crowdfunding platforms used business accounts. Friends and family were the traditional facilities that more than half the MSMEs that raised funds through an investment crowdfunding fintech turned to.
• The decision to raise funds through an alternative finance platform was largely influenced by being able to receive funds faster and better customer service. Also, MSMEs that used a P2P/marketplace lending platform reported they were unable to get funding through any other source except a fintech, indicating this was one of the most important decision making factors. A better interest rate was another very important decision-making factor, being reported by approximately half the MSMEs.
• Overall, MSMEs managed to improve their businesses’ financial health as a result of the funding received via an alternative finance platform. Most MSMEs across all business models and platform types increased turnover and net income. However, 20% of those that used an investment crowdfunding platform saw a decrease in net profit, but those MSMEs also reported a significant increase in the business’s value and employment rate (over 60% for both factors).
• Overall, the main impact on the businesses due to funding was an increase in productivity, which was mainly seen for those that used an investment crowdfunding platform (67%). One-third of MSMEs that used a digital lending or invoice trading platform decreased costs. Further, launching a product or service was the result for more than 6 0% of MSMEs that used an investment or non-investment crowdfunding platform.
• Another outcome of receiving funding was a positive change in the use of different financial products. There was a noted increase in the use of savings or checking accounts for entrepreneurs that borrowed from a digital lending or invoice trading platform. MSMEs either decreased their use of or stopped using products such as overdrafts, loan contracts or revolving lines of credit. Interestingly, most MSMEs that used an investment crowdfunding fintech reported no change. However, there were a few for which the use of loan contracts and mortgages increased, and decreased for business credit cards and invoice trading products.
• Regarding the COVID-19 pandemic’s effects on the business, almost half the businesses managed to cope with the crisis and remained operational, albeit with adjustments. Approximately one-third of MSMEs had to shut down operations temporarily and only 3% had to permanently close their business. When asked about government-based assistance, 22% reported receiving it, of which half received a government COVID-19 voucher and emergency funds for payrolls.
• The main assistance offered by fintech platforms was related to payment facilities. For digital lending, invoice trading and investment crowdfunding platforms, the primary types of assistance provided were payment holidays and eased payment plans. For non-investment crowdfunding platforms, it was waiving fees. Completing the top three assistance types offered, across all models, were credit facilities (not related to a government assistance scheme).