Enhance Financing for Small and Medium-sized Businesses

SMEs are critical to inclusive economic development. They account for 70 percent of employment globally, and between a quarter of GDP in lower-middle income countries and over 50 percent of GDP in most OECD countries. Financing SMEs has to date remained an intractable challenge. The World Bank estimates a shortfall in SME financing in developing countries of US$5.2 trillion a year.

Overview of this Catalytic Opportunity

Opportunities

 Icon ImageEnhance financing for small and medium-sized businesses (SMEs).

Scale

Potential to meet the  
US$5.2
 trillion a year need to finance SME financing in developing countries.

SDGs

 Icon ImageIcon ImageIcon ImageIcon Image

citizens as..

 Borrowers, entrepreneurs, employees.

Use cases

Next steps

 Policy-makers and regulators should encourage market innovation to develop SME lending and investment platforms, which integrate sustainability criteria and client protections, and avoid discrimination against women-owned businesses.

Ecommerce and digital payment platforms generate data on SME financial transactions that can revolutionize lending both by existing banks and new entrants. With this data SMEs can be given automatic credit ratings, allowing for rapid lending without collateral. MYbank, for example, has used such data driven ratings to disburse over US$290 billion to 17 million SMEs in China as of June 2019, 80 percent of which were first-time borrowers. In Thailand SCB Abacus the advanced data analytics subsidiary of Siam Commercial Bank has started to use non-traditional data to provide loans to SMEs borrowers with limited credit history.

Regulatory changes are needed to enable savings and liquidity to be mobilized more effectively for lending. Currently mobile money floats sit in escrow accounts with banks and are only used for liquidity. This money can be more efficiently mobilized to build credit markets and enable savers to earn a return. This requires fuller licensing of ‘virtual banks’. The Hong Kong Monetary Authority granted eight virtual bank licenses in the first half of 2019. Singapore will be issuing up to five digital banking licenses to non-bank players. Malaysia released its virtual banking licensing framework in December 2019 and Thailand is studying the possibility of licenses for digital banks. For growing enterprises access to equity capital is also needed.

In the Zimbabwe pathfinder initiative  catalysed by the Task Force, Zimbabwe’s leading payments platform, EcoCash, has launched a world-first stock exchange that draws on payments data to provide robust due diligence and credit ratings for prospective listings

Next Steps: Policy-makers and regulators should encourage market innovation in data-driven lending, equity and debt platforms, integrating broader sustainability criteria into financing criteria, and ensuring that algorithms are unbiased in their treatment of women, minority groups and/or other ethnic, religious and social groups and their enterprises.

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SMEs are critical to inclusive economic development. They account for 70 percent of employment globally, and between a quarter of GDP in lower-middle income countries and over 50 percent of GDP in most OECD countries. Financing SMEs has to date remained an intractable challenge. The World Bank estimates a shortfall in SME financing in developing countries of US$5.2 trillion a year.

Overview of this Catalytic Opportunity

Opportunities

 Icon ImageEnhance financing for small and medium-sized businesses (SMEs).

Scale

Potential to meet the  
US$5.2
 trillion a year need to finance SME financing in developing countries.

SDGs

 Icon ImageIcon ImageIcon ImageIcon Image

citizens as..

 Borrowers, entrepreneurs, employees.

Use cases

Next steps

 Policy-makers and regulators should encourage market innovation to develop SME lending and investment platforms, which integrate sustainability criteria and client protections, and avoid discrimination against women-owned businesses.

Ecommerce and digital payment platforms generate data on SME financial transactions that can revolutionize lending both by existing banks and new entrants. With this data SMEs can be given automatic credit ratings, allowing for rapid lending without collateral. MYbank, for example, has used such data driven ratings to disburse over US$290 billion to 17 million SMEs in China as of June 2019, 80 percent of which were first-time borrowers. In Thailand SCB Abacus the advanced data analytics subsidiary of Siam Commercial Bank has started to use non-traditional data to provide loans to SMEs borrowers with limited credit history.

Regulatory changes are needed to enable savings and liquidity to be mobilized more effectively for lending. Currently mobile money floats sit in escrow accounts with banks and are only used for liquidity. This money can be more efficiently mobilized to build credit markets and enable savers to earn a return. This requires fuller licensing of ‘virtual banks’. The Hong Kong Monetary Authority granted eight virtual bank licenses in the first half of 2019. Singapore will be issuing up to five digital banking licenses to non-bank players. Malaysia released its virtual banking licensing framework in December 2019 and Thailand is studying the possibility of licenses for digital banks. For growing enterprises access to equity capital is also needed.

In the Zimbabwe pathfinder initiative  catalysed by the Task Force, Zimbabwe’s leading payments platform, EcoCash, has launched a world-first stock exchange that draws on payments data to provide robust due diligence and credit ratings for prospective listings

Next Steps: Policy-makers and regulators should encourage market innovation in data-driven lending, equity and debt platforms, integrating broader sustainability criteria into financing criteria, and ensuring that algorithms are unbiased in their treatment of women, minority groups and/or other ethnic, religious and social groups and their enterprises.

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Pathfinder Initiative: Zimbabwe: Growth Enterprises Market SME Listing Platform