Micro, Small, and Medium-sized Enterprises (MSMEs) represent over 90% of all Asia-Pacific businesses. The development of this sector has contributed significantly to the growth in the region. Strengthening the dynamics and capacities of MSMEs further promotes inclusive growth at the national and regional levels. Nevertheless, despite its significance, MSMEs still face several challenges, especially regarding access to finance. This trend was only exacerbated by the Covid-19 pandemic and countries’ successive health and quarantine measures.
Poor access to financial services is far from a new challenge, and it is the most common and critical constraint among MSMEs. The financing gap for MSMEs in developing economies amounted to US$ 5.2 trillion in 2017, or 19 per cent of global GDP. Approximately 70 per cent of over 800 million MSMEs in the developing world do not have access to institutional finance, although they need it. By region, Asia and the Pacific recorded the highest financing gap in the world, accounting for 57 per cent of the total financing gap, or US$ 2.7 trillion, underlining the vast unexploited potential of the region.
The sector's supply-side and demand-side barriers can explain the inadequate access to finance. Many MSMEs lack the elements traditional banks and financial service providers require for credit lending and extension, such as financial statements and proven “track records” to assess their creditworthiness or physical collateral to ensure repayment. Other institutional barriers include strict lending policies, complicated borrowing procedures, and high transaction costs.
In this context, financial digitalization holds enormous potential to facilitate MSMEs’ daily operations and access to finance in the Asia-Pacific region, especially under the Covid-19 crisis. This phenomenon offers solutions to increase efficiencies, lower transaction costs, enhance security and expand financial services to the underserved MSME sector. New financial service providers, such as fintech companies, challenger banks, and e-commerce players, have provided digital financial solutions to MSMEs, using artificial intelligence (AI) and machine learning (ML) to assess credit scores.
MORE INFORMATION AVAILABLE AT: https://www.unescap.org/events/2022/workshop-rethinking-msme-finance-post-crisis-policy-agenda-bangladesh
Meeting materials available here.