The rise of new fintech players across the world could potentially be a “game changer” for small and medium enterprises (SME), in particular by improving access to finance, according to a World Economic Forum (WEF) study.
According to the report by the Global Agenda Council on the Future of Financing and Capital, while SMEs are a major driver of the global economy – particularly in developing markets – their importance is often overlooked.
Across the world, SMEs face one crucial “pain point”, the report says – dealing with their finances, and ensuring they have the appropriate funding. Pointing to research by the International Financial Corporation (IFC), WEF highlights the dark statistics: a funding gap of more than US$2 trillion in emerging markets alone.
This “pain point” has been exacerbated by the global financial crisis of 2007 to 2008, and higher regulation and capital costs for loans to SMEs, which together have made it even more difficult for SMEs to secure financing.
Set against this context, the research highlights the role of, what it terms, “a plethora of disruptors” in the fintech space.
“The financial crisis has also created a plethora of disruptors in the fintech area […] who, with their innovative ways to originate, assess credit risk and fund SME loans, have provided alternative ways for SMEs to secure funding for their growth,” the report finds.
While acknowledging that some efforts have been made to improve the situation by governments, state agencies, and international organisations – in the form of government guarantees, direct government lending, and the support of SME banks, for example – the study finds a “vast” funding gap remains.
According to WEF, it is emerging fintech players who have the opportunity to be a “game changer” for SMEs; and predicts a “paradigm shift in small business finance”.
“Because fintech solutions are efficient and effective at lower scale, small businesses will be one of the main beneficiaries of fintech’s disruptive power,” the study says.
Several enabling factors will prove critical to ensuring the rapid growth of the fintech space, the research says, such as with the availability of data, a supportive regulatory environment, the provision of sufficient investor capital and financial education.
With the right enabling environment, the potential of fintech to address the financing issues of small businesses globally is “tremendous”, the study concludes.
As such, WEF urges governments, development finance institutions, entrepreneurs and investors to support the trend; whether through cooperation with new players, internal innovation, or the acquisition of fintech companies.
