Your Questions Answered: How Can Fintech Help Small Businesses in Asia and the Pacific?

Small businesses in Asia and the Pacific will struggle without access to financial technology. Photo: ADB
Small businesses in Asia and the Pacific will struggle without access to financial technology. Photo: ADB

By Lotte Schou-Zibell

Lotte Schou-Zibell, a financial inclusion advisor for the Asian Development Bank, answers questions about how financial technology – fintech – can help fund micro, small and medium-sized enterprises in Asia and the Pacific.

In many countries micro, small and medium-sized enterprises form the backbone of the economy, and employ most of the labor force. They are a particularly important way for women to earn incomes, often providing finance for their own and their children’s education and healthcare. Despite their central role in the wellbeing of economies and families, many of these businesses face severe difficulties obtaining the finance and credit they need to grow. This leaves families worse off, and harms job creation. Addressing these financial barriers is crucial for fostering sustainable economic development in the region.

Challenges faced by micro, small and medium-sized enterprises in accessing financial tools and credit include a lack of collateral, insufficient credit history, and the complexity of financial products that may not meet their specific needs. A lack of financial information, stringent regulatory requirements, and the high costs associated with processing small loans further complicate access to finance.

The Pacific region's legal and regulatory frameworks are generally underdeveloped, posing additional challenges for small businesses seeking credit for expansion. Traditionally, these small businesses excel in sectors like wholesale, retail, agribusiness, food processing, and other service-related industries. However, they frequently encounter difficulties securing financing, limiting their potential to expand or hire more employees.

 Limited access to finance and credit curtails the ability of micro, small and medium-sized enterprises in Asia and the Pacific to expand operations, enhance product offerings, or enter new markets, directly impacting their operational capacity—particularly for those with fluctuating revenue, which complicates cash flow management.

Inadequate funding prevents these businesses from embracing innovation and new technologies, which are essential for staying competitive in the market. This stunts their growth and affects the region's economic health and technological progress. Additionally, job creation, a critical function of small businesses, is adversely affected due to insufficient financing. Expansion and scaling, often reliant on credit, are vital to generating employment opportunities.

Fintech firms can enhance the growth and resilience of small businesses throughout Asia and the Pacific, especially in areas where traditional banking is less accessible. These companies can transform small business financing by prioritizing cash flow-based over asset-backed lending, which is crucial for businesses lacking substantial physical assets.

Digital lending platforms accelerate the process of assessing creditworthiness using algorithms and data analytics, facilitating quicker loan approvals with more relaxed criteria. Moreover,  fintech enables small businesses to effectively participate in global and regional markets, boosting their competitiveness. This is supported by digital platforms that assist with business registration, market access, and integration into global value chains.

 The digitization of banking tools is transforming these business sectors by making financial services more accessible and fostering innovative business practices. This transformation is evident in how these businesses increasingly use digital platforms for operations, transactions, and customer engagement.

In Cambodia, the Bakong system promotes financial inclusion among the unbanked and financially excluded businesses through a mobile payment and banking app that offers interoperability among e-wallets, mobile payments, online banking, and payment apps. This initiative has created a comprehensive payment platform that integrates a vast network of local banks and financial institutions, facilitating peer-to-peer transfers and enabling companies to manage sales more effectively through electronic payments in an increasingly digital environment.

AI and cloud services are increasingly being used by small businesses in Asia and the Pacific, enhancing customer service, risk management, and operational efficiency. The vast potential of these technologies is being harnessed to drive business efficiency, scalability, and innovation.

For example, in the Philippines, Cantilan Bank has implemented cloud-based technology to enhance its financial services and extend them to the unbanked and underserved in remote areas. This demonstrates the transformative impact of cloud services in regions with limited traditional banking infrastructure.

Fintech solutions can help micro, small and medium-sized enterprises in Asia and the Pacific at all stages of their evolution. These solutions also provide benefits for the overall economy through the creation of jobs and increased incomes for the region’s poorest communities.

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