MSMEs see growth after getting financing from digital platforms

MICRO, small, and medium-sized enterprises (MSMEs) posted improved net profit, revenue, employment and performance after tapping financial technology and online lending firms for financing, a study showed.

The ASEAN Access to Digital Finance Study conducted by the Cambridge Centre for Alternative Finance at the University of Cambridge Judge Business School and the Asian Development Bank Institute showed digital financial services contributed to boosting financial inclusion for both consumers and businesses.

The study measures the impact of digital financial services for consumers and MSMEs in the Philippines, Indonesia, Malaysia, Singapore, and Thailand based on 600 responses from Feb. 28 to April 15, with 200 of which from the Philippines.

A total of 190 responses were received from MSMEs, with 27% being from the Philippines.

“The study aims to understand how individual households, consumers, and MSMEs use digital financial services — such as online lending and capital-raising platforms — to access credit or raise funds from 2020 to 2021,” a statement from fintech firm First Circle said.

First Circle was one of the local fintech firms approached by the study’s proponents for data collection.

“MSMEs saw a positive impact after getting finance through one of these three digital financing models: P2P/marketplace business lending; invoice trading; and equity crowdfunding. The top three positive impacts were in productivity (65%), a larger customer base (41%), and launching a new product/service (39%),” it said.

The study showed that before approaching fintechs and online lenders, MSMEs first sought funding from family and friends, banks, and microfinance institutions.

The top three reasons cited by Philippine MSMEs for choosing digital financing models were better customer service (85%), flexible terms at (82%), and speed of funding at (73%).

“The main reason MSMEs borrowed funds from fintech platforms was to raise working capital, followed by expansion and growth — a contrast from the common misconception that MSMEs who borrow funding do so to bail out struggling and failing businesses,” the statement said.

The report said 26% of MSME respondents in the country reported that 26% their main reason for obtaining funds from a fintech was to lend to individuals or other businesses.

Meanwhile, the study showed in terms of traditional finance products, the top three used Philippine MSMEs cited were personal checking or savings accounts at 55%, personal current accounts at 50%, and personal credit cards at 15%.

The average amount borrowed or raised by Philippine MSMEs from traditional and alternative financing platforms was at $11,722.

Respondents from the Philippines also cited that they received a variety of assistance from fintech platforms for the effects of the coronavirus disease 2019 pandemic, with 29% getting help in the form of waived fees, eased payment plans (18%), insurance or coverage plans (14%), and additional credit facilities (12%). 

However, 36% of local respondents cited that they did not receive any support.

MSMEs used savings or checking accounts, loan contracts or term loans, and cash credit to support their business activities in the Philippines.

First Circle said the survey results show that fintech services complement, not compete with, those of traditional banks.

“One of the most interesting findings show that fintech services often complement rather than compete with traditional banking services in ASEAN countries. In many cases, the increased access to finance through fintech platforms also led MSMEs to increase their use of banking products and services,” it said. — A.M.C. Sy

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