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Alternative data transforming SME finance

Access to financing remains one of the most significant constraints to the survival, growth, and productivity of micro, small, and medium enterprises (SMEs). The SME credit gap has proven to be an enduring structural feature across both developing and developed markets, even in countries that have enacted a variety of policy measures to support SMEs and enhance financial inclusion more broadly. In the world’s developing markets, about half of the estimated 400 million SMEs,1 or 180 to 220 million SMEs, still have unmet credit needs totaling US$2.1 to US$2.6 trillion. The credit gap results from both demand and supply side problems. Many SMEs are reluctant to seek or cannot access credit due to: the reams of financial documentation and collateral requirements for obtaining a loan; high costs and interest rates; and multi-week decision timeframes. Digitizing SME finance and making use of transactional and alternative data offer an opportunity for addressing both sides of this problem.

This report from the World Bank, focuses broadly on digital data for SME lending which includes new uses of both traditional data (bank, accounting, transactional, and sales data) as well as alternative data (online ranking and social media, mobile, and individual data, such as psychometric testing). This report identifies the landscape of alternative data being increasingly used to expand access to SME finance. It also explores some of the new operating models and the new breed of SME digital lending originators. It also looks at collaborative partnerships that are harnessing alternative and transactional data. and the report concludes by listing potential areas that policymakers and regulators need to understand in order to enhance SME access to finance. 

World Bank
With 189 member countries, staff from more than 170 countries, and offices in over 130 locations, the World Bank Group is a unique global partnership: five institutions working for sustainable solutions that reduce poverty and build shared prosperity in developing countries. The World Bank Group is one of the world’s largest sources of funding and knowledge for developing countries. Its five institutions share a commitment to reducing poverty, increasing shared prosperity, and promoting sustainable development.

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