Access to finance is a critical barrier for SMEs to start, sustain and grow their businesses. About half of formal SMEs do not have access to formal credit, and instead rely on internal funds, or cash from friends and family, to launch and initially run their business. An extensive survey of SMEs in 135 countries showed that access to finance was reported as the most serious obstacle to the current operations of businesses. In emerging markets, approximately 131 million or 41% of formal SMEs have unmet financing needs. Creating opportunities for SMEs in emerging markets is a critical way to advance economic development and reduce poverty. The application of different technology innovations, digital financial services (DFS), or the provision of financial products and services through digital channels, has become an essential enabler to close the SME financing gap. Technology innovations serve as the foundation for the development of new business models and digital financial products, which include digital loans and other credit products, as well as equity capital.
This report provides an overview of how digital technologies are helping to address the main barriers/frictions to close the financing gap for small and medium enterprises (SMEs) through the adoption of digital financial services solutions. It is a stocktake of private, public and private-public partnerships to advance responsible SME DFS. These solutions do not come without challenges and risks; and therefore the report presents regulators and policy makers with policy options and potential actions for consideration.