Fintech funding helps MSMEs grow, study shows

by James · December 15, 2022

Micro, small and medium-sized enterprises (MSMEs) from member countries of the Association of Southeast Asian Nations (Asean), which includes the Philippines, reported profit growth after receiving financing through a financial technology platform, indicating a promising way to help small businesses scale up their operations.

According to a study developed jointly by the Cambridge Center for Alternative Finance (CCAF) at the University of Cambridge Judge Business School and the Asian Development Bank Institute (ADBI), this growth was seen in terms of net profits, revenues, employment and performance.

“Most MSMEs reported that the financing had a positive impact on their business, primarily through increased productivity and an expanded customer base,” the study said, adding that those who borrowed from alternative financing sources defaulted less on their loans, which led to a default rate of 1 percent versus the 3 percent non-performing loan (NPL) bank average in ASEAN countries.

The study, called the “Asean Access to Digital Finance Study”, measured the impact of digital financial services, based on 600 responses from MSMEs from Indonesia, Malaysia, the Philippines, Singapore and Thailand between February 28 and April 15 this year. .

In the Philippines, researchers used local fintech companies such as First Circle, BillEase and Tala to collect data from their customers.

More than half or 59 percent of MSMEs that received funding using a peer-to-peer or marketplace business model reported increases in profits as well as revenue, while 52 percent also reported an increase in employment.

In terms of business changes brought about by borrowing funds from an invoice trading platform, 44 percent of respondents reported an increase in profits, 40 percent cited an increase in revenue, while 24 percent said there was an increase in employment.

For MSMEs that received funding through an equity crowdfunding platform, 60 percent reported increases in revenue, 53 percent said there was an increase in profits, and 47 percent noted an increase in employment.

In the Philippines, MSMEs make up the majority of businesses, accounting for 99.51 percent of the total according to 2020 data from the Philippine Statistics Authority.

Back in 2021, there were at least 7,000 registered MSMEs in the Philippines according to the Department of Trade and Industry.

The majority of these MSMEs are engaged in wholesale and retail trade, repair of motor vehicles and motorcycles, food services and manufacturing.