The SMEs of the world have been hit hard by the COVID-19 pandemic and the subsequent control measures government have put in place. As the brave essential and frontline workers toil away every day to ensure the comfort and safety of the general populace, SMEs in fast-growing economies remain particularly vulnerable as they are faced with reduced demand, disrupted supply chains, and a worsening lack of finance.
SMEs are too vital for most countries to fail. They account for more than half of most countries’ GDP and are responsible for nearly seven in every ten jobs. It is now more than ever, that SMEs are provided with the necessary financial backing to support their employees, their communities, and to give hope to millions of depend on them to survive.
Access to finances has been a problem that SMEs faced even before the coronavirus outbreak. Less than 15 percent of SMEs in fast-growing economies had access to the credit needed to grow. According to the International Finance Corporation (IFC), the unmet financing need of SMEs in these markets is a staggering US$5.2 trillion every year. COVID-19 only serves to exasperate the issue further.
Traditional lending is unfortunately not an efficient model for helping SMEs. The main issue lies with the monumental amount of time it takes for financial reviews and credit scoring. Add to this that the answer to an SME’s application after several weeks of review can be a simple “maybe”, we can see why traditional landing can be unhelpful for the speed-centric SMEs.
In recent years, a growing crop of fintech lenders for SMEs is offering a new model of lending that is faster, easier, more cost-effective and more transparent. For the first time, SMEs can share what data they have in exchange for access to credit to help them grow. The use of advanced analytics and artificial intelligence to assess transactional and alternative data lets fintech lenders gain a deeper understanding of SMEs. This new tech can even allow lenders to evaluate risks, establish creditworthiness, and issue loans in as little as 24 hours.
Today, these new, innovative, data-and artificial intelligence-led solutions are better positioned to serve SMEs’ financing needs, lead them out of the imminent financial crisis, and unlock their potential.
The longer-term economic impact of COVID-19 is yet to be seen. With loan volumes already increasing, the spread of the virus could prompt an accelerated digitisation of the financial industry.
The idea that new generations of entrepreneurs will have an easier time obtaining the financing they need serves as great encouragement.
