There are close to 71 million small businesses in Southeast Asia. These enterprises employ over 140 million people and account for almost 99% of the business in the region. But this segment still faces the toughest financial challenge.  

Irrespective of their location, access to credit remains a concern. ADB data showed that 60% of these small businesses have expressed difficulty or inability to obtain loans from traditional financial institutions. Fear of bad loans keeps banks away from lending to small businesses, and the lack of credit access impedes growth for these entities.

It is at this juncture that fintech lending has slowly come to the rescue. With quick disbursals and alternate risk models in place, these platforms can enable immediate credit access for small businesses. 

Plugging the gap 

In Vietnam, 75% of small businesses are unable to access formal credit. There are  800,000 enterprises operating in Vietnam, of which 97% are small businesses. Government officials stated that the lack of transparency in their documentation reduces the chances of obtaining a loan from banks and allied financial institutions.  

A similar situation prevails in Indonesia. About 23 million small business owners in the country do not have access to finance from the banking sector. The government has encouraged these businesses to embrace digitisation for better credit scores.  

In Thailand too, about 60% of small businesses have not been able to access credit from banks. The Bank of Thailand said that digital banking will help improve the liquidity situation of the industry.  

The pandemic exacerbated the crisis in markets such as the Philippines. Here, only 13% of small businesses could access funding easily. 

Fintech to improve access 

Local solutions exist. In Indonesia, for instance, fintech firm Amartha is connecting urban investors with women entrepreneurs to bridge the demand-supply mismatch. The platform also offers group-based working capital loans for these business owners.  

Another platform Funding Societies (called Modalku in Indonesia) raised $144 million to offer an artificial intelligence-led credit model for small businesses. It has also partnered with HSBC for a $50 million credit facility for SME digital financing.  

Funding Societies operates in Singapore, Indonesia, Malaysia, Thailand, and Vietnam and has disbursed over $2.5 million in credit to small businesses.  

Fintech startups such as Finaxar also partner with local institutions such as Indovina Bank in Vietnam to offer business loans to solopreneurs and entrepreneurs. In the Philippines, SME lender Investree has partnered with technology platforms to offer funds to emerging businesses. With flexible eligibility criteria, the aim is to make credit available to all.  

A conscious effort, through enabling regulations and support of fintech platforms, will go a long way in bringing credit within the reach of small business owners.