Fintech funding helps MSMEs grow, study shows

Micro, small and medium enterprises (MSMEs) from member countries of the Association of Southeast Asian Nations (Asean), which include the Philippines, reported performance growth after receiving financing through a financial technology platform, indicating a promising means of helping small businesses scale up their operations.

According to a study jointly developed by the Cambridge Centre 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 profit, revenue, 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 which borrowed from alternative financing sources defaulted less on their loans resulting to a default rate of 1 percent versus the 3 percent non-performing loan (NPL) bank average in Asean countries.

The study, dubbed as the ‘Asean Access to Digital Finance Study,’ measured the impact of digital financial services, basing it on 600 responses of MSMEs from Indonesia, Malaysia, the Philippines, Singapore and Thailand from February 28 and April 15 of this year.

In the Philippines, researchers tapped local fintech companies like First Circle, BillEase, and Tala to collect data from their clients.

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

In terms of business changes caused 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 revenue increases, 53 percent said there was an increase in profits, and 47 percent noted an increase in employment.

In the Philippines, MSME’s make up the majority of businesses, comprising 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, motor vehicles and motorcycles repair, food services, and manufacturing.