Bridging the Small Business Credit Gap Through Innovative Lending

November 30, 2016

MSMEs contribute up to 33 percent of GDP in emerging economies, but face a critical shortage of capital to fund their businesses. Given their small loan sizes and the high costs typically associated with serving them, banks and traditional lenders are often reluctant to serve these businesses.

At the same time, the size of funding needed by many of these businesses make them too large to be eligible for funds from traditional non-bank financial institutions such as microfinance providers. The International Finance Corporation (IFC) estimates that the emerging market MSME financing gap alone stands at more than US$2 trillion.  

Despite this seemingly bleak environment, Venture Lab finds that a number of recent developments like rapid adoption of smartphones, growth in online commerce platforms, the digitization of small business processes, and enabling regulatory environments are reducing longstanding hurdles to providing financing to small businesses around the world. Pioneering lenders are leveraging these trends and using new analytic tools, access to alternative data flows, niche and affinity marketing, and other innovative approaches to identify, assess, serve, and support long-underserved small business clients.

Accion Venture Lab released this report on the latest innovations in the field of micro, small, and medium enterprise (MSME) finance. The report explores how innovative, tech-enabled lenders are using niche marketing, digital or mobile platforms, and enterprising partnerships – and often a combination of all three – to make financing available to underserved MSMEs. Informed by its investments and work with more than a dozen fintech start-ups in the MSME finance space, Venture Lab charts a course for investors, regulators, microfinance institutions, and entrepreneurs to seize today’s opportunity to close the gap.