Fintechs in Latin America are playing a crucial role in helping micro, small and medium-sized enterprises (MSMEs) become more resilient, while increasing jobs, incomes and sales, according to a new report.
The study – The study on SME access to digital finance – published jointly by the Cambridge Center for Alternative Finance (CCAF) to University of Cambridge Judges Business School and the Inter-American Development Bank (IDB) delves into the Latin American fintech ecosystem with a particular focus on access to finance for MSMEs.
After surveying 540 MSME clients from 34 fintech platforms in Brazil, Mexico, Colombia, Peru, Argentina and Chile, the study reveals that 75% of businesses were micro-enterprises. It also showed that the median amount borrowed or raised was less than $4,000, although for 75% of the sample the amounts were up to $20,000.
Before successfully receiving funding from a fintech platform, MSMEs had tried to raise funds from different sources, including banks or family and friends. Only half had received and accepted an offer from a bank.
The report also revealed that MSMEs using a peer-to-peer (P2P)/marketplace lending platform were unable to secure financing from any other source except a fintech company.
Furthermore, MSMEs indicated that the decision to raise funds through a fintech platform was largely influenced by the possibility of receiving the funds faster and with a higher level of customer service. Half of responding MSMEs opted for fintech financing due to more favorable interest rates.
Bryan Zhang, Executive Director and Co-Founder of the CCAF Research Center, says, “The findings of this study illustrate the potential of fintech to bridge the MSME financing gap and drive MSME growth in the LATAM region. Especially for micro-enterprises, fintech credit proves to provide them with much-needed support to enable them to sustain, grow and develop.
Businesses receiving funding reported an increase in their productivity, with 43% of businesses using a P2P lending platform reporting higher productivity. A third MSME that used a digital lending or bill exchange platform also reported cost reductions.
Juan Antonio Ketterer, The Head of Connectivity, Markets and Finance Division at the IDB, said: “Thanks to the availability of credit, fintech-backed companies have become more resilient even in the face of the unprecedented business conditions associated with the pandemic. world. These findings could be a call to action for our policy makers to help this industry grow.
Founded in 1959, the IDB is a major source of long-term financing for economic, social and institutional development in Latin America and the Caribbean. According to the IDB, it helps governments in the region to develop public policies, improve institutional capacities and increase access to finance for individuals and businesses in countries such as Brazil, Chile, Colombia and the Mexico.
In addition, the bank has supported the creation of innovation hubs in Costa Rica, the Dominican Republic, El Salvador and the Pacific Alliance, and has invested in a knowledge program to inform policymaking, which includes this latest study in partnership with the University of Cambridge.