Kavan Choksi Explains How Digital Finance Can Support SMEs

Kavan Choksi believes small and medium-sized businesses are the backbone of the global economy. Unfortunately, they receive fewer bank loans than large businesses and have more difficulty opening lines of credit and financing their operations. Furthermore, only a tiny percentage of fintech focuses on small and medium-sized enterprise (SME) financing.

These enterprises account for seven out of every ten jobs in emerging economies. In addition, they account for roughly 90 percent of businesses and more than half of all global employment. Moreover, according to the World Bank, formal SMEs contribute up to 40% of national income (GDP) in emerging economies.

Regardless, the World Bank estimates a $5.2 trillion funding gap for micro, small, and medium-sized enterprises across 65 million MSMEs spread across the 128 countries studied.

SMEs are less likely than large corporations to obtain bank loans, and, as a result, they tend to rely only on internally generated funds. Approximately half of all formal businesses in this category do not have access to traditional modes of credit. Given this, Kavan Choksi believes access to financing is a crucial constraint to SME growth.

As Kavan Choksi points out, banks reject more than half of SME finance requests and frequently require collateral or other burdensome financial requirements. In addition, SMEs often struggle to open lines of credit. As a result, since they still must pay suppliers quickly, SMEs can end up cash-strapped after delivering goods. Furthermore, sales and profit are essential for SMEs, but if they can't manage their cash flow, there's no way they can grow their business. Kavan Choksi believes this is where fintech and trade finance specialized companies come into play. They understand the business model of SMEs and try to make products for their requirements.

Fintechs can play an essential role in assisting SMEs, and there is a massive opportunity for fintech who help close the financing gap. However, according to CGAP, two-thirds of the region's fintech focus solely on the United Arab Emirates, Saudi Arabia, and Egypt – all of which have attempted to create friendly regulatory frameworks for fintech firms.