How Fintechs Can Build Trust with SMEs in Latin America
March 30th, 2020 – Small businesses in emerging economies are notoriously underfinanced. Despite making up over 99.5% of the economy in Latin America, SMEs face a financing gap in the trillions of dollars. For example, up to 78% of small businesses in Argentina and 45% in Peru struggle to grow because of financial constraints. Numerous articles and institutional white papers point to the lack of trust between banks and SMEs as a major cause of this financing gap, even before the current COVID-19 crisis. Banks simply do not know how to accurately calculate small business risk, especially in volatile economies and times in Latin America, so they offer high-interest rates or pass on providing credit altogether.
Yet as Fintech startups and banks venture further into SME finance opportunities in Latin America, they are running into the inverse problem: building trust with small business owners.
While the millions of SMEs in the region present an enormous opportunity for B2B Fintechs who can solve their financing challenges, these small businesses tend to be traditional, non-technical, and disillusioned with financial institutions. On the other hand, organizations that can build trust with SMEs may find themselves with lifelong partners and customers; Latin American businesses tend to be loyal to service providers who treat them well.
Here is a look at how fintechs that wish to target SMEs in Latin America can build trust and improve services to this business sector.
Educate potential SME partners to build financial knowledge.
Written by Crowdfund Insider
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