How RegTech Powers SME Financial Inclusion in Southeast Asia
September 15th, 2022 – t is no exaggeration that SMEs are the backbone of the economy.
According to the World Bank, SMEs represent about 90% of businesses and over 50% of employment worldwide. In Southeast Asia specifically, SMEs account for up to 99% of all companies.
However, many small and micro businesses still struggle to access the financial products that could help them thrive in today’s hyperconnected world.
This highlights a blind spot many of us have when talking about “financial inclusion”. Usually, when referring to it, we think about how to make financial products more accessible to individuals who have been kept out of the traditional financial system for one reason or another.
Yet, while the importance of making financial products accessible to as many individuals as possible should not be underestimated, financial inclusion for SMEs and newly created businesses is arguably even more impactful.
A recent report by the Yusof Ishak Institute suggested that there may be many “missing businesses” in Southeast Asia. Several countries in the region have a large informal business sector that is unmonitored and unregulated. As a result, up to 90% of SMEs in some countries may be excluded from official counts and often also from access to credit and other financial products.
Bringing these missing businesses onto the map while empowering the overall entrepreneur economy could generate a substantial positive ripple effect.
Specifically, in 2018 the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) described a Southeast Asian “e-commerce revolution”. Their report outlined the profound changes that financial inclusion for SMEs can have on a region and its people.
E-commerce can make emerging economies more inclusive. It can link rural and urban markets and level the playing field for entrepreneurs. Thanks to e-commerce, traditionally disadvantaged segments of the population can now access and profit from opportunities that might have previously been off-limits.
In addition, founding a new SME is often the best path for individuals to transition from the margins of society to building wealth for themselves, their employees, and their communities.
In this way, making SMEs a pillar of financial inclusion initiatives can bring economic and social benefits that stretch far beyond what many might have thought possible.
Written by Finextra
Photo: QuiFinanza
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