Start-up financing continues helping small businesses grow worldwide. Recently, I had the pleasure to attend and speak at the 2016 Global SME Finance Forum, a three-day Bejing conference in partnership with major worldwide financial organizations. Four hundred representatives of leading banks and financial technology firms from 50 countries gathered to discuss how to leverage technology, big data, bitcoin and artificial intelligence.
Small businesses, essential for economic growth, account for over 95 percent of worldwide businesses. They provide more than half of all jobs. Yet 200 million businesses don’t have the necessary financing to invest and create new jobs. Small businesses struggle to get loans from banks. However, new technologies and business models continue to improve SME funding.
Global SME Finance Forum – Bejing – 2016
While moderating one of the group sessions about regulation and speaking at the end of the Forum on “Looking Ahead, ” I expressed my excitement and enthusiasm about the future of SME finance.
Rapid digital technology improvements and innovative leadership are changing the financial landscape in all economies. Mobile, in particular, continues pushing the boundaries for SME’s and their customers.
I spoke with many entrepreneurs at the Global SME Finance Forum about the importance of their work, and the significant business challenges that drive them forward. Attendees know first-hand about the limitations of traditional financing methods. Financial innovation at scale is critical.
Financial Inclusion and Digital Money
We discussed at length about access to basic financial services through digital money. Millions of people who live in developing and mature countries don’t have full access to banking and other financial services.
People in Africa and a large portion of Asia, in particular, lack banking services available in developed nations.
But times are changing. Within the next 5 years, three billion new minds—people in emerging countries—will gain Internet access. Using smartphones, the Internet community will explode. Developing useful financial service tools for this growing community depends largely on SME financing.
Tech leaders globally have called for a world of digital money to fuel this new world of opportunity and increased security for the underserved. Notable leaders include Bill and Melinda Gates, Pierre Omidyar, Founder of eBay, and Ajay Banga, CEO of Mastercard to name a few.
Jeffrey Sachs, head of the Earth Institute and a tireless advocate for ending poverty, is so bullish about universal financial services, he believes improvement will bring an end to extreme poverty. Finally, all individuals and businesses can fully participate in global communities.
This is the message I brought to the Global SME Finance Forum—an interconnected world where all benefit and no one is left in the dark. Financial literacy grows as companies serve the poor, the aspiring entrepreneurs, wherever they are, whoever they aspire to be.
The Power of Microcredit
If you think about it, financial services for the underserved started a long time ago informally, followed by the emergence of microcredit, a big idea 30 years ago.
Godfather of microcredit Muhammad Yunis, the Bangladesh economist, founder of Grameen Bank, tells the story of feeling frustrated during a famine in Bangladesh. Then, Yunis developed a small loan program for women in small business. It worked!
Their families ate better, children stayed in school, and women employed others.
But microcredit had two issues—limited scalability and high overhead without a way to disburse and collect funds electronically. Digital money changed everything.
Regulatory Reform and New Financing Models
In my Global SME Finance Forum discussions, we talked about the need for regulatory reform. Regulators, banks, and government agencies want to increase diverse SME financing, supply and effectiveness.
Many believe diversity is critical for inclusive SME growth, especially in the emerging digital world, but regulatory approaches differ. India, for example, insists structure is necessary before innovation emerges.
East Africa (Kenya, Tanzania, Uganda) regulators, on the other hand, want innovation first before regulation. Once the innovation scales, regulators can set standards. Many countries have just begun the regulatory reform process. India’s digital payment regulations are better developed than SME finance and crowdfunding initiatives.
Most country regulators express strong interest in how new models–crowdfunding, crowd equity, and p2p lending—will help expand SME finance. Credit Ease in China and other digital payment companies continue scaling well.
The 2016 Global SME Finance Forum speakers and attendees impressed me greatly. I thank the Forum for inviting me to participate as a speaker, group leader, and participant. I look forward to closely following the organization’s growth.
About Carol Realini
Since 2002, Carol built a career as a FinTech entrepreneur, investor, author, and financial inclusion thought leader based in Silicon Valley. She co-authored with Karl Mehta Financial Inclusion at the Bottom of the Pyramid, plus numerous articles about fintech, mobile banking, financial inclusion and entrepreneurship. For a personal view of Carol, read “My Financial Services Journey…” and “Banking for All is Within Our Reach.”