FinTechs Could Save SMEs In Southeast Asia

As many micro, small, and medium enterprises in Southeast Asia find it increasingly difficult to secure financing from traditional banks, FinTech companies are expanding to fill the void.

According to the SME Finance Forum, 41 percent of SMEs in emerging markets have difficulty meeting their financial needs—and in Southeast Asia, this gap amounts to almost $300 billion.

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Yet a 2015 Deloitte study found that SMEs contribute 42 percent of the combined GDP of the five founding members of the Association of Southeast Asian Nations (ASEAN) and largest Southeast Asian economies (Indonesia, Malaysia, Philippines, Singapore, and Thailand).

With that in mind, the region has made digitization a priority, and as a result, it has become the fastest growing internet market in the world, with an estimated 125,000 new customers entering every day. In fact, the region’s internet economy is expected to grow to $300 billion by 2025.

FinTechs are stepping in to supply much-needed funding to smaller companies in the region. According to a report by Google, Temasek and Bain & Company, the digital loan book across the region amounted to $23 billion in 2019 and is expected to grow at 29 percent CAGR until 2025, to $110 billion.

With this in mind, it’s no surprise that a company like Grab, whose multi-services platform includes ride-hailing, food delivery, and other similar services, has expanded into the SMB financing space.

“We constantly hear from the ecosystem of micro-merchants that they just aren’t getting the kind of credit they require,” said Grab Financial Group’s Head of Lending Ankur Mehrotra in a recent interview.

Singapore’s Validus Capital also offers working capital financing and short-term loans to SMEs via peer-to-peer (P2P) lending. The company, which operates in Singapore, Vietnam, and Indonesia, has disbursed more than $450 million in financing. Startup Jenfi recently launched in Southeast Asia to provide small and medium business loans.

“Even in a market like Singapore which is quite well-established … half of these companies are still underbanked, [and] they don’t have access to credit,” said Jenfi cofounder Jeffrey Liu. “We realized there was a big problem there.”