In developing markets, formal Small and Medium Enterprises (SMEs) contribute up to 45% of employment and 33% of GDP according to the Global Partnership for Financial Inclusion (GPFI). As such, the broad MSMEs segment has a significant role in overall economic growth, economic stability, employment and job creation, as well as addressing inequality and poverty reduction in the regions of the world that need sustainable inclusive development the most. In that context, increasing the adoption of mobile financial services among MSMEs could have tremendous benefits for the society as a whole.
There are many ways MSMEs can use mobile financial services, as outlined in figure:
- to receive payments from their customers, both in-store and remotely (including online);
- to make payments to their suppliers or employees;
- for government payments and for receiving government subsidies;
- and even to access credit.
All these different mobile financial services, including mobile money products can help MSMEs address a number of the financial challenges they typically face, including overall book keeping capabilities, cash flow and liquidity management and limited access to credit. However, this market remains largely untapped.
Despite this, mobile financial services can offer MSMEs several important benefits.
Benefit #1: Using mobile financial services can be a critical step for MSMEs to be financially included and join the formal economy
The vast majority of MSMEs in low-income countries are in the informal sector and are not financially included. In fact, around 90% of MSMEs in emerging markets are classified as unserved or underserved, and close to half of them have no deposit banking accounts. MSMEs are also largely owned by women and rural entrepreneurs (women entrepreneurs own more than half of African SMEs; up to 70% of rural population active in formal and informal SME sector), which are segments that are still facing big challenges when it comes to become financially included.
Benefit #2: Mobile money can help MSMEs be more productive and increase their revenues
Using mobile money is a clear opportunity for MSMEs to increase their productivity and revenues in many ways, some of those include the following:
- Mobile money can help MSMEs increase transaction speed and reduce outstanding credit times, allowing SMEs to improve their overall payment collection;
- Globally, less than 10% of SMEs accept cards and it’s less than 1% in Sub-Saharan Africa. Mobile money can be a solid first step for MSMEs towards accepting digital payments in low-income markets as it doesn’t require to have a bank account nor a payment card POS which can be expensive and difficult to acquire given the nature of most unserved and underserved MSMEs worldwide.
- By allowing customers to make payments remotely via mobile money, either through mobile enabled solutions or online, MSMEs can also extend their pool of customers and sell their goods and services more widely;
- Additional benefits include increased efficiency from time saved, improved logistics and decreased administrative costs.
Benefit #3: Using mobile data for credit scoring can help increase access to finance for a greater number of MSMEs
In developing countries, most of MSMEs lack access to appropriate credit services. According to CGAP, the credit gap for MSMEs in emerging countries lies between USD 1.5 and 2.5 trillion. In fact, because of their high risk of default resulting from the limited collateral they can offer, and owing to the lack of information regarding their solvency, most MSMEs can rarely meet the criteria established by regulated financial institutions’ financing policies. The recent global financial crisis has further increased the financing gap in developing countries, particularly because the new regulations and policies are more stringent and conservative therefore affecting MSMEs’ chances.