Not long ago, pure play digital MSME lenders were the disruptors of the MSME lending space. For the first time, MSMEs (micro, small, and medium enterprises) had options to access affordable, fast, and convenient credit, largely online. Today, MSME lenders have evolved beyond solely offering credit to small businesses and now provide a more holistic product offering that hasn’t been available to MSMEs in the past. New players within the MSME lending space have also emerged, like embedded finance and MSME neobank models, which offer ancillary financial products baked into their core services. These companies extend financial products within their platforms — like Field Intelligence’s pay-as-you-go subscription service for pharmacies to order medicine and healthcare products — to add value to their customers and drive more entrepreneurs to utilize credit and other financial services to grow their businesses.
Through Accion Venture Lab’s work with early-stage fintech startups serving small businesses, we have observed three strategies that MSME lenders execute to remain competitive in an evolving credit lending space. These strategies have enabled lenders to drive credit utilization, deepen customer loyalty, and tap into new revenue opportunities.
Strategy #1: Expand product offerings beyond credit
To gather diverse, high-quality data, MSME lenders can offer other fintech products — such as B2B payments and business management tools like ERP systems to manage day-to-day operations — to their small business customers. This data gathered from tools can provide unique insights into their customer base, allowing them to adapt products and offer meaningful support to meet their customers’ needs more effectively, which drives more credit utilization and deepens customer loyalty. Konfío, an online lending platform based in Mexico, is an example of a company that evolved from MSME lending to a suite of products in accounting, payments, taxes, and other financial services. By expanding their offerings, they gather rich data that allows them to understand their customers’ needs and continuously improve the services they offer to their small businesses.
Strategy #2: Broaden credit options to meet small business needs
Given that MSMEs have had limited credit options historically, there is a huge opportunity to expand the services available to them and offer flexible options based on their specific capital needs. This strategy includes offering credit with different terms (e.g., six weeks vs. 12 weeks) and forms, such as revolving credit. Broadening credit offerings both allows lenders to reach a range of MSMEs and provides optionality that they may not have had access to before. Lulalend, an Accion Venture Lab portfolio company in South Africa, serves SMEs across numerous disparate industries because they have a broad credit offering. Through Lulalend’s digitally enabled platform, small business owners can quickly access short-term capital to purchase materials, hire employees, repair equipment, and grow their businesses.
Strategy #3: Partner with platforms and other players to embed credit
Another prominent strategy in the ecosystem is embedding credit offerings into platforms to attract a large number of customers quickly. MSME lenders create credit products that are critically needed by these small businesses on partners’ platforms. When these platforms cannot provide credit themselves, embedded lenders can fill the gap by extending credit options that enable MSMEs to acquire more customers and invest in their businesses. MSME lenders prioritize partnering with platforms to lend credit because there is already an identified need, and lenders can rapidly scale and gain access to large numbers of loyal customers. We have seen this strategy with lenders, such as SMECorner in India. SMECorner partners with platforms used by small businesses, like food delivery apps and digital payment providers, to extend credit to businesses on the apps they are already using. This approach helps SMECorner reach more businesses while their partners deepen customer loyalty and increase wallet share by adding credit offerings to their platform features. Partnering with SMECorner helps the platform partners fill the critical gap in lending capabilities so they can continue to focus on their core business.
We believe that pure play lenders can add real value at scale in the MSME credit lending space because of their robust data analytic capabilities, trusted customer networks, and innovation within the credit industry. These factors enable lenders to gain a unique insight into the products — both within and beyond credit — that small businesses need to thrive. With these learnings to guide them, pure play MSME lenders are strongly positioned to serve their customer base with additional products to help small businesses grow.