Washington, DC, November 30, 2016 – Accion Venture Lab, the seed-stage investment initiative of financial inclusion leader Accion, released a report today on the latest innovations in the field of micro, small, and medium enterprise (MSME) finance. The report explores how innovative, tech-enabled lenders are using niche marketing, digital or mobile platforms, and enterprising partnerships – and often a combination of all three – to make financing available to underserved MSMEs. Informed by its investments and work with more than a dozen fintech start-ups in the MSME finance space, Venture Lab charts a course for investors, regulators, microfinance institutions, and entrepreneurs to seize today’s opportunity to close the gap.
MSMEs contribute up to 33 percent of GDP in emerging economies, but face a critical shortage of capital to fund their businesses. Given their small loan sizes and the high costs typically associated with serving them, banks and traditional lenders are often reluctant to serve these businesses. At the same time, the size of funding needed by many of these businesses make them too large to be eligible for funds from traditional non-bank financial institutions such as microfinance providers. The International Finance Corporation (IFC) estimates that the emerging market MSME financing gap alone stands at more than US$2 trillion.
Despite this seemingly bleak environment, Venture Lab finds that a number of recent developments like rapid adoption of smartphones, growth in online commerce platforms, the digitization of small business processes, and enabling regulatory environments are reducing longstanding hurdles to providing financing to small businesses around the world. Pioneering lenders are leveraging these trends and using new analytic tools, access to alternative data flows, niche and affinity marketing, and other innovative approaches to identify, assess, serve, and support long-underserved small business clients.
“Small businesses around the world – critical engines of growth in the world economy – struggle to secure the capital they need to grow and succeed. But today’s fintech landscape offers hope to close this gap as new providers leverage technology and newly digitized data sources to deliver unbundled, specialized financial services to this underserved segment,” said Managing Director of Venture Lab Tahira Dosani. “Venture Lab’s portfolio illustrates how alternative data footprints and analytic tools are helping lenders assess credit risk, online markets are connecting lenders to MSMEs, and MSMEs themselves are embracing new technologies. Today, we have an unprecedented opportunity to provide small businesses around the world with the financing they need.”
Venture Lab has finalized investments in a dozen innovative business models operating in the MSME finance space since its founding in 2012. The breadth of this work, alongside Venture Lab’s investment model – which pairs financial support with extensive strategic and operational support – gives it a unique viewpoint to assess trends and opportunities in the field of small business finance.
Venture Lab developed this report with the support of the Mastercard Center for Inclusive Growth and Mastercard Start Path.
Accion is a global nonprofit dedicated to building a financially inclusive world with economic opportunity for all, by giving people the financial tools they need to improve their lives. We are building the next generation of top-tier microfinance institutions, and over more than 50 years have helped build 65 such institutions in 32 countries on four continents that today reach millions of clients. Our impact investing initiatives are pushing beyond microfinance to catalyze more than 30 innovative start-ups dedicated to improving the efficiency, reach and scope of financial services for the poor. And our Center for Financial Inclusion is helping to build a stronger industry with high standards and broad engagement. Currently, our work spans nearly two dozen countries, including the U.S., where we are the nation’s largest nonprofit microfinance network. For further information, visit http://www.accion.org.