Fintech innovation helping to close $2 trillion SME funding gap

White paper from World Economic Forum suggests investment in red hot fintech sector is driving a new wave of SME funding.

Investment in fintech companies jumped from $4bn in 2013 to $12bn in 2014, according to a white paper by the World Economic Forum.

The Future of Fintech – A Paradigm Shift in Small Business Finance report also suggests this new increased investment in the sector will go some way to closing a $2 trillion funding gap SMEs are currently facing – especially in emerging markets.

According to the report, fintech companies are able to pick up the slack left by banks reluctant to lend to SMEs because of the high-complexity but low-scale financing deals required.

But the younger and more agile fintech companies are able to offer a range of new products tailored specifically for small businesses, including marketplace P2P solutions, merchant and e-commerce finance.

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A team of MBA students from Saïd Business School, Oxford wrote the paper, under the leadership of members of the Global Agenda Council. It also sets out a number of “enabling factors” necessary to ensure rapid growth in the sector.

They include the ready availability of data, a supportive regulatory environment and the provision of sufficient investor capital. Despite the largely optimistic outlook set out in the paper, it does highlight certain risks.

They include limited protection of retail investors and the potential extension of funding to unworthy borrowers. This is summed up as the “systemic risk following from a partly unregulated and opaque sector”.

Michael Koenitzer, financial inclusion project lead at the World Economic Forum, warned that finance for SMEs is lacking despite “an ample amount of cash ready to get deployed”.

“But in this case fintech disruptors are increasingly filling the gap banks and investors leave,” he continued. “SMEs can turn to them to get the credit needed to grow their business, as fintech is providing a much needed relief to small businesses around the world.”

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Praseeda Nair

Praseeda Nair

Praseeda was Editor for from 2016 to 2018.

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