Tackling the US$2 Trillion Funding Shortfall for Asia Pacific’s SMEs

Tackling the US$2 Trillion Funding Shortfall for Asia Pacific’s SMEs

by November 28, 2023

Small and medium enterprises (SMEs) are vital in driving economic growth, particularly in developing countries, as they significantly contribute to the GDP and play a key role in job creation.

According to the Asian Development Bank, SMEs make up 98% of all businesses and provide jobs for 66% of the labour force in Asia, but they represent only 38% of the region’s GDP. In fact, the World Bank estimates that 600 million jobs will be needed by 2030 to absorb the growing global workforce, which makes SME development a high priority.

While most governments have been introducing policies to support the growth of the SME sector, APAC SMEs today are still encountering several constraints hampering their growth, and they face a US$2 trillion funding gap, a hangover from the impact of the pandemic.

What are SMEs looking for in lenders?

Research by banking software provider Mambu shows that a significant majority of SMEs in Indonesia (93%), Singapore (97%), Thailand (95%), Australia and New Zealand (95%) are open to switching lenders if a competitor offers a better or improved proposition. So what are SMEs looking for when choosing lenders?

  1. More flexibility: SMEs require more flexibility in terms of product configuration adapted to their needs, i.e. loan terms, repayment options, and collateral requirements.
  2. Faster access: They may need access to capital quickly in order to seize opportunities or address urgent financial needs. As a result, they value loan providers who can offer an efficient lending process.
  3. Transparent terms: SMEs want to understand the terms and conditions of a loan before committing to it. This includes the interest rate, fees, repayment schedule, and any potential penalties.
  4. Personalised service: SMEs appreciate loan providers who take the time to understand their specific needs and tailor loan solutions to meet their unique requirements.
  5. Ongoing support: They value loan providers who offer ongoing support and assistance, including resources and guidance especially at the start of the journey.

This is where non-banking institutions come in. Fintechs are reshaping the industry worldwide, and Southeast Asia is no exception. Technology-driven firms are continuously improving their products and services, and are great at meeting the needs of SMEs.

SMEs identify digital banks and neobanks as their preferred banking choices, valuing their simplicity and easy accessibility. According to McKinsey research, customer service is a crucial aspect for SMEs when it comes to banking, an area where many traditional banks still have room for improvement.

Simplicity, flexibility and support

Overcoming lending barriers and delivering faster, seamless new offerings can be achieved by moving core lending systems to a flexible API-enabled cloud platform like Mambu. SaaS solutions reduce operational costs and offer a composable platform to build, scale, and run new offerings on demand.

One example of this is how Mambu had collaborated with Thoughtworks to launch an upgraded lending platform for Prospa, a publicly-listed non-bank SME lender in Australia and New Zealand.

Mambu served as Prospa’s cloud-native lending engine, while Thoughtworks provided technology consultancy, leveraging their rapid, global expertise. In a mere eight months, the collective team executed the initial platform enhancements, enabling a soft launch of a new line of credit product. This offering empowers New Zealand business owners with flexible, ongoing fund access.

With Mambu, financial institutions can provide SME products tailored to each customer’s specific needs, empowering them with bespoke solutions. Whether it’s a new equipment loan for a bakery, an advance cash injection for a construction business, or a start-up loan for an entrepreneur, Mambu’s lending engine allows for quick configuration and instant availability through RESTful APIs.

When the pandemic forced small businesses to close their doors, Australian lender Lumi knew many SMEs would struggle to stay afloat through the crisis without swift access to funds. Lumi was able to respond rapidly to the urgent needs of SMEs due to the innate agility of the Mambu platform, which prioritises customer experience and responsiveness. Leveraging Mambu’s in-built flexibility and configurability, Lumi swiftly made the necessary adjustments without spending months on coding, upgrades, or professional service fees.

Sustainable growth and resilience will be the watchwords for SME lenders as we head into more economic volatility. Rising costs, such as energy and staffing, pose serious challenges for businesses. With the dark clouds of a global recession looming, SME growth plans and investment are likely to remain cautious. Lenders should expect to see an increase in flexible lines of credit applications to support cash flow management and employee costs.

Discover how to bolster SME support during challenging times and safeguard SME financing business from upcoming disruptions in Mambu’s free report “Lead the $5.2 trillion SME lending opportunity”.