Can technology help SMEs gain access to loans to grow their business? Source: Shutterstock

Can technology help SMEs gain access to loans to grow their business? Source: Shutterstock

oCap CEO explains how tech helps bridge the SME finance gap

A LARGE number of businesses in Asia belong to the SME category, creating valuable products and services, providing jobs, and driving the economy.

However, not many of them have access to finance in the same way that their larger competitors — especially credit.

In a world that’s going digital at an accelerated pace, the value of credit cannot be undermined. It’s what fuels transformation agendas and helps business owners make technological investments in anticipation of future growth.

Failing to gain access to credit, therefore, puts their business, millions of jobs, and the Asian economy at risk.

Fortunately, the very catalyst that’s bringing about the change in our world can also help SMEs gain access to the credit they need in order to stay relevant in the digital age.

Technology, believes oCap Management CEO Carlos Haeuser, is the key to bridging the SME finance gap, in Asia and around the world.

“A large number of SMEs will benefit from alternative lending sources given the large unmet demand for financing.

“According to the Asian Development Bank, some 74 percent of trade finance requests by SMEs are rejected against just 10 percent for multinational companies,” Haeuser told Tech Wire Asia.

With US$5.2 trillion in unmet financing needs and US$1.5 trillion in global trade finance gap affecting SMEs, along with US$700 billion of unmet trade financing demand in Asia, the needs of a largely underserved market must be addressed.

“The gap constitutes a very compelling argument for more investment in the fintech lending space to tap into the huge market potential and create solutions that can help small businesses to unlock their true potential.”

Haeuser, whose company uses artificial intelligence to make credit decisions about SMEs, believes that the traditional banks’ low-risk appetite, tedious processes and reluctance to offer larger loans to SMEs have created opportunities for companies like his to enter the market and supplement this unmet demand in the industry.

“While SMEs are sensitive to interest rates on their loan, they also look for other aspects that allow for a seamless application process, such as the speed of approval and the lender’s transparency.”

Why fintech wins where banks fail?

Unlike Africa and India where access to financial services is limited as a result of reach, SMEs in Asia are in close proximity to banks.

The reason they’re unable to secure a loan for themselves is that they often lack the financial documentation and history that traditional banks have built their credit approval models on.

“Instead of performing full manual credit assessment as most traditional banks do, fintech lenders apply credit scoring models which are data-driven and adopt automated risk assessment methods.”

Obviously, with automation comes cost-savings, which these fintech lenders can pass on to SMEs in order to encourage borrowings.

Lenders are also able to employ dynamic pricing as more frequent risk reassessments on short-term loans like invoice financing, merchant cash advance, working capital line and trade financing, can now being performed faster and more easily.

On top of that, machine learning capabilities can also be deployed for tailored deal structures around the actual needs, repayment capabilities, and seasonality of the SMEs.

“An intelligent solution can recommend the right loan, for the right merchant, at the right rates — with the right repayment schedules.

“At oCap, for example, SMEs can choose loan repayment methods that do not disadvantage them. Based on the financial capabilities of the merchant, repayment can be structured as a percentage of the daily card sales volume, allowing them to continue their businesses in a profitable and sustainable manner.

Haeuser points out that most fintech companies in the SME lending space try to create a simplified lending process that’s transparent and (usually) entirely online.

“Technology and digitalization allow for more bespoke offerings for SMEs; each loan package is uniquely different ranging from the loan amount, interest rates to repayment schedules.

“With a full loan lifecycle integrated on ‘one platform, one ecosystem’ models, loan repayments become fully automated, as do account statements and one-click additional repayments. businesses.”

While bankers are constantly trying to tap into the SME credit market — a US$700 billion opportunity in Asia — by reevaluating its credit policies and relevant regulations, the reality is, for now, fintech lending companies have an advantage and a chance to delight SMEs and win them over for the long-term.