Non-banking institutions make SME banking easier.

SMEs represent about 90% of businesses and more than 50% of employment. (Image – Shutterstock)

Why non-banking institutions are a hit for SME banking

SME banking is becoming an increasingly sought-after sector in the financial industry. Around the world, SMEs represent about 90% of businesses and more than 50% of employment. The World Bank states that formal SMEs contribute up to 40% of national income (GDP) in emerging economies.

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 for many governments around the world. Despite this, access to finance is a key constraint to SME growth. It is also the second most cited obstacle facing SMEs to grow their businesses in emerging markets and developing countries.

“The International Finance Corporation (IFC) estimates that 65 million firms, or 40% of formal micro, small and medium enterprises (MSMEs) in developing countries, have an unmet financing need of US$5.2 trillion every year, which is equivalent to 1.4 times the current level of the global MSME lending. East Asia and Pacific accounts for the largest share (46%) of the total global finance gap and is followed by Latin America and the Caribbean (23%) and Europe and Central Asia (15%),” stated the World Bank.

While banks are now pivoting to build and offer SME banking services, there are still some challenges they face in understanding SMEs’ needs. Some banks are still offering traditional financial products to SMEs which are not really that attractive. Banks also have strict rules on access to finance which can hinder the approval process.

SME banking has huge potential.

Access to finance is the second most cited obstacle facing SMEs to grow their businesses in emerging markets and developing countries. (Image – Shutterstock)

The rise of non-banking institutions for SME banking

This is where the non-banking institutions come in. Technology has seen a rise in fintech companies around the world. In Southeast Asia, fintech companies are growing tremendously and continue to secure funding and investment to better improve their products and services. Some fintech companies have also partnered with private non-banking institutions to offer financial services.

As such, there has been an increase in the number of neobanks and digital banks in the region. While these non-banking institutions also have to comply with regulatory requirements in each country they operate, their flexibility in offering a variety of financial products and services has proven to be a hit among SMEs.

Digital banks offer customers a range of financial services through digital channels, such as mobile apps and websites. These online-only banks normally partner with another non-banking company to offer the services. On the other hand, neobanks leverage technology to provide financial services to customers. These startups operate and offer banking services without the need for a physical branch.

For SMEs, digital banks and neobanks are the preferred choices of banking due to their simplicity and ease of access. In fact, research by McKinsey indicates that SMEs highlight the importance of customer service when it comes to banking, something which most banks are still trying to improve.

With the growth and demand for SME banking, Tech Wire Asia takes a look at ten non-banking financial providers that SMEs and MSMEs can consider in the region.

1) ANEXT Bank

ANEXT Bank is a digital wholesale bank incorporated in Singapore and a wholly-owned subsidiary of Ant Group. The Singapore-based digital bank will focus on providing digital financial services to local and regional micro, small and medium enterprises, especially those engaging in cross-border operations for growth and global expansion.

Its SME financing service, the ANEXT Programme for Industry Specialists is open to the participation of all e-commerce marketplaces, fintech companies and digital solutions providers who support SMEs’ cross-border operations through digital-based services or platforms. ANEXT Bank will collaborate with these industry specialists to expand the breadth of service offerings for SMEs on their platforms to include digital financial services offered by ANEXT Bank.

2) Funding Societies

Funding Societies is not a digital bank or neobank. However, the company is the largest SME digital financing and debt investment platform in Southeast Asia. It’s Micro Financing/-i is a business financing product that offers micro-credit opportunities to SMEs in Malaysia. Small businesses can utilize the opportunities to maintain cash flow and enhance their business day-to-day. The company offers both Micro Financing (conventional) and Micro Financing-i product based on the business activities and needs of the SMEs.

3) GXS Bank

Backed by a consortium consisting of Grab Holdings and Singtel, GSX is Singapore’s first digital bank that aims to revolutionize banking services for consumers and small businesses. Among them is its lending product, GXS FlexiLoan. The personal loan is designed to address the pain points faced when taking up a loan bridging the gaps that hinder access to credit.

4) MariBank 

Another digital banked in Singapore, MariBank is a wholly-owned subsidiary of Sea Limited. Unlike other digital banks, MariBank takes a different approach to financing for SMEs. Currently, its Mari Business Loan is only applicable to selected Shopee Sellers in Singapore.

Shopee is an e-commerce platform that is owned by Sea Limited.

5) SeaBank

In Indonesia, Sea Limited’s digital banking services are offered via its subsidiary, PT Bank SeaBank Indonesia. SeaBank, the Indonesian digital banking platform, offers banking services including savings, deposits, transfers, bill payments, and linkage with QRIS, the Indonesian QR payment standard.

Sea Limited was also granted a digital banking license in Malaysia and has partnered with YTL Digital Capital to offer financial products and services.

SME banking is growing in demand in Indonesia and Malaysia.

Indonesia has several non-banking providers for SME financing while digital banks launching in Malaysia could offer similar products as well. (Source – Shutterstock)

6) Trust Bank

Backed by a partnership between Standard Chartered and FairPrice Group, a leading grocery retailer in Singapore, Trust Bank is one of the fastest-growing digital banks in the world. In just seven months since the bank launched its digital financial services, it has secured over 500,000 customers.

Among the products by Trust Bank include credit cards and an instant loan.

7) UNO Digital Bank

UNO Digital Bank is Southeast Asia’s first full-spectrum digital bank licensed under the central bank of the Philippines. The digital bank announced a partnership with 1Sari Financing Corp. to provide a lending facility targeting around 1.3 million community retail stores in the Philippines.

The collaboration aims to offer loans to small enterprises that make up the country’s sachet economy and struggle to find sources of capital for growth. This includes general-purpose loans, inventory financing loans, and working capital loans, with a focus on inventory financing through this deal.

8) TONIK Bank

Tonik is the first digital-only neobank in the Philippines, providing loan, deposit, and payment products to consumers on a highly secure digital banking platform. The bank has successfully onboarded over 1 million users since it launched in March 2021.

Tonik is led by a team of retail finance veterans who have previously built and scaled multiple retail banks and fintech across global emerging markets. It is backed by top international investors, including Sequoia India, Point72 Ventures, and Mizuho Bank.

9) LINE Bank by Hana Bank

As a digital banking service in Indonesia, LINE Bank connects users’ social lives with their financial activities easily and securely, offering many benefits such as online open accounts, cashless payments, free monthly and transaction fees, competitive deposit interest and loan services with check limit features within minutes.

LINE Bank is a collaboration between LINE Financial Asia and PT Bank KEB Hana Indonesia, a subsidiary of South Korea’s Hana Bank. It is the third market that LINE Bank operates in, after Thailand and Taiwan.

10) First Circle

Another Filipino financial provider, First Circle enables SMEs to have access to fast and flexible financial products. Among the SME products include a revolving credit line that gives SMEs access to funds when the need arises. Apart from SMEs, First Circle also provides financial services for MSMEs through a program developed by the Department of Trade and Industry in the Philippines.

There are a lot more fintech companies offering financial services to SMEs in the region. In Malaysia, digital banks are also expected to start services soon and could offer interesting products for SME banking. At the end of the day, SMEs need to look at their financial needs and see which offer suits them best.

Banks in the region are also upgrading their products and services to cater to the needs of the SMEs. More banks are creating SME banking products and are simplifying processes. The move clearly indicates that SME banking will remain a core financial need for the years to come.