How Can Technology Help SME Lending to Recover from the Crisis?



The COVID-19 pandemic has profoundly impacted SMEs globally.

Small and medium-sized enterprises (SMEs) are the mainstay of any country’s economic growth. However, this business segment around the world has been deeply hit by the COVID-19 crisis. It has brought about a social, economic and political crisis, and has claimed billions of lives along with putting the global economy at standstill. In this time, access to cash has become a new problem for small businesses. Even prior to the pandemic, these businesses reportedly required extra finance over the past 12 to 24 months. And the crisis has taken this problem by storm. 

Although financial services providers are performing hard and doing all they can in order to support small businesses in the midst of the pandemic. Governments also are rolling out numerous loan schemes, standard lending solutions and practices to revive SMEs. Considering data from the International Finance Corporation (IFC), the unmet financing need of SMEs is a staggering US$5.2 trillion every year. This financing gap will likely expand significantly during and post the COVID-19 pandemic.

In OECD’s Financing SMEs and Entrepreneurs 2020: An OECD Scoreboard, macroeconomic trends as well as tightening credit conditions may have begun impacting SME lending in some countries. Additionally, the global COVID-19 pandemic creates immediate and profound effects, which will impact a number of SME finance indicators going forward.


Finding New Opportunities to Bounce Back

To cope with these challenges and support SMEs, a growing number of financial institutions and fintech lenders are offering a model of financing. Businesses also require to adopt digital technology faster that can help upgrade and replace their legacy IT infrastructure with more modern, flexible alternatives to meet the needs of their business.

Fintech lenders are coming up with disruptive technologies such as artificial intelligence and advanced analytics platforms to analyze transactional and alternative data to gain a much deeper understanding of SMEs. This can enable them to establish businesses’ creditworthiness, assess risk more easily, and issue loans within matters of hours. These innovative, data-and AI-driven solutions are effectively meeting SMEs’ financing needs, leading them out of the imminent financial crisis, and unlocking significant potentials.

In fast-growing economies, digital SME lenders, such as Lidya, which is now started providing loans in Europe and Africa, among other startups, are paving the way for a new economy by lending in amounts as little as US$150. These lenders are empowering a new generation of entrepreneurs, providing SMEs with opportunities to grow, creating wealth and employment, supporting economic diversification, and democratising access to credit.

Moreover, the IT industry sees spike in interest from SMEs in automating shop-floor and logistics with the regulatory push from the government. According to IBM, the adoption of public cloud by SMEs was unprecedented in the pre-pandemic scenario. Now during the post-COVID-19 world, they have been forced to scale faster to meet the demand of a decentralized workforce. They are also making digital transformation journeys to bounce back in the new normal.