Economics, Finance sector development, Information and Communications Technology

Fintech adaptation can bridge Asia’s SME financing divide

Digital innovation can improve financial access for SMEs

Improving financial access using new technology and big data

Small and medium-sized enterprises (SMEs) play a vital role as a driving force in economies around the world, especially in Asia. SMEs in the Association of Southeast Asian Nations (ASEAN) region are estimated to comprise more than 98% of the total number of enterprises, and they contribute to around 40% of gross domestic product.

Traditionally, commercial banks have regarded loans to SMEs as risky, and they have tended to offer higher interest rates because of a lack of information. However, new technologies, including distributed ledger technology, artificial intelligence, and big data, have started to enable faster, more convenient, and more cost-effective financial services for SMEs.

As explained by Surapool Opasatien, Chief Executive Officer of the National Credit Bureau in Thailand: “In the past, we used to say ‘no land, no loan’ as we used collateral-based lending. From the financial crisis in 1997, we used risk-based lending, and information from the credit bureau was very important. However, some SMEs or startup companies could not access loans through the lending schemes. In response, the Bank of Thailand has announced policy guidelines for deriving borrowers’ risk from financial data, behavior, and social information, and information-based lending should be the next step to solving the constraints facing SMEs.”

According to ADBI Dean Naoyuki Yoshino, “rapid technological developments have dramatically increased the available data sources and now provide various parties with the opportunities to leverage data in their activities.” For instance, the Secretary of Finance in the Philippines plans to leverage satellite data to estimate underreported revenue from SMEs and collect tax fairly. As an example, any underreporting of income by family-run restaurants can be readily detected by using satellite data on visitors together with the average spending per customer. The sales of smallholder farmers can also be reasonably estimated by monitoring the growth of crops and the number of trucks entering and leaving fields.

The use of technology, such as cloud-based accounting, digital payments, and the automation of invoicing and settlement processes, can enable SMEs to substantiate their business activities and become eligible for finance. According to research by ADBI, bank account information, such as information on deposits and cash flows, is not fully utilized in traditional lending. If such alternative data were to be utilized, banks could enhance their credit risk scoring models and expand SME financing (Nemoto et al. 2018). Furthermore, technological advancement improves the efficiency of financial institutions, including fintech firms, by encouraging competition, and it further enables SMEs to achieve more favorable terms for financing.

Design an appropriate regulatory environment for fintech

Traditionally, the lending and monitoring criteria of financial institutions for SME loans depended heavily on the judgements of experienced bankers. However, ample and timely information made available by new technology and big data now allow inexperienced individuals to make investment decisions. Crowdfunding, peer-to-peer lending, and other new tools can support start-up finance, but they carry unique and inherent risks. Investors are at risk of losing their invested funds, and SMEs relying on such funding face the possibility of capital suddenly drying up or becoming more expensive in the future. Fraud, information leakages, and cyberattacks are additional concerns. The challenge for regulators is to protect investors and maintain financial stability while simultaneously maintaining an innovative market by harmonizing fair law enforcement, making appropriate interventions in the economy, and fostering technology advancement. The development of a sensible regulatory framework is crucial as the foundation of a vibrant and trustworthy business environment (Nemoto, Storey, and Huang 2019).

Enhance financial literacy and education for borrowers and investors

The rapid development of fintech is increasing the need for financial education. Although fintech lowers the barriers to financing and investment, the fundamental risks and organizational limitations remain. Therefore, SMEs need to improve their financial literacy to take advantage of the financial opportunities made possible by fintech. In this rapidly changing business environment, SMEs are required to actively respond to transformation without getting swept away by the trend. In addition, financial institutions should enhance their consultative functions, and these could be augmented by developing an effective ecosystem among public entities, universities, and the private sector.

Highlighting these important issues, a new ADBI book, Fintech for SMEs in Asia (Nemoto and Yoshino 2019), aims to identify and develop ideas on how to utilize new technology in SME finance. Effective utilization should encourage financial institutions and investors to further develop credit risk analysis, increase financing, and contribute to the sustainable growth of SME sectors. The publication also explores ways in which policymakers and market participants can maximize the benefits of, and mitigate the potential risks arising from, the new digital era while emphasizing the importance of these messages for the public and private sectors in Asia.


Nemoto, N., D. Storey, and B. Huang. 2019. Optimal Regulation of P2P Lending for Small and Medium-Sized Enterprises. ADBI Working Paper 912. Tokyo: ADBI.
Nemoto, N., and N. Yoshino (eds.). 2019. Fintech for Asian SMEs. Tokyo: ADBI.
Nemoto, N., N. Yoshino, Y. Okubo, D. Inaba, and K. Yanagisawa. 2018. Credit Risk Reduction Effect on Small and Medium-Sized Enterprise Finance through the Use of Bank Account Information. ADBI Working Paper 857. Tokyo: ADBI.

Naoko Nemoto

About the Author

Naoko Nemoto is a financial economist at ADBI.
Yoko Oishi

About the Author

Yoko Oishi is a research associate at the Asian Development Bank Institute.

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