Most micro, small, and medium enterprises (MSMEs) reported a growth in business performance after receiving financing through a fintech platform, according to a study jointly developed by the Cambridge Centre for Alternative Finance (CCAF) at the University of Cambridge Judge Business School and the Asian Development Bank Institute (ADBI).
This growth was mostly in terms of net profit, revenue, employment and performance, the study further said.
The ASEAN Access to Digital Finance Study measures the impact of digital financial services for consumers and MSMEs in Indonesia, Malaysia, the Philippines, Singapore, and Thailand.
Based on 600 responses, the study aims to understand how individual households, consumers, and MSMEs use digital financial services – such as online lending and capital-raising platforms – to access credit or raise funds from 2020 to 2021.
In the Philippines, the researchers tapped local fintech companies like First Circle, BillEase, and Tala for easier data collection among its clients.
The study reveals that digital financial services contributed to advancing financial inclusion for both individual consumers and business users.
MSMEs saw a positive impact after getting finance through one of these three digital financing models:
- P2P/marketplace business lending;
- Invoice trading;
- Equity crowdfunding
The top three positive impacts were in productivity (65%), a larger customer base (41%), and launching a new product/service (39%).
Furthermore, MSMEs that borrowed from alternative financing sources defaulted less on their loans, with a default rate of 1% versus the 3% non-performing loan (NPL) bank average in ASEAN countries.
From the study respondents, 89% said they have never missed a loan payment and payments are ongoing; the rest were unable to repay on their due date but eventually repaid the full amount with some delay, or temporarily missed a payment due to platform error but are currently updated on payments.
Before approaching fintech platforms, Philippine MSMEs first sought funding from family and friends, banks, and microfinance institutions.
From the decision-making factors for choosing digital financing models, the top three reasons cited by Philippine MSMEs were better customer service (85%), flexible terms (82%), and speed of funding (73%).
The main reason MSMEs borrowed funds from fintech platforms was to raise working capital, followed by expansion and growth – a contrast from the common misconception that MSMEs who borrow funding do so to bail out struggling and failing businesses.
One of the most interesting findings show that fintech services often complement rather than compete with traditional banking services in ASEAN countries. In many cases, the increased access to finance through fintech platforms also led MSMEs to increase their use of banking products and services.
In the Philippines, MSMEs began using savings or checking accounts, loan contract/term loans, and cash credit to support their business activities.
