Fintech Loans Can Help Latin American SMEs: IADB

Fintech credit allows companies to become more resilient and maintain or increase jobs, revenue and sales, found a study by the University of Cambridge and the Inter-American Development Bank (IADB).

Latin American fintech companies have undergone a vital role in reducing the funding gap for micro, small and medium-sized enterprises (MSMEs). Fintechs have become tools for companies to build resilience, while helping enterprises deal with the most complex economic impacts of the global pandemic according to the “The SME Access to Digital Finance Study” by the Cambridge Center for Alternative Finance (CCAF) at the University of Cambridge Judge Business School and the IADB.

The study gathered empirical data from a total of 540 MSMEs and 34 fintech platforms in Brazil, Mexico, Colombia, Peru, Argentina and Chile. The study found that 75 percent of the responses were registered by micro enterprises, which confirms that fintechs are an asset for smaller businesses seeking funding. The median borrowed amount rallied below MX$4,000 (US$200) but in 75 percent of cases loans could climb to MX$20,000 (US$1,003). 

“The findings of this study illustrate the potential of fintechs in narrowing the MSME funding gap and driving MSME growth across the Latin American region. Especially for micro enterprises, fintech is proving to deliver much needed support for them to sustain, grow and expand,” said Bryan Zhang, Executive Director and Co-founder, CCAF, via a IADB press release. 

Businesses receiving funding also presented major increases in productivity, as 43 percent of firms recorded better productivity when using P2P lending platforms. Companies that used digital lending or invoice trading platforms also reported reductions in costs. Up to 92 percent of the received funds allowed companies to maintain or increase their employee bases. 

IADB reiterated its commitment to help Mexico, Chile, Brazil and Colombia to further develop public policies, improve institutional capacity and increase access to financing for individuals and companies. The bank has also created innovation hubs in Costa Rica, Dominican Republic and El Salvador.