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Funding Fairly: How Emerging Tech is Levelling the Playing Field for Asia's SME Landscape As Asia looks to solidify its economic position on a global stage, supporting its ecosystem of small businesses will be crucial to its success

By Max Kantelia

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Home to some of the world's fastest growing markets, Asia's socio-economic landscape has been largely defined by entrepreneurship. From Japan's Zaibatsu to South Korea's Chaebol, these family-founded conglomerates, that once began as small businesses, enjoy the status of fully-established corporations in their own right. In fact, SMEs account for over 95 per cent of businesses in the region today, seemingly gesturing toward the fact that entrepreneurship is in fact ingrained in the continent's cultural fabric.

Despite their prevalence and economic importance, receiving adequate funding and institutional support remain critical drawbacks to success for SMEs. A recent report by the Asian Development Bank, entitled Fintech for Asian SMEs, argues that traditional financial institutions simply aren't equipped to cater to these small businesses and their financial needs––today, a meagre total of 18.7 per cent of Asian SMEs receive bank credit. In an effort to fill the widening gap that institutions have failed to address, digital innovation and emerging technologies have given rise to alternative funding routes and infrastructures, especially geared towards micro-entrepreneurs and SMEs. With such solutions adapted to their needs, these small businesses can hope to receive the needed support to carry them through their next stage of growth.

Restoring Trust with Tech

As any budding business owner would know, access to capital, especially in the earliest days of commercial activity, is critical to growth. For startups, this period of time is known as the Valley of Death––the pre-breakeven period where projects race to make a profit while simultaneously securing funding, be it through loans, seed capital, or contributions from friends and family. Across emerging markets in the region, this issue is especially pointed. In the Philippines, for example, 50 per cent of SMEs lack access to formal loans, opening up risky avenues to pursue services from illegitimate money lenders who charge crippling interest rates on top of their fees.

Whether one is courting investors or banking institution, the issue is that of reputation and trust. In some cases, startups struggle due to a lack of a reputational track record––this could manifest as limited credit history as a business owner or limited professional experience to back their ventures, significantly impacting their trustworthiness in the eyes of banks who deem them as high-risk clients. With the rise of fintech, however, comes an unprecedented array of offerings that look to subvert a traditional risk-based credit assessment model. According to financial firm Robocash, Southeast Asia is well-poised to enable alternative lending models, with Indonesia, Philippines, and Thailand sharing similar traits in population volume, ubiquitous mobile phone use, as well as a relative lack of access to traditional financial services for a high percentage of the population.

With new technologies come new solutions for the underbanked as much as SMEs and fintech companies have now chosen to leverage alternative metrics order to assess one's creditworthiness. In the Philippines, for example, fintech startup Ayannah launched a credit scoring system called JuanCredit, that looks to leverage multiple data points from various financial activities with the help of artificial intelligence (AI), such as utility bill payment, mobile phone top-ups, as well as social media profiles, in order to determine credit scores. Similarly, institutions themselves in the region are looking to actively partner with firms in order to expand their offerings. Such is the case in Singapore's United Overseas Bank (UOB) and its partnership with, which enables SMEs in the region to apply for financing based on AI and machine learning-based analyses of transactional data such as cash flow from their business activities.

It's the Little Things

The ASEAN region alone carried a combined GDP of $2.92 trillion last year, illustrating the region's ongoing trend of growth as it solidifies its position within the global trade ecosystem. As SMEs enter a new phase of growth, their goals of entering the global trade market can easily fail to materialise due to funding woes. Today, SMEs in countries such as Indonesia and Thailand respectively contributed 15.7 per cent and 26.3 per cent of their exports to global trade, with larger economies such as China and India contributing 41.5 per cent and 42.4 per cent, respectively. Admittedly, the number could be larger given the high percentage of SMEs in the continent.

Trade finance is a multifaceted sector, involving the participation of domestic and international transaction parties, including banks, importers and exporters, or even credit rating bureaus. Primarily paper-based by nature, associated operations are time-consuming, require the participation of middlemen and their costly fees, ultimately, falling out of reach for even the most enterprising SMEs in the region. Unlike other barriers to funding, the issue here is an infrastructural one, reliant upon greater digitization of outdated business processes.

The introduction of automation enabled by blockchain and smart contracts could help to streamline these processes. No longer reliant on banks as a trusted third-party or the need for a one-way, linear circulation of documentation prone to human error, blockchain can serve as an interoperable, transparent database accessible to all parties, storing all related documentation and enabling access in real-time. This could significantly reduce inconsistent documentation while eliminating the labour spent in cataloguing paperwork related with a single agreement between two businesses. Smart contracts and the introduction of Internet of Things (IoT) technologies, on the other hand, allow for greater automation. For example, a smart contract designed to generate a blockchain-based letter of credit could execute once an IoT-connected QR code is scanned, confirming that goods have in fact been delivered. By leveraging on these innovations, businesses can cut out the need for trusted third-parties and middlemen that validate whether the terms of a given contract have been met.

As Asia looks to solidify its economic position on a global stage, supporting its ecosystem of small businesses will be crucial to its success.

Despite country-specific nuances, infrastructural differences, or varied levels of institutional support, the rise of emerging technologies and pioneering fintech projects provide a solution to challenge the existing economic status quo for SMEs. As these alternatives level the playing field by democratising adequate access to funding and providing metrics that go beyond outdated risk evaluation models, SMEs can look to enter the global commercial landscape without financial odds stacked against them. With that, we can hope to see a future wherein regulators, financial institutions, and startups can work hand-in-hand to support economic growth and innovation.

Max Kantelia

Co-founder, Zilliqa

Max Kantelia is co-founder at Zilliqa, a blockchain platform built for secure, scalable applications across a variety of industries, ranging from financial services, digital advertising, and gaming. A serial entrepreneur with over 25 years’ experience of building technology product and services companies in Europe, the US, and Asia for the financial services industry, Max was selected by EY as one of Asia’s Top 100 FinTech contributors in 2016.

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