Fintech lenders play “critical role” in LatAm
Fintech lenders in Latin America play a “critical role” in reducing the funding gap for small businesses, new research has revealed.
The latest SME Access to Digital Finance Study by the Cambridge Centre for Alternative Finance (CCAF) at the University of Cambridge Judge Business School and the Inter-American Development Bank (IDB), found that fintech lenders have been a lifeline for Latin American businesses.
Among the 34 fintech platforms in Brazil, Mexico, Colombia, Peru, Argentina and Chile, 75 per cent of funding went to micro enterprises. The average amount borrowed or raised was below $4,000 (£3,446), showing the importance of microenterprises in the region, although for 75 per cent of the sample the amounts ranged up to $20,000.
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The study found that before receiving funding from a fintech lender, these micro, small- and medium-sized enterprises (MSMEs) had been turned down by banks or family and friends. MSMEs using a peer-to-peer lending platform reported that they had been unable to secure funding from any other source except a fintech firm.
MSMEs said that their decision to use a fintech platform came down to the ability to receive funds faster and with a higher standard of customer service.
“The findings of this study illustrate the potential of fintechs in narrowing the MSME funding gap and driving MSME growth across the LatAm region,” said Bryan Zhang, executive director and co-founder at the CCAF.
“Especially for micro enterprises, fintech credit is proving to deliver much needed support for them to sustain, grow and expand.”
43 per cent of the firms using a P2P lending platform reported greater productivity after receiving their funding. A third of the MSMEs which used a digital lending or invoice trading platform reporting reductions in costs.
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“Funds secured via fintechs enabled Latin American MSMEs to purchase assets and refinance or expand their business,” said Juan Antonio Ketterer, division chief of connectivity, markets and finance at IDB.
“More importantly, they enabled 92 per cent of respondents to maintain or increase employees, 86 per cent to maintain or increase income and 84 per cent to maintain or increase turnover.
“Thanks to the availability of credit, fintech-financed firms became more resilient, even in the face of the unprecedented trading conditions associated with the global pandemic.
“These results might be a call for action to our policymakers to help this industry grow.”
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