The costs of COVID-19 pandemic are still rising dramatically. Apart from health and humanitarian crisis, economic and livelihood consequences are turning devastating. Among all the entities affected, Micro, Small and Medium Enterprises (MSMEs) are probably the most hard-hit.
There are an estimated 487 million formal and informal micro and small enterprises (MSEs) in emerging markets, predominately in Africa and Asia. MSMEs contribute to the majority of employment opportunities in emerging countries. In Peru, 98% of private enterprises are MSMEs, accounting for 60% of employment and 42% of GDP. Similarly, approximately 50% and 80% of employment in Cambodia and Kenya are provided by MSMEs.
The lockdown in many countries amid COVID-19 pandemic has imposed remarkable risks on the survival of MSMEs. MSME owners face a range of challenges with regards to starting, operating, and growing their businesses, the most significant ones being the lack of access to finance and the instability of revenue streams. Since most of the informal labor force and lower income population are employed by MSMEs, urgent actions are needed to support MSMEs to get through the pandemic.
Collaborative Actions to Help MSMEs Go Digital
Valeria Veira, CEO of the Jamaica Business Development Corporation (JBDC), says COVID-19 provides an opportunity for MSME operators to find new ways to expand their services and meet the needs of their consumers/clients. “It is now a time to do some serious reflection on how we do what we do and how to serve our client better. We have to identify new services and products based on what we are experiencing at the moment.”
Recently there has been an image floating around social media asking MSMEs employees “who drives the digital transformation” in their companies, and the answers are thought-provoking:
The global spread of COVID-19 is having a significant impact on every aspect of life, including how consumers shop. Many consumers are moving towards online commerce due to social distancing and lock-down measures, highlighting the importance of MSMEs’ digital transformation.
In Africa, some of the countries like Kenya, South Africa and Nigeria are experiencing digital revolution where the mobile penetration rate is increasing, as over 60% of Africa has mobile phone.
Therefore, going digital is such an pressing agenda for urban MSMEs where basic digital infrastructure is still accessible. In India, thousands of MSMEs are affected but in the meantime a number of measures have come out to support digital transactions for MSME businesses.
In Jamaica, JBDC is also pushing MSMEs to use technology to development new clients, and launched platforms such as thingsjamaicanshopping.com to encourage online shopping and promote authentic Jamaican products around the world.
However, MSMEs also face a range of constraints when it comes to digital transformation. They still too often lack the resources to all manners of digital literacy resources, including basic business education, industry specific training, funding, digital payment schemes, etc.
Therefore, policymakers play an important role in enhancing MSMEs’ ability to “go digital”. Governmental institutions can provide capacity building training and resources for MSMEs in terms of business management and digital technology.
In Indonesia, one example of a powerful mobile micro-learning app that enables the creation of crowd-sourced educational topics is gnowbe.com. Another example in Indonesia is ruangguru.com which provides a “digital boot camp,” an excellent platform for MSMEs to learn basic skills.
Besides providing capacity building training and resources, governmental institutions ought to collaborate with e-commerce platforms within the region to help MSMEs promote and showcase their products. Additionally, with the emergence of payment gateways throughout the emerging countries, policymakers need to ensure that the regulations keep pace with digital payments innovations.
Concerted Efforts to Improve MSMEs’ Access to Finance
Access to finance is the key for MSMEs to get through this crisis. Governments, multilateral organizations, private sector have come up with certain initiatives to support. Here is a glimpse of the initiatives.
Generally speaking, the formal financial service sector is dominated by commercial banks, development banks, cooperatives and MFIs (micro-finance institutions). The role of MFIs in this pandemic has been more crucial than ever, as MFIs serve 140 million low-income population globally, with a total value of credit portfolios at $124 billion. 80% of MFIs’ customers are women and 65% live in rural areas.
The increasing needs from MSMEs to access more finance make MFIs’ operation surge, however in the meantime many MFIs started to struggle with their cash flow, as some have been facing pressure of a drop in repayment rates from over 95% to less than 90%. This will put MFIs in danger within a year.
Under such circumstances, other Financial Service Providers (FSPs) including development banks, commercial banks, and fin-tech companies are expected to play a higher role to assist MFIs with their cash flows.
MFIs have traditionally been driven by physical methods of cash collection, physical verification and onboarding of new customers. With the new normal of social distancing, they are seeking to transform their physical process to digital ones. Under this circumstances, fin-techs can assist MFIs in bringing better digital banking solutions to the marketplace, reducing certain obstacles with regards to repayment.
Moreover, a social investor in the Philippines proposed the below recommendations to address this challenge locally.
All in all, COVID-19 is such a crisis and opportunity that makes MSMEs, policymakers, private sectors closer than ever. It’s more than crucial to foster a collaborative ecosystem with various stakeholders including MSMEs, policymakers, and FSPs, with the ultimate goal to help MSMEs have a better integration into the digital economy and improve their access to finance.
That is exactly what Diinsider is up to and have been trying to offer. With the help of our researchers from around the world, we have produced a video that reflects the impacts COVID-19 could bring to Least Developed Countries (LDCs) and what can be done to address the challenges.
As a global organization with a clear mandate in serving grassroots players, Diinsider is working with our colleagues and partners globally to produce contents, develop products that assist social innovators, MSMEs and communities in deepening research and taking effective measures to recover from COVID-19.
Specifically, through our production and consultancy services, we help MSMEs get more visibility in the marketplace as well as attract more customers and partners.
Reach out to us for more information at firstname.lastname@example.org.
Bridging the credit gap for Micro and Small Enterprises through digitally enabled financing models, CGAP and Dalberg, 2019
Micro and Small Business in Indonesia’s Digital Economy, Asia Pacific Foundation of Canada, 2019