Eminent experts in business and finance believe that small and medium-scale businesses are a strong backbone for the global market economy. However, the sad part of the story is they receive very few loans from the banks than their larger peers making it difficult for them to open lines of credit to get the finances for their daily operations. Moreover, to add to their woes, there is just a tiny percentage of FinTech that focuses on financing SMBs across the world.
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Kavan Choksi on how SMBs are crucial to the global economy
Business and finance expert, Kavan Choksi, believes that small and medium-scale businesses are crucial for the world economy. These companies account for 7 out of 10 jobs in emerging economies. Moreover, they comprise 90% of companies and over half of the entire global employment. According to the reports issued by the World Bank, registered SMBs contribute to almost 40% of the national GDP in emerging business economies.
In addition to the above, the World Bank also estimates that there exists a $5.2 trillion gap for funding the micro, small and medium scale enterprises across 65 million MSMEs across the 128 nations that came under its study.
Dependence on internal funding sources
Small and medium-scale businesses are less likely to get bank loans than large corporations, and this is why they focus on funds that are internally generated. More than 50% of formal businesses in the above category do not have access to traditional channels of credit, and according to him, he feels that access to sufficient funds is a significant constraint to the growth of small and medium-scale businesses in the world.
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Major problems faced by SMBs in the economy
He points out that banks reject over 50% of the finance requests made by small and medium-scale enterprises. They are regularly asked to provide collateral or any other financial requirement that is burdensome to their business. Moreover, small to medium-sized businesses struggle to open their lines of credit. Due to this reason, they face challenges in paying their suppliers quickly.
Funds should be provided to SMEs for growth and expansion
Most of the time, they land up strapped for cash after the goods have been delivered. In addition to the above, profits and sales are essential for these businesses, but if they are unable to manage their cash flows, they can in no way expand their businesses and contribute to the economy.
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According to business and finance expert Kavan Choksi, trade finance and FinTech companies have a role to play as they understand the business model of SMEs and create products for their needs. They play an essential role in helping small and medium-sized enterprises; however, as per reports by CGAP, around two-thirds of the global economy’s FinTech focus on the UAE, Saudi Arabia, and Egypt, all of these nations have tried to create a friendly statutory framework for firms specializing in FinTech. Other countries should take these regions as role models to boost similar frameworks in their respective economies for better growth and development!