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Closing SME Funding Gap: How Fintech Financing Platforms are Leading

This has had a disastrous effect on small and medium-sized firms (SMEs), resulting in a $2.5 trillion worldwide liquidity shortfall.

Since the 2008 financial problem, banks have faced stringent capital adequacy standards under Basel III, leading to stricter lending practices. 

This has had a devastating impact on small and medium-sized enterprises (SMEs), resulting in a global funding gap of $2.5 trillion.

Fintech Financing Platforms as Solutions:

To address this challenge, innovative fintech financing platforms have emerged as alternative financing options that can thrive in the SME lending space. 

Unlike traditional banks, these platforms are not subject to the same capital constraints.

Key Capabilities of Fintech Financing Platforms:

To succeed in the SME lending sector, fintech financing platforms must possess three critical capabilities:

  • Auto Verification of Data: These platforms have integrated auto data verification through APIs, accessing government databases and banking institutions. Regulators in certain jurisdictions have recognized the economic significance of SMEs, making data verification essential for reducing risk and improving customer experience.
  • Nuanced Credit Underwriting: Fintech platforms utilize AI credit underwriting engines that incorporate sector-specific variables. In some cases, blockchain platforms are used to monitor transaction activities post-credit issuance, particularly across the supply chain.
  • Access to Private Credit: A key factor in the success of fintech financing platforms is partnering with institutional investors in the private credit sector, which is rapidly growing and offers attractive attributes, including consistent performance and diversification.

Expanding the Role of Private Credit:

Private credit is a $1.2 trillion asset class, projected to reach $2.5 trillion by 2030. 

Its growth is driven by favorable attributes such as generating returns over fixed income, short-term liquidity, and low correlation with traditional asset classes.

A Tangible Opportunity for Change:

The synergy between fintech financing platforms, SMEs, and private credit investors presents a substantial opportunity to reverse the growing SME funding gap. 

With innovative approaches and access to private credit, this ecosystem can help SMEs access the working capital they desperately need.

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