Filipino MSMEs turn to friends and family despite barriers to business financing

Three out of four Filipino MSMEs unable to secure adequate financing

Micro, small, and medium-sized enterprises (MSMEs) make up over 99% of businesses in the Philippines and employ about 62% of the workforce, but these essential businesses face significant barriers to growth when it comes to business. access to business financing.

A new report from cloud banking platform Mambu, titled “Small Business, Big Growth,” surveyed more than 1,000 MSME owners around the world, including Filipino SME owners, who started their businesses and asked a business loan within the last five years.

The survey revealed that three out of four (77%) of the micro, small and medium-sized enterprises surveyed had been unable to obtain sufficient or no financing at least once or several times in the last five years. Of those businesses unable to secure sufficient financing, 48% experienced cash flow problems, 48% were unable to launch new products or services, and 35% struggled to repay creditors.

While Philippine banks and financial institutions were previously required to set aside at least 8% of their loanable funds for micro and small businesses (Republic Act No. 9501), this law lapsed in 2018 and the most recent estimates show that current bank lending funds allocated to MSMEs are well below this threshold at around 5.4%[1].

To overcome these obstacles to growth, MSMEs are turning to challenger banks and technology-enhanced alternative lenders for financing, taking advantage of the benefits that technology can bring to the lending process, such as loan applications and processing. faster. With 93% of Filipino MSMEs indicating that they would consider switching lenders for a better experience, there is a clear opportunity for new entrants.

Technology enabling superior customer experiences in lending

Tech-enabled lenders leverage technologies like artificial intelligence, machine learning, data analytics, and the cloud to deliver faster loan applications and processing, with far less strenuous application requirements. In fact, some digital lenders offer applications that can be completed in just five minutes, with loans approved and funds processed within 24 hours. This is a big improvement over the traditional MSME lending route.

For the Philippine economy to recover from the impact of the pandemic, it is essential that banks and lenders embrace these new technologies which can significantly improve the MSME lending experience. Mambu’s survey also identified that the time it takes to apply for a loan has a major influence on businesses when choosing a lender, so there is also a clear business case for financial service providers to switch to a more digital.

And after?

The message from our research is clear: SMEs want better support and they are not afraid to switch lenders to find it. 93% of Filipino businesses say they are willing to switch lenders for a better deal. If this demand is not met, it is a huge missed opportunity for the economy and for SME banks and lenders.

Download Mambu’s ‘Small Business, Big Growth’ report to learn more about the lending challenges SMEs face.

[1] Business world: The financing gap for SMEs during the pandemic, 17 September 20221

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