inclusive growth

Do SMEs hold the key to real inclusive growth?

March 20, 2020

This article was originally published on The Business Times.

For decades, businesses and policymakers have focused on economic growth as a key measure of success. Humanity has made tremendous progress as a result. We have globalised and transformed economies. We have embraced technologies that create new efficiencies and opportunities. We have lifted millions of people out of poverty and improved their prospects.

But not everyone has benefited equally. Billions of people still cannot access the Internet or bank accounts. Millions of workers have seen their jobs threatened by automation and globalisation. Many people are frustrated with the wealth and opportunity inequalities they are feeling.

As technological change speeds ahead and governments grapple with various challenges, the private sector cannot wait for policymakers to solve the problem. Instead, companies need to expand the definition of success to make growth more inclusive and beneficial for the broader society.

At Mastercard, we foster inclusive growth by seeking to empower the people in three key groups: the 1.7 billion people who are financially excluded, the millions who remain digitally excluded and the growing number of workers who lack the new skills they need.

Investing in small and medium-sized enterprises (SMEs) is key to reaching these people, particularly in Asia where SMEs are the growth engine and form the majority of businesses. SMEs need the three excluded groups to be brought into the economy to power their success. That motivates them to be engaged. SMEs also have the local knowledge and touch points to reach the people still on the fringes.

However, unlocking the potential of SMEs to drive more inclusive growth is not simple. It requires much more commitment, innovation and collaboration across the private and public sectors than we are seeing now.

It is relatively easy to understand financial inclusion if we talk about a migrant worker without a bank account, who lives in a cash-based world where it costs $10 to send $100 home to her family. But financial inclusion is much more than just having a bank account. It includes using the financial system to create savings for investment, buy insurance and pay bills easily.

If a small business has a bank account but cannot get a low-cost loan to finance working capital, invest in technology and train employees, then it is not fully financially included.

One way to increase inclusion is to drive growth in new payment technologies that bring people into the digital and financial systems. This includes real-time payments with inexpensive and immediate transfers, as well as new digital banking platforms offering services to the previously underserved.

Expanding the digital financial services ecosystem not only promotes financial inclusion, but also greater access to capital. As salaries and transactions are handled electronically, rather than in cash, record-keeping is digital.

More opportunities can be created for SMEs to use this data to demonstrate their credit-worthiness. This ultimately enables them to invest in themselves and raise the sophistication of their enterprises - all while driving greater inclusion.

To this end, innovators are creating alternative financing platforms for SMEs that use non-traditional credit-risk assessments. In one such instance in Kenya, Mastercard has partnered with Unilever to combine inventory purchase data and sales data to make micro-credit recommendations to Kenya Commercial Bank. The platform, Kionect, provides shop-owners with capital to expand.

Innovations like these have a large SME funding gap to address - estimated at US$5.2 trillion globally, with more than half of that in the East Asia and Pacific region.

As recently as 2017, more than 90 per cent of people in India, Myanmar, Sri Lanka, Cambodia and Laos had never used the Internet to pay a bill or shop online. Thanks to mobile phones, this number is falling today - but slowly.


Many SMEs also still do bookkeeping and manage operations on paper, wasting time on manual processes that could be improved with technology. This is particularly a challenge when they trade across borders.

Improving digital inclusion for people and enterprises is critical for economies to grow. As the digital ecosystem expands, so will the benefits it provides to each included person. As SMEs digitalise, leverage social media and use technology to improve domestic and cross-border e-commerce opportunities, their employees, customers and communities become more digitally included.

Private and public partnerships must invest in tools to help drive this digital inclusion. For example, the Monetary Authority of Singapore and the Infocomm Media Development Authority have collaborated with private companies, including Mastercard, to build the "Business Sans Borders" initiative to help SMEs digitalise supply chains and improve the efficiency of cross-border trade. This is one of many new platforms needed across the region.

Most people depend on salaried income from their work for their livelihood. But their pay suffers when compared with investment capital as it is usually taxed at a higher rate, not as mobile in chasing productive opportunities, and most vulnerable to workplace shifts due to artificial intelligence and robotics.

The third excluded group - workers who rely on roles and skills that are becoming obsolete - is very much at risk. One study suggests up to 800 million jobs could be displaced by 2030, extending into white-collar industries and developing markets. For example, businesses in the Chinese city of Dongguan installed 91,000 robots in five years, cutting its manufacturing workforce by 280,000.

With their potential agility and ability to absorb displaced workers, SMEs are a powerful tool to counter this trend. In the US state of Kentucky, for instance, a startup called Bit Source - launched by founders raised in the coal industry - is retraining miners to be computer programmers.

In today's fast-changing global economy, creative possibilities for workers to retrain and reinvent themselves should be endless.

For that to happen, we need SMEs to digitalise and innovate to expand opportunities for themselves and their communities. We need large companies to lead on collaborations, research and scalable technologies that can transform the world.

And we need all global leaders - private and public - to prioritise inclusive growth because the time for urgent action is now.