The Race Against Economic Inequality Within Emerging Markets – A Case for SMEs

Economic inequality within emerging markets remains a significant challenge in the 21st century, with new markets often facing the most severe impacts. Economic growth is a crucial mechanism for alleviating poverty and enhancing the quality of life in developing nations. Analysis by the World Bank shows that countries with greater equality typically enjoy healthier populations, increased economic efficiency, and improved social stability. Furthermore, nations prioritizing reducing inequality today will likely see more sustained economic growth in the future. In emerging markets, the issue of economic inequality is especially acute. While governments are vital in addressing this problem, Small and Medium Enterprises (SMEs) also play a key role in driving economic growth and narrowing income disparities.

The Role of SMEs in Emerging Markets

SMEs typically comprise fewer than 250 employees. In many countries, more than 90% of all companies can be classified as SMEs, with a major portion being micro firms, i.e., fewer than ten employees, gig economy workers, solo entrepreneurs, etc. In emerging economies, formal SMEs contribute up to 40% of national income (GDP), rising significantly when informal SMEs are included. By 2030, an estimated 600 million jobs will be needed to accommodate the growing global workforce, making SME development a top priority for many governments. In these markets, most formal jobs are generated by SMEs, which create seven out of ten new jobs.

Advancements in Digital Transformation

Digital transformation has accelerated across emerging markets, driven by increased internet penetration and mobile technology adoption. Governments and private sector partners are investing in digital infrastructure and literacy programs to help SMEs adapt to the digital economy. For instance, the Indonesian government has launched initiatives to improve broadband access and digital literacy among SMEs, significantly enhancing their ability to compete globally.

Access to Finance

Access to affordable finance remains a major challenge for SMEs. However, innovative financing solutions have emerged, including government-backed loans, microfinance, and venture capital. In 2024, several emerging markets have introduced fintech platforms to provide easier access to credit for SMEs. These platforms use alternative credit scoring methods, leveraging data from various sources to assess creditworthiness, enabling more SMEs to secure financing.

Public-Private Partnerships

Strategic partnerships between the public and private sectors have effectively supported SMEs. Microsoft has partnered with local banks and telecom companies in Nigeria to provide SMEs access to technology, skills development resources, and business networks. This collaboration has helped SMEs leverage cloud services, digital marketing, and e-commerce platforms to expand their operations and reach new markets.

A few examples of successful SME Empowerment are listed below:

Digital Tools in Rural Indonesia

A cooperative of coffee farmers in rural Sumatra faced challenges in accessing fair markets and achieving profitable sales. Through a government-supported digital literacy program, the cooperative adopted an e-commerce platform, enabling direct sales to consumers. This transformation resulted in higher profit margins and improved market access, showcasing the potential of digital tools in empowering rural SMEs.

Fintech Solutions in Vietnam

In Ho Chi Minh City, a tech startup named Tima has revolutionized financial inclusion through a mobile-based fintech solution offering microloans to small retailers using alternative credit scoring. This scoring system leverages non-traditional data such as mobile phone usage, social media activity, and transaction history to evaluate creditworthiness. This innovation has provided much-needed capital to thousands of small businesses, fostering growth and economic inclusion. Tima’s success has attracted significant investment, allowing it to scale its services across Southeast Asia. The startup’s model demonstrates how fintech can bridge the gap for underserved businesses, providing them with the financial tools necessary for growth.

Fintech Solutions in Thailand

Ascend Money, the fintech arm of Thailand’s Charoen Pokphand Group, has made significant strides in empowering Micro SMEs. The company recently secured a $195 million investment and is touted as Thailand’s largest digital financial solutions firm. It offers a wide range of services through its TrueMoney platform, including insurance, investing, e-payments, lending, and buy now, pay later (BNPL) options. With over 30 million active users in Thailand and offices in Cambodia, Indonesia, Vietnam, Myanmar, and the Philippines, Ascend Money is dedicated to providing inclusive financial services for underserved consumers and SMEs. The recent funding will bolster its efforts to promote equitable economic growth and enhance financial well-being in Thailand.

Future Prospects and Challenges

Ensuring the sustainability of current initiatives is crucial. Continuous investment in digital infrastructure, ongoing support for digital literacy, and adaptable economic policies are necessary to maintain momentum. Governments must remain committed to these initiatives to ensure long-term success as several areas require further attention to enhance SME support. 

Several areas require further attention to enhance SME support, particularly focusing on Micro SMEs: 

• Collaboration: Increased collaboration between government, private sector, and educational institutions can create more comprehensive training programs.
• Infrastructure: Expanding access to high-speed internet, especially in remote areas, is vital for inclusive digital transformation.
• Regulatory Reforms: Simplifying and streamlining regulatory processes can reduce barriers for SMEs, fostering a more conducive business environment.

Micro SMEs need to be included in the fintech industry. By providing these smaller enterprises with the necessary tools and access to financial services, they can be empowered to grow and contribute significantly to the economy. This includes innovative credit scoring methods, digital payment systems, and tailored financial products that address the unique challenges faced by Micro SMEs.

Conclusion

In 2024, the strategic initiatives to empower SMEs and micro-SMEs in emerging markets through digital innovation and economic support show promising results. By addressing the challenges SMEs face and providing them with the necessary tools, resources, and financial backing, governments and private partners are fostering a more inclusive and dynamic economic environment. As SMEs continue to thrive and contribute to economic growth, the benefits will be felt across these nations, driving sustainable development and prosperity. Continued commitment to these initiatives will ensure that SMEs remain a cornerstone of economic success in emerging markets.

If you’re interested in learning more, contact our team at 1datapipe. We specialize in AI-powered analytics that empower financial services companies to provide credit reach to underserved populations. Discover how our solutions can help you drive financial inclusion and support business growth.