For some months now, the People-Centred Internet has been working with the Indonesian National ICT Council and the Digital Divide Institute on how to bring meaningful financial participation to micro-, small- and medium-sized enterprises. The aim is to develop an ecosystem under which MSMEs are incentivised to both improve their financial and digital literacy, and begin their journey towards meeting the United Nations sustainable development goals.
The UN Economic and Social Commission for Asia and the Pacific’s Rethinking MSME Finance in Asia and the Pacific: A Post-Crisis Policy Agenda report put forward the concept of a ‘digital enso’. ‘Enso’ is a term taken from Zen Buddhism, meaning a circle that is drawn in one brushstroke, leaving the drawer’s mind and body free to create. In this context, the report explains that ‘the bundling of access to finance with other service offerings could create an opportunity for an MSME to focus on its core competencies, and not be distracted by the additional burden of having to make do with more traditional, ill-fitting financial offerings.’
For example, a business that produces food could win financing for a clean stove that would improve that business’ fuel consumption and carbon footprint. The financing for this stove might come with a requirement to adopt simple digital bookkeeping solutions, so that financiers (and MSMEs alike) can monitor the commercial health of the borrower. The MSME could partner with a financier who, on completion of certain milestones, would provide a second clean stove to another MSME – effectively creating a digital savings circle. The MSME could be awarded carbon credits, which it could use to create a secondary revenue stream via voluntary carbon exchanges through platforms such as Climate Impact X, or exchange with its financer for incentives.
The same concept could be proven with agriculture businesses. MSMEs with tree planting practices in palm, jamu (traditional Indonesian medicine) and coffee, for example, may naturally lend themselves to an ecosystem in which they can access financing at preferential terms to incentivise carbon-positive outcomes. This approach respects what the MSME is good at, identifies which of those activities can be remunerated and considers demand for what the MSME produces. The possibilities are vast.
These are not pipe dreams either. The concept has been proven in part. In Honduras, a clean stove non-profit organisation digitised its operations to win gold standard-verified carbon credits. In Singapore, the Infocomm Media Development Authority’s SMEs Go Digital programme has seen 75,000 SMEs adopt tools to help them in their digitisation journey since 2017.
However, for MSMEs to access financial products in a digitised economy, their data must first be digitally available to providers. Historically, fintechs and other technology innovators have either generated financial data relating to MSMEs or acquired this through commercial negotiation. This limits the ability of alternative providers to readily access that data and better assess the creditworthiness of the MSME. But as Mei Lin Fung, chair of the People-Centred Internet, points out, there is little incentive for change: ‘Those currently holding the biggest data reservoirs have least incentive to share, and doing this across borders adds still new complexity to the policy challenges.’
However, the UNESCAP report rightly suggests that the move towards endemic living provides an opportunity to recalibrate existing approaches to MSME finance. To truly enable MSMEs to embrace digitisation, creation of primary data must be intuitive and unimpeded.
The time has come for data to be created and made available on equal terms. The expensive burden of securing this data should be determined by the data accessed rather than the business purpose of data users. Finance providers would then be better placed to integrate financing products into their services without taking unnecessary risk or affecting user experience.
MSMEs should be incentivised to experiment with adopting digital solutions that may open doors to a wider spectrum of products, services and revenue streams. This use of digital tools is necessary to support wide-scale adoption of digital currencies and is a long-term inevitability. By taking action now, we might avoid further widening inequality as we progress towards more digitised futures. ‘A massive and meaningful mobilisation of micro, small and medium enterprises could be a main driver of post-Covid economic recovery for Indonesia and other mid-level developing countries,’ said Ilham A Habibie, director of Wantiknas.
Covid-19 has left us with many scars and a fresh perspective. We have seen the tried and true try and fail, and we are ready to be bold and redesign the financial ecosystem, with equity and opportunity for all.
Tamara Singh is Adviser and former Head of Asia Pacific at OMFIF.