WEF: Fintech players “to bridge $2 trillion SME funding gap”

Finance think tank hails increasingly vital role of “disruptive” new lenders in fuelling small firms for growth

Companies in the financial technology – or ‘fintech’ – sector are blazing a trail of disruptive innovation in the lending market, with ever-growing numbers of SMEs seeking their help to close an estimated $2 trillion funding gap.

The message has emerged from a new white paper by the Global Agenda Council on the Future of Finance & Capital, based at the World Economic Forum (WEF).

According to the paper – titled The Future of FinTech: A Paradigm Shift in Small Business Finance – entrepreneurs behind these new-style lenders are shaking up the SME scene by offering tailored forms of invoice and supply chain financing, plus customised intercompany lending deals and equity crowdfunding solutions.

Some key findings in the report provide insights as to why the fintech movement is strengthening its hold on the lending industry:

  • Federal Reserve data shows that 44% of US SMEs who applied for traditional bank loans last year received none of the credit they asked for;
  • Meanwhile, the Agenda Council found worldwide investment into fintech firms rocketed from $4bn in 2013 to $12bn in 2014; and
  • While many of those firms are based in the US and UK, they are also beginning to spring up in emerging countries.

Italy, the UK, Spain, the Netherlands, Turkey, Nigeria, Morocco, China, Canada and Argentina are among dozens of countries in which businesses have cited access to finance as a Top Three concern – a lingering consequence of the financial crisis.

WEF financial inclusion project lead and Agenda Council manager Michael Koenitzer said: “Financing for SMEs is lacking, although there is an ample amount of cash ready to get deployed. In this case, fintech disruptors are increasingly filling the gap that banks and investors leave.”

Peter Tufano, dean of Saïd Business School at the University of Oxford and a member of the report’s study team, commented: “The overwhelming consensus is that fintech has successfully started to gain traction in recent years, and there remains huge further potential for the sector to develop innovative and sustainable solutions to tap the funding gap for SMEs.”

Arnaud Ventura – co-founder of Positive PlaNet Foundation and CEO of the MicroCred Group – added: “Innovations have always disrupted established industries. We strongly believe that innovations in this field will contribute to improving the state of the world.”

While fintech’s ongoing impact is expected to be powerful, the paper stresses that lenders and borrowers alike must take into account a series of risk factors that prevail around the fast-rising industry.

Those risks include “limited protection of retail investors, the potential extension of funding to unworthy borrowers, [and] systemic risk following from a partly unregulated and opaque sector.”

However, the paper adds, “While the pace of change is still unclear, the potential magnitude of fintech as a catalyst for growth is hard to deny. The current momentum is not expected to vanish any time soon.”

Download the WEF’s full white paper here.

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