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Digital banking for small and medium-sized enterprises

Improving access to finance for the underserved

With SMEs playing a key role in ASEAN economies, ASEAN governments have increasingly focused on developing the SME sector through various schemes, initiatives and policies. However, the current state of SME financing in ASEAN remains both a sizeable gap to fill and opportunity to serve. In order to better target the SME market and grow the SME banking business, banks and governments will need to understand the profile, needs, and preferences of SMEs to develop tailored approaches and overcome various historical challenges such as high credit risk and cost to serve.

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SME definitions vary across countries and institutions – despite the close geographical proximity of countries in ASEAN – and this poses a challenge for cross-country comparison. Indonesia and Malaysia, for instance, define SMEs as companies that have more than five but less than 75 employees. Philippines, Singapore, and Thailand, on the other hand, adopt a broader definition and consider SMEs as firms with no more than 200 employees and a turnover of less than USD 74 million. At the lower end of the SME sector, there is a group of smaller “micro” enterprises. Usually consisting of the self-employed, these micro-businesses are typically found in the informal sector or the shadow economy. More than 90% of SMEs across the five chosen markets are made up of small and micro-enterprises.

A source of growth and employment

Across the five countries of Indonesia, Malaysia, Philippines, Singapore, and Thailand, SME contribution is at least a third of GDP and approximately 70% of employment with its share being the highest in Indonesia.3 SME contribution to a GDP stands at 59% in Indonesia, followed by Singapore (47%), Thailand (37%), Philippines (34%), and Malaysia (33%). SME contribution to employment stands at 97% in Indonesia with Thailand in second place at 81%. This is followed by Singapore (70%), Philippines (63%), and Malaysia (58%).