Meet the Senior Lecturer

Qamar Saleem
Chief Executive Officer, SME Finance Forum

Key Takeaways

Chapter Overview
● Understand SMEs and their importance in the economy.
● Learn how SMEs can leverage global platforms to enable growth.
● Leverage global payment solutions and processors to streamline international
transactions.
● Recognise international financial regulations to stay compliant.
● Stay abreast of emerging trends in financial platforms, including blockchain, AI, and
automation, and integrate these advancements into SME strategies.
1. Introduction

● Qamar leads the global SME Finance Forum which is the world's premier SME
knowledge sharing, product innovation and advocacy platform managed by IFC,
World Bank.
● Prior to this role Qamar held the roles of IFC’s Regional Manager Advisory
Services, Financial Institutions Group for Asia and Pacific, and Global Lead for
SME and Supply Chain Finance Practice over the period of last decade.
● Qamar has overall 30 years of global financial sector experience and is a
prominent SME and Supply Chain Finance leader. He is a featured speaker,
thought leader and trainer at numerous SME and SCF knowledge sharing forums
across the world and has steered partnerships with various private and public
sector entities in helping augment support mechanisms to foster SME finance
and innovate at scale.
● Prior to joining IFC, Qamar was associated with international organisations like
HSBC, Standard Chartered Bank, Deutsche Bank for over 2 decades.

Module 1: SMEs Global Landscape

1.1. Why are SMEs a Big Deal?

Economic Impact of SMEs:

● SMEs are vital stimulants of economic growth, primarily through job creation.
● They account for 9 out of 10 businesses globally.
● SMEs contribute an average of 40% to GDP in many countries, with this figure
being even higher in some nations.
● They are responsible for creating two-thirds of jobs worldwide.
Job Creation and Future Projections:
● By 2030, there is a need for nearly 600 million new jobs, and SMEs are expected
to play a significant role in this job creation.
Finance Accessibility Issues:
● A large number of SMEs, approximately 131 million, face challenges in accessing
finance. The finance gap, as estimated by IFC's MSME finance gap analysis, is
about $5.2 trillion, and this figure is expected to increase.
 ● Women-owned businesses comprise 23% of MSMEs and account for 32% of the
MSME finance gap. There are 1.2 billion young people aged 15 to 24 years,
accounting for 16 per cent of the global population. Thus, women and youth-led
SMEs are identified as the most underserved segments in terms of financial
access.

1.2. Access to Finance

● The lack of financial access is a major impediment for SMEs to succeed in their
businesses.

1.3. Stagnating new SME Market Globally

● While SME finance seems to be on a positive trajectory, its growth and impact
are relatively stagnant.
● Despite the emergence of new avenues and players in SME finance, the scale of
impact is insufficient.
● Combining the $5 trillion finance gap, $2.9 trillion in the informal sector, and over
$4 trillion already available in the market, the total impact on global GDP is
significant.
● This situation requires more concerted efforts and impactful solutions to
address the financial needs of SMEs effectively.
1.4. Foundational elements needed for SMEs to succeed

Four Main Aspects for SME Success:

● Access to Finance:
○ A significant gap exists in working capital finance; 80% of SMEs' financial
needs are in this area, yet most available finance is for medium to
long-term needs.
○ The industry misconception that SMEs are only looking for loans; they
also need transactional solutions and trusted channels.

● Access to Markets:
○ Supply chains represent a significant opportunity, with over a
trillion-dollar finance gap identified.
○ Less than 1% of global procurement involves women-led businesses,
indicating a disparity in market access.
○ SMEs require platforms and networks (B2B, B2C) to access external
markets, sometimes beyond their immediate geographical region.

● Access to Skills:
○ SMEs need to enhance their technical abilities to conduct business
effectively.
○ This includes core business functions as well as business and financial
management.
○ Capacity building and non-financial services are vital for SME
development.
 ● Enabling Environment:
○ The enabling environment for SMEs is rapidly changing and includes
digital IDs, open finance, and E-KYC (Electronic Know Your Customer)
regimes.
○ There is an emerging need for alternate data architecture to support SME
operations.
○ Credit enhancements and risk mitigation measures are essential, often
requiring industry partnerships and credible partners to facilitate SMEs'
access to finance.

1.5. Leading Trends

Impact of Digital Trends on SME Finance:

● Digitalisation is reshaping how SME finance is approached, particularly in three
areas:
○ Cross-sell and Fee Income Opportunities: Digital tools are enabling SMEs
to expand their income opportunities efficiently and at a larger scale.
○ Cost Efficiency Through Digital Channels: Digitalisation helps in optimising
costs, including reducing the cost to serve and the cost of losses.
○ Customer Satisfaction and Engagement: Enhancements in customer
experiences are being achieved through digital means, leading to higher
customer satisfaction and engagement.

Cross-Sell and Fee Income Opportunities:

● Digital platforms facilitate higher cross-selling opportunities and enable SMEs to
increase their fee-based income.
● Digitalisation allows for more detailed tracking of transactions and balances.

Cost Efficiency through Digital Channels:

● Alternate digital channels reduce operational costs, optimising branch
structures.
● Automation of back-office and middle-office functions creates efficiencies and
improves the customer experience.
Rise of Digital Banks:
● There has been a significant emergence of digital banks in the last decade,
currently numbering around 431 globally. Initially focusing on the payment
space, these banks are now expanding into the lending space, viewing SME
finance as a lucrative market.
● Digital banks are increasingly serving specific segments such as agriculture,
gender-focused businesses, youth-led enterprises, and other traditionally
underserved segments.
● Digital banks are expected to play an increasingly significant role in SME finance.
● They are tapping into opportunities within pockets of the market that have been
previously underserved or ignored.

1.6. Key trends influencing the future of SMEs

● Digital and Embedded Finance: The integration of financial services into

non-financial business processes and ecosystems. This trend is significantly
altering how SMEs access and manage finance.
● Alternate Data: Utilisation of non-traditional data sources for credit scoring,
allowing financial institutions to assess SMEs' creditworthiness more
comprehensively.
● Sustainable SMEs: Over 50% of global greenhouse gas emissions are attributed
to SMEs, with higher percentages in emerging markets. Addressing SME
sustainability is crucial for achieving net-zero goals.
● Focus on Women and Youth: Women and youth represent large yet
underserved segments within the SME sector. Tailored strategies are needed to
support these groups effectively.
● Supply Chain Finance: This involves providing financing to SMEs based on the
creditworthiness of their trade partners, helping to address the finance gap in
supply chains.
● Non-Financial Services: Emphasising the importance of capacity building, such
as business management and technical skills development for SMEs.
● New Enabling Environment: The need for an evolved ecosystem that supports
SMEs, incorporating digital IDs, open finance, new E-KYC (Electronic Know Your
Customer) regimes, and alternate data architectures.
Module 2: Enabling SMEs to succeed

2.1. Key Challenges of MSMEs That Hinder Their Growth

External factors:

Causes Enablers

Regulations are ● Developing country specific strategies

insufficient ● Developing a supporting legal and regulatory
framework

Financial infrastructure ● Establishing a solid financial infrastructure

is inadequate

Lack of Lending Capacity ● Partial credit guarantee schemes

and Tools

Internal factors:

Causes Enablers

Lack of MSME ● Empower MSME clients

management skills

Lack of financial ● Governments encouraging transparency

transparency

Scarce collateral ● A well-functioning collateral regime

● Banks must develop new and creative ways to
assess credit

2.2. Regulatory Elements and Best Practices

● SMEs are increasingly burdened with compliance requirements, especially in

areas like environmental, social, and governance (ESG) and global value chains.
The complexity of these regulations necessitates clear, understandable
guidelines for SMEs. This transparency in compliance requirements is essential
to help SMEs navigate the regulatory landscape.
 ● In addition, the rapidly evolving cybersecurity landscape demands that SMEs
adopt secure networks, data encryption, and regular security audits to stay
compliant and protect their business interests.
● The role of grants and incentives, particularly in research and development, is
highlighted as a significant factor for economic growth and innovation. These
funding opportunities should be targeted and well-directed, focusing on specific
segments, geographical areas, or technical fields to maximise economic benefits.
For new enterprises, particularly in rapidly evolving sectors like FinTech, the
availability of funds, along with effective usage monitoring, is crucial.
● Beyond financial support, these new enterprises require incubation spaces,
mentorship, and access to experienced professionals for sustainable growth and
development. Additionally, ongoing training is necessary to build their technical
capacities, and facilitating market access is vital in helping them navigate and
succeed in competitive markets.

2.3. The Roles of Financial Services Providers

● The financial landscape for SMEs is diverse, encompassing banks, insurance

companies, pension funds, microfinance institutions, and a range of other
financial intermediaries. Additionally, alternative funding sources like private
equity, venture capital, and capital markets play a significant role in SME
financing. These entities, along with funding from the government and high
net-worth individuals, contribute to a complex financial ecosystem.
● There is a recognised need for these varied financial service providers to
coordinate and direct their efforts towards supporting SMEs and startups
effectively. The unique challenges faced by these smaller enterprises in securing
funding and support require a tailored approach. Financial solutions and
strategies need to be designed specifically for SMEs, considering their distinct
requirements and potential for growth. This targeted support is crucial for
fostering a healthy, vibrant SME sector that can contribute significantly to the
broader economy.
Module 3: How SMEs can benefit from digital innovations

3.1. How SMEs Can Benefit from Digital Revolutions: Digital Infrastructure

● Cost Reduction and Efficiencies:

○ SMEs can significantly reduce costs, sometimes by 32% to 70%, through
the adoption of new technologies and systems.
○ This adoption leads to increased operational efficiencies.
● Improved Accessibility and Flexibility:
○ Being part of e-commerce networks or platforms enhances SMEs'
accessibility to markets.
○ Digital platforms provide flexibility to adapt quickly to market trends.
● Enhanced Data Management & Analytics:
○ Digital adoption gives SMEs access to valuable data and analytics.
○ This enables them to analyse sales trends, customer behaviours, supplier
reliability, inventory management, and more.
● Scalability:
○ Technology empowers SMEs to scale their operations, such as expanding
product lines or entering new markets more efficiently.
● Improved Customer Experience:
○ Digital tools improve how customers experience SMEs' products or
services, potentially leading to stronger customer loyalty and preference.
 ● Enhanced Security:
○ Digital infrastructure offers improved security protocols for business
operations, including invoice and data management.
○ SMEs can establish more robust security measures than traditional analog
methods.
● Sustainability:
○ Digital technologies facilitate the adoption of energy efficiency measures,
renewable energy sources, and effective waste management.
○ This can include integration of electric vehicles and other sustainable
practices in business operations.
● Innovation and Competitiveness:
○ Embracing digital technologies fosters innovation, making SMEs more
competitive in their respective markets.
○ Those who adapt to digital trends are likely to experience faster growth
and stronger customer loyalty.

3.2. How SMEs can benefit from Embedded Finance

● Definition of Embedded Finance:

○ Embedded finance refers to the integration of financial products or
services into the business model and operations of real sector services or
products, which are enhancements to or transformations of real sector
value propositions.
● Role in E-commerce and Trade Networks:
○ This concept is increasingly relevant in e-commerce and trade networks
where transactions are frequent. Large corporations are also seeking
embedded finance solutions to offload financial responsibilities from their
balance sheets.
● Financial Impact and Market Share:
○ According to an Accenture study, the current financial sector revenue
from the SME segment is approximately $291 billion.
○ Embedded finance is predicted to capture nearly 25% of the revenue
wallet in the financial services space, marking a significant shift in revenue
streams.
 ● Revenue Shifts in the Financial Industry:
○ The adoption of embedded finance could lead to a shift of around $32
billion from traditional revenue models in the financial industry.
○ Financial institutions that fail to adapt to embedded finance structures
might lose a substantial portion of their current revenue from the SME
segment.
● Strategic Importance for Institutions:
○ Embracing embedded finance is crucial not only as an offensive strategy
to tap into new revenue streams but also as a defensive strategy to
protect existing revenues.
○ Financial institutions need to align with this trend to remain competitive
and relevant in the evolving financial landscape.

3.3. How SMEs can benefit from digital revolutions: Fintechs

Expansion of the Fintech Sector:
● The fintech community is rapidly expanding globally, with significant growth
observed in regions like Asia.
● Fintechs are becoming increasingly important in SME finance due to their agility,
innovative approaches, and customer-centric services.
SMEs benefit through a holistic platform, access to suppliers/ vendors that can grow
their businesses, increased productivity through automation of workflows and a
competitive edge through data analytic tools to make informed business decisions.
1) Generate business and new revenue streams through cross-selling and
improved efficiency
● Financial solutions targeting MSMEs including working capital through unsecured
loans, overdrafts and e-loans
2) Strengthen customer acquisition, retention and engagement
● Engagement platform provides business advisory and educates SME customers
about the bank's financing facilities. Bank can leverage the ecosystem to build
online loan straight-thru processing solutions that greatly benefits the consumer
3) Improve decision making through data driven insights on customer behaviour
● Bank can access analytics and customer data for decision-making through
platform’s services such as a customizable, digital dashboard that features
business applications to facilitate SMEs’ daily operations
 4) Offer personalised, digital banking/ non-banking services to SMEs without
undertaking costs of hardware or a new platform
● Through the platform, banks can provide essential tools to help SMEs manage
their business, connect with other SMEs/ clients and save on costs with
pre-negotiated offers.
5) Build targeted marketing campaigns
● Platform can help the bank build and market bundled banking services with
value-add offerings to existing and potential customers, and position the bank as
a player focused on empowering SMEs

Summary

The module on Digital Platforms in the context of SMEs highlights several key aspects. It
underscores the significant role of SMEs in the global economy, contributing over 10%
to global GDP and being a major stimulus for job creation, despite facing a finance gap
exceeding $5 trillion and contributing to more than 50% of global GHG emissions. The
module emphasises that supporting SMEs goes beyond just providing finance; it
requires access to markets, skills, and an enabling environment. The advent of digital
technologies, especially accelerated during the COVID pandemic, has made SMEs more
reachable, bankable, and attractive. The next decade is seen as crucial for resolving SME
finance issues, requiring a concerted effort from countries, institutions, and the entire
ecosystem to capitalise on this opportunity.
Required Reading

📚Reading 1|[Link]
Financing SMEs and Entrepreneurs 2022

by OECD (29th March, 2023)

⏰ 40 minutes
Financing SMEs and Entrepreneurs 2022: An OECD Scoreboard provides information on
SME financing trends and policies for 48 countries around the world for the period 2007
through the first half of 2021. The Scoreboard includes indicators on debt, equity,
asset-based finance and framework conditions for SME and entrepreneurship finance,
complemented by demand-side information and recent developments in public and
private initiatives to support SME finance.

📚Reading 2| [Link]
A digital approach to SME banking

by Mohcine Ouass and Nicolas Reuttner (25th, October, 2020)

⏰ 20 minutes
The article discusses how small and medium-size enterprises are a clear growth
opportunity for banks in a difficult environment. A digital-first approach with a personal
touch can help banks crack the code of this historically overlooked segment.