MSMEs are an important part of the region’s economy as 99 percent of all enterprises operating in Singapore are MSMEs and employ more than 65 percent of the total workforce. As per the government reports, about 219,000 MSMEs contributed as much as US$142.3 billion towards GDP, but they are facing challenges related to financing. The Working Capital Study conducted by Price Waterhouse Coopers (PwC) indicated that SMEs are struggling the most even to manage their working capital. This has resulted in the loss of productivity as well as deterioration of other resources which further strains already fragile financial condition.
The need for MSME financing remains unchanged over the years, but process and options available for funding have changed drastically.
Rise of Private Moneylenders
Small businesses need quick access to funds in order to survive and thrive and for centuries, banks are the primary source of funding. However, due to digital disruption, private money lenders have improved their processes and interfaces affecting the long-standing trends and rules in the financial services sector. Entrepreneurs also take advantage of the flexibility provided by private moneylenders with regards to documentation and interest rate charged. As per Statista, a total transaction in the alternative lending segment amounted to US$247.3 million in 2019 with an annual growth rate of 9.7%. According to the Retail Banking Satisfaction Study conducted by JD Power, 65% of customers are interested in opening digital bank accounts and are willing to adopt new forms of banking. Hence, traditional banks are already developing strategies for launching banking applications for sustaining in the market.
Disruption through Fintech
According to Fintech Global Statistics, investment in the Fintech sector reached a record high of US$365 million in 2018 due to high per capita income and an excellent business environment. Also, the region offers an ultra-high-speed fiber-optic network, which enabled to achieve a download speed of 55.52 Mbps and the government has enacted favorable policy initiatives, tax incentives and regulatory framework for the growth of Fintech sector. The Monetary Authority of Singapore (MAS) established the Fintech and Innovation group in 2015 with the aim of formulating regulatory policies and technologies to enhance the competitiveness of the financial sector.
The option of using advanced technologies such as Machine Learning and Artificial intelligence is being explored to predict payment behavior and provide suitable safeguards to protect the end-user. If implemented effectively, this will help support the development of user-friendly applications reducing the duration of the loan approval process and improve other financial services.
Collaboration between Fintech and Traditional Banking
Partnerships create opportunities and collaboration between Fintech and Traditional Banking enables to bridge the financial gap for entrepreneurs. Such partnerships provide banks with high visibility over historically untapped markets on platforms that are scalable, fast, and secure.
The government and the technological maturity of the citizens have enabled the firms to rapidly adopt new technologies for delivering services effectively. Also, the government has introduced various schemes to encourage SMEs to take advantage of lower interest small business loan in Singapore. However, the mounting regulatory obligations are impacting the small businesses which are hampering the firms from investing huge funds towards upgrading their IT capacity.