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Filling the Gap: How Technology Enables Access to Finance for Small- and Medium-Sized Enterprises
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In this paper, the authors analyzed data from PayPal and Kiva to understand how technology is impacting SMEs' ability to access financing, and they found that online business loans have stepped in to fill the SME funding gap left by the 2008 financial crisis.Abstract:
Traditional financial services are rapidly being reformed by technology. Small- and medium-sized enterprises (SMEs) account for more than one-half of the world’s GDP and employ two-thirds of the global workforce, however a key barrier to growth faced by SMEs around the globe is access to financing. This is not a new issue, as the onerous information, administration, and collateral requirements associated with traditional loans have inhibited SMEs from seeking or securing financing. The 2008 financial crisis only exacerbated the problem, as many local retail banks (often the primary providers of SME financing) closed their doors and the appetite for taking on high-risk SME loans was quelled. Online business lending may be stepping in to fill this gap by resolving many of the barriers associated with traditional SME financing. This paper analyzes data from PayPal Inc., a company best known for its global online payment system, and from Kiva, a crowdsourcing platform. PayPal Working Capital launched in late 2013; it is a product that enables SMEs to apply for and obtain short-term credit. Our objective is to understand how technology is impacting SMEs’ ability to access financing. Our findings suggest the following: (i) online business loans have stepped in to fill the SME funding gap left in the wake of the 2008 financial crisis; (ii) young and minority-owned businesses with low and moderate income benefit particularly from online business loans; and (iii) online business loans can boost the growth of SMEs in under-served counties. Based on increased sales of businesses that have received PPWC loans, we estimate that programs like this have the potential to boost economic activity considerably.read more
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References
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Small and medium-size enterprises: Access to finance as a growth constraint
Thorsten Beck,Asli Demirguc-Kunt +1 more
TL;DR: In this paper, the authors present recent research on access to finance by small and medium-size enterprises (SMEs) and show that small firms face larger growth constraints and have less access to formal sources of external finance, potentially explaining the lack of SMEs' contribution to growth.
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Does Banking Competition Alleviate or Worsen Credit Constraints Faced by Small- and Medium-Sized Enterprises? Evidence from China
TL;DR: In this article, the authors investigate how concentration in local banking market affects the availability of credit and find that lower market concentration alleviates financing constraints, while the presence of state-owned banks has a smaller effect.
BookDOI
What have we learned from the enterprise surveys regarding access to credit by SMEs
TL;DR: In this article, the authors developed a new measure of credit-constrained status for firms using hard data instead of perceptions data and classified firms into four ordinal categories: Not Credit Constrained, Maybe Credit-Constrained (CCC), Partially Credit-Consistency, and Fully Credit-Confidence.
Does Bank Market Power Affect SME Financing Constraints? ESRI Research Bulletin 2014/1/5
TL;DR: In this article, the impact of bank market power on investment financing constraints experienced by small and medium-sized enterprises (SMEs) is investigated using a large sample of approximately 118,000 SMEs across 20 European countries over the period 2005-2008.
Journal ArticleDOI
Enlarging the Contracting Space: Collateral Menus, Access to Credit, and Economic Activity
TL;DR: In this paper, the menu of assets legally accepted as collateral was enlarged to include movable assets (e.g., machinery and equipment), and generalized difference-in-differences tests show that firms operating more movable asset borrowed more as a result.