How fintech can help South-East Asia's MSMEs recover from COVID-19

A woman wearing a mask looks at her mobile phone amid social distancing measures to avoid the spread of the coronavirus disease (COVID-19), in Myeongdong shopping district in Seoul, South Korea, May 28, 2020.   REUTERS/Kim Hong-Ji - RC2OXG90N3B6

Micro, small and medium enterprises are big employers in the region. How has COVID-19 affected their operations and growth? Image: REUTERS/Kim Hong-Ji

Moises Benedict Carandang
Vice-President, First Circle Growth Finance
Lee-Anne Tobias
Senior Communications Associate, First Circle
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  • MSMEs are considered crucial to the future economic success of many South-East Asian countries;
  • As a result of the COVID-19 pandemic, the IMF World Economic Outlook projects, GDP will fall to negative 6% for five of the Association of South-East Asian Nations (ASEAN) countries: Indonesia, Malaysia, Philippines, Thailand and Vietnam;
  • Fintech is emerging as a crucial means of support for MSMEs during the pandemic as well as an opportunity to stimulate their growth in ways that benefit wider society.

COVID-19 is putting millions of micro, small and medium enterprises (MSMEs) in Southeast Asia in peril. This may be one of the biggest tragedies resulting from this pandemic given the size of the sector in the region.

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As a result of COVID-19, the IMF World Economic Outlook projects GDP will fall to negative 6% for five of the Association of South-East Asian Nations (ASEAN) countries: Indonesia, Malaysia, Philippines, Thailand and Vietnam. The Asian Development Bank forecasts ASEAN GDP growth to be just 1% in 2020.

MSMEs are considered crucial to the future economic success of many South-East Asian countries. MSMEs had been growing rapidly in the past decade owing to thriving environments, they account for almost all of the establishments in South-East Asia and contribute between 52% to 97% of employment in the region.

COVID-19 guidelines, however, mean these enterprises can only continue operating if they provide essential products and services. Even for those MSMEs in essential industries, the pandemic and economic standstill have further disrupted both small and big economies leaving tough barriers for the ASEAN economy to overcome.

Fintech: the natural response to a quarantined economy

Health policies, fiscal policies and stimulus packages have been drafted across South-East Asia and globally to cushion the rapidly deepening economic recession. ASEAN countries provided stimulus budget packages averaging about 6% of their GDP, according to data from the Centre for Strategic and International Studies, SEA COVID-19 Tracker.

ASEAN member countries generally focused their stimulus packages on health, cash transfers, SME aid, tax breaks and financing loans. However, the massive problems for every aspect of society caused by a fast-spreading virus and global lockdown could not be solved by government aid. One of the main roadblocks hindering the impact of stimulus packages for small businesses has been challenges to their implementation. Delivering incentives to all sectors of the economy was a nightmare. Imagine disbursing money to millions of eligible businesses and individuals claiming cash benefits while safeguarding your health and trying to avoid the contagion.

How COVID-19 will affect GDP growth for South-East Asia
How COVID-19 will affect GDP growth for South-East Asia Image: Statista

Soon, large private businesses committed to securing food supplies and donating personal protective equipment, medical supplies, alcohol and hand sanitizers, and food; as well as setting up their own quarantine facilities. In Malaysia, a telecommunication conglomerate, Axiata Group and its subsidiaries launched an RM150 million (~$35 million) cash fund for financial assistance to MSMEs through a micro-financing service.

During the global lockdown, MSMEs needed Financial Technology (fintech) to keep business operations going. FinTech companies also provided an intrinsic relief to business owners that were at risk of getting sick by continuing to operate manually. It wasn’t simply the 24-hour convenience that brought FinTech into the limelight but that it simply eliminated the risk of COVID-19 exposure for many people.

How fintech has kept MSMEs in SEA alive during the COVID-19 pandemic

Remaining true to its identity, fintech‘s recipe for success was simple:

  • Ease
  • Speed
  • Convenience
  • Reach
Fintech support to MSMEs in SEA
Fintech support to MSMEs in SEA

Thanks to fintech, millions of unbanked individuals in the region could access government aid during a time that prioritized the containment of an aggressive pandemic. Since many FinTech firms are start-ups, their grit and agility to pivot their operations to provide specialized services as customers needed them strengthened the industry.

Banking, digital payments and loan-financing services greatly propelled the economic wheel forward throughout the lockdown. Apps provided by a few innovative banks and digital payments companies were integral to keeping monetary activities moving and helping balance supply and demand. Singapore’s PayNow peer-to-peer money transfer platform has seen transactions double for two local banks’ customers during the first quarter compared to the same period last year.

Online financing companies also continued to operate to support businesses who couldn’t afford any disruptions resulting from negative cash flow. In the Philippines, UBX, the fintech arm of a local traditional bank partnered with popular South-East Asian e-commerce platform Lazada through its local arm,, to support MSMEs on the e-commerce site’s platform with a credit line financing programme. UBX, through its lending marketplace, SeekCap, also reported a 300% increase in loan applications during the first quarter of 2020.

Global fintech adoption rates
Which fintech services are most used around the world? Image: Statista

The Philippines’ central bank also highlighted fintech’s crucial role in rehabilitating the country’s economy, especially its MSME establishments. Fintech is seen to be a driver in providing financial inclusion to MSMEs as it supports financial access. Fortunately, fintech firms like First Circle complied with government memos that mandated payment holidays to cushion the blow of COVID-19 for businesses. More than that, the company bolstered its efforts to deliver on its mission to enable businesses to achieve their full potential through fast, fair and flexible financial partnership. It also ensured that priority was given to customers in essential businesses, such as distributors of personal protective equipment and medical supplies, to strengthen the fight against the COVID-19 pandemic.

More public-private partnerships for nation-building and economic progress

In addition to helping business-as-usual, fintech has won over the trust of more individuals as it partnered with governments and organizations to create a platform for doing good.

Paymaya, one of the Philippines’ online payment firms, used its platform to provide a way for people to contribute to those on the frontline of the pandemic in a seamless and efficient manner. Through partnerships and an app, donors could send donations to organizations including UNICEF, World Vision, the Philippines Red Cross and 29 others.

The Philippines’ Department of Social Welfare and Development similarly tapped another digital payments brand, GCash, to disburse cash aid to beneficiaries through an online platform that allows them to choose how to receive the aid.

Previously known as a business disruptor, fintech is instead here to stay as an innovative means for business continuity for many MSMEs. The industry is still seen as young but has already had a massive rippling effect on the global economy.

It may have taken time for many to shift to digital financing as individuals tend to repel complexities and choose to remain with familiar processes, but fintech has proven why it will continue to play a big role in strengthening and rebuilding our global economy. There is perhaps no other industry that can ensure strict social distancing while providing fast, convenient and secure transactions online.

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