Empowering Micro and Small Businesses With Digital Tools in Emerging Markets

Recent findings from the Center for Financial Inclusion at Accion have shed light on the crucial role that digital technology plays in the growth of micro and small enterprises (MSEs) in emerging economies. The report indicates that MSEs that embrace these digital tools can experience revenue growth of up to 10%. However, despite the potential benefits of digital adoption, the actual usage of such tools remains alarmingly low.

In a comprehensive survey of over 20,000 MSEs across five cities—Addis Ababa, Delhi, Jakarta, Lagos, and São Paulo—the study highlights not only the opportunities for growth presented by digital products and services but also the considerable challenges that persist. The research reveals that many MSEs struggle with resource constraints and face risks associated with consumer protection as well as environmental shocks that can jeopardize their stability.

One striking finding of the research was the varying rates of digital adoption among MSEs. In Addis Ababa, a significant number of businesses—over half—reported not utilizing any form of digital technology. Conversely, cities such as Delhi, Jakarta, and Lagos reported higher instances of digital tool usage. Entrepreneurs in these regions averaged between 1.8 and 5 different formal financial services, demonstrating a varied engagement level with financial tools.

Additionally, the gender disparities among entrepreneurs were notable. In Jakarta, women owned a substantial 70% of MSEs, while in Delhi, this figure plummeted to just 11%. Such discrepancies reflect broader societal issues regarding women's access to entrepreneurship opportunities in different markets. Often, MSEs are not established out of a proactive decision but rather as a necessity in response to unemployment, further exacerbating their vulnerability and limiting long-term sustainability.

The environmental challenges faced by MSEs cannot be overlooked either. Approximately one-third of micro and small businesses indicated that they have been adversely affected by environmental shocks, such as droughts and floods. Alarmingly, less than 20% reported having sufficient funds to manage emergencies within a week. Among those affected, nearly 29% expressed a willingness to invest in measures that would allow them to adapt to changing climatic conditions.

The research, backed by the Mastercard Center for Inclusive Growth, employed a robust methodology tailored to focus on urban areas that house a high number of MSEs. Researchers sought to grasp the key factors influencing the financial health of MSEs, which constitute a primary source of income generation in emerging markets.

Payal Dalal, executive vice president of global programs at Mastercard Center for Inclusive Growth, emphasized that small businesses today face an array of unprecedented challenges, such as cyber threats and significant economic repercussions from extreme weather events. This report illustrates the pressing need for collaborative efforts to develop solutions that not only shield these enterprises from risks but also provide them with opportunities for sustainable growth amid volatile conditions.

Access to digital technology and formal financial services is crucial, yet the study indicates that resilience entails more than just financial tools. Factors such as personal safety nets—including savings and informal support networks—play a significant role in determining an MSE’s ability to navigate crises successfully. The research also found that businesses which successfully combine access to credit, savings, and insurance with adequate financial literacy tend to exhibit stronger resilience and improved financial health.

Researchers identified ten distinct financial and non-financial digital technologies used by MSEs, and the findings revealed a clear gap in adoption levels. For example, MSEs in Addis Ababa averaged only 1.6 digital technologies, attributed mainly to inadequate internet connectivity, while cities like Delhi, Jakarta, and Lagos displayed broader adoption of tools like messaging apps and social media for customer engagement. However, e-commerce platforms remained under-utilized in all surveyed cities, pointing toward significant growth potential once barriers related to digital literacy and access are resolved.

Despite some MSEs making proactive investments in preparation for potential economic disruptions—such as acquiring additional supplies or enhancing infrastructure—their approach to borrowing for emergencies appears limited. This highlights a pressing need for financial services more responsive to the realities of these businesses, such as offering pre-approved credit and promptly available insurance products to facilitate swift recovery during crises.

As Edoardo Totolo, Vice President of Research and Programs at Accion, remarked, the data indicates that when micro and small businesses tap into the digital economy and have access to diverse financial solutions, they fare better in emergencies. However, many such businesses continue to struggle with obtaining basic financial safety nets—like insurance, savings, and responsible credit—which are vital to their capacity for economic resilience. Policymakers and financial service providers must craft accessible, trustworthy products tailored to the unique needs of these vulnerable businesses, ensuring advancements in technology translate into improved financial health.

In summary, as digital technologies hold immense potential for enhancing MSE growth in emerging markets, addressing the existing barriers and tailoring supportive financial solutions is essential for fostering resilience and sustainable development across these vital economic sectors.