Finance and E-finance for SMEs as a Means to Enhance Their Operations and Competitiveness

How can e-finance benefit small and medium enterprises (SMEs) in developing countries?

SMEs face great difficulty in obtaining formal credit and equity. Traditional approaches have not been successful in facilitating the access of SMEs to finance for the following reasons:

  • High risks associated with SMEs;
  • High transaction costs of SMEs.

Internet mediated electronic financial services can bring about drastic improvements to the situation and facilitate the growth of SMEs. The internet:

  • Reduces the cost and increases the speed at which financial services are provided;
  • Services can be accessed through a wide variety of devices from anywhere in the world;
  • Allows SMEs in developing countries to access an array of new e-finance services and instruments that are quickly emerging in the most advanced markets.

The author states that e-finance will further help SMEs in the following ways:

  • Internet based trade finance systems will enable the substitution of paper documents by their electronic equivalents;
  • Electronic credit information and management systems will cut down the cost of credit information.

According to the author, some of the challenges facing e-finance in developing countries for their SMEs are:

  • The existing global on-line financing platforms are not designed to address the specific needs of the SMEs in developing countries;
  • The regulatory and contractual framework for obtaining full advantage of e-finance services are yet to develop in many countries.