Still Wondering Why It’s So Hard for MSMEs to Expand Their Business? Here’s Why!
The common problem which keeps impeding the growth of MSMEs lies in the difficulties of finding business funds. Apparently, MSMEs lack access to funding, preventing them from expansion opportunities. The World Bank’s study found that around 200–245 million MSMEs couldn’t obtain a business loan.
Though many agree that business loan will assist MSMEs to grow, rejection cases of business credit appliance still often happen.
There are two types of requirements stated by banks for MSME credit appliance: (1) the general requirement in the form of a legal document proving the validity of a business unit; and, (2) the requirements for credit appliance through capital and collateral.
Credit appliance through legal documents
Credit appliance requires the applicant to provide some documents in order to obtain credit or funding from financial institutions. Usually, in the first step of the application, namely the KYC, MSMEs cannot provide the required documents. Many of them are still operating informally.
The lack of legal documents further complicates financial reporting. As such, they often fail to provide credible management and financial records. This is experienced by not only the informal MSMEs but also the formal MSMEs which oftentimes cannot deliver proper financial and transaction records. Even if they are already qualified in the terms of economic capacity, incomplete legal documents and transaction records of their daily business operations still make them unbankable.
The capital and collateral credit appliance
Regarding capital and collateral, most MSMEs do not possess any property which can be utilized as collateral. Most financial institutions which provide loan always require collateral as the mechanism of their mitigation risk. Therefore, collateral is a necessity before MSMEs can obtain credit and funding for expanding their business.
Due to those difficulties and the lack of access to credit, they often turn into individual credit, even sometimes with high and unmeasurable interest rates. This could be harmful to MSMEs’ business growth.
However, there is another safer option for MSMEs to grow, which is by utilizing technology infrastructure to compile a structured record of their data as valuable assets.
To that end, Tokoin facilitates MSMEs in processing and distributing data between related participants in a digital business ecosystem. If an MSME can provide more complete and reliable data, banks and other lending institutions will be able to obtain substantial and appropriate information about the characteristics and credibility of the business unit. In Tokoin, data information from MSMEs will be validated as assets that contain values, thus helping to solve the problem of MSMEs in accessing funding.
