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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.
- 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.
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
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.
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, Lazada.ph, 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.