The Bank for International Settlements published BIS Bulletin No 99 on whether digital innovation can improve access to credit for small and medium-sized enterprises (SMEs) in emerging market economies (EMEs). It concludes that big tech and fintech lenders can use new data sources and analytics to improve credit scoring and potentially reduce collateral needs for some firms, but their lending remains a small share of overall credit and digital innovation alone is unlikely to materially expand SME lending without tackling deeper structural barriers. The Bulletin highlights persistent financing frictions, with nearly 30% of SMEs in Latin America and 25% in EME Asia (excluding China) reporting partial or full credit constraints, and collateral requirements reaching 100–300% of loan value in some EMEs. SMEs also face higher borrowing costs, with an average bank loan interest rate spread of about 5 percentage points versus large firms and over 7 percentage points in some Latin American countries. Against this backdrop, fintech and big tech business lending in EMEs averaged 0.03% and 0.05% of GDP respectively in 2019, although China is a notable outlier with big tech credit at 8% of GDP in 2023; growth rates have been rapid in some regions, and receiving digital payments is associated with an estimated 12 percentage point reduction in the likelihood of being credit-constrained. The paper flags policy trade-offs around data-sharing and open banking, including whether big techs and fintechs should be required to share data and scores with credit registries, the need for safeguards on privacy and commercial secrecy, and potential supervisory concerns if greater competition increases bank risk-taking, alongside reforms such as stronger creditor rights, better bankruptcy frameworks and broader eligible collateral that digital tools cannot substitute for.
Bank for International Settlements 2025-02-27
Bank for International Settlements research finds digital lending can ease SME credit constraints in emerging markets but is unlikely to be a game changer on its own
The Bank for International Settlements' BIS Bulletin No 99 explores digital innovation's potential to enhance credit access for SMEs in emerging markets. It finds that big tech and fintech can improve credit scoring and reduce collateral needs, but their impact is limited without addressing structural barriers. The report highlights significant financing frictions, policy trade-offs around data-sharing, and the need for broader reforms beyond digital solutions.