Despite previous efforts to boost small-business access to financing, a US$5.2tn gap has required a new initiative to address the challenge.

Around the world, micro-, small- and medium- sized enterprises (MSMEs) account for up to 90% of businesses and 70% of employment. The World Bank estimates that MSMEs are facing a financing gap of US$5.2tn every year, despite receiving increased attention.

These challenges are compounded when MSMEs pursue cross-border opportunities that require them to navigate different regulatory frameworks, financial systems, and lending norms.

In response, the United Nations Development Programme (UNDP), the Monetary Authority of Singapore (MAS), the Bank of Ghana (BoG), the Global Legal Entity Identifier Foundation (GLEIF) and the SME Finance Forum have launched an open global initiative to boost MSME financing access.

Helping deserving MSMEs gain funding

The program, dubbed Universal Trusted Credentials (UTC), proposes a framework for the creation of trusted credentials that characterize an MSME’s financing worthiness based on traditional and alternative sources of data:

    • Source data: Information about an entity may be verified from a variety of sources such as utilities providers, trade platforms, national registries, to supply data on trade flows; trade concentrations of buyers and suppliers; and history of timely payments of their financial obligations.
    • Derived data: Coupled with source data, derived data or additional indicators such as an MSME’s willingness to upskill itself (in financial literacy) and its past repayment patterns, can help to derive an MSME’s “intent to pay” track record.

The stakeholder entities will extend their existing capacity-building efforts to develop an ecosystem of suitable UTC data source providers. A steering committee of central banks, financial institutions and multilateral agencies will be explored to identify suitable trusted data sources and to vet international UTC issuers.

Currently under pilot testing in Ghana, the UTC will cater for a wider set of alternative data with central banks and financial institutions in other emerging markets across borders.

To develop UTC as a global standard, UNDP, MAS and partners will seek out collaborations to include  the private and public sectors to ensure interoperability and to cater for the evolving needs of global industries.

According to the UNDP’s Assistant Secretary General and Director (Bureau of Policy and Programme Support), Marcos Neto: “The UTC initiative has the potential to revolutionize how we tackle the global MSME financing gap in a way that empowers SMEs to support business growth and their green transition, encourages financial institutions to reach to new clients, leaves no one behind, and supports a greener, more sustainable economy. This is a key priority for UNDP, which already works with thousands of MSMEs across the world on digitalization, access to financing, and integration of sustainability practices; and recognizes the role that automated, data-driven digital solutions could play in driving scale.”