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GUIDELINE NOTE: HOW FINTECH FACILITATES MSME ACCESS TO FINANCING
CONCLUSION FinTech exists across various functional segments of the financial ecosystem from payments, lending, savings, and insurance. With its use comes operational risks and challenges for both consumers, and supervisors and regulators. However, as described in this guideline note, while its benefits to MSMEs are abundant and borderless, policymakers should consider applying these new technologies on a nationwide scale taking a holistic approach to these activities, strengthening oversight mechanisms and providing practical solutions to mitigate these risks - which are even greater for the underserved segments. Special consideration is further needed in light of the gendered implications of these efforts. Countries looking to develop regulatory frameworks around alternative financing methods such as FinTech and the use of digital credit may consider the following steps: > Understand the different types and business models of digital alternative financing available to MSMEs in the local context as they can be equity-based, lending-based, crowdfunding-based or a hybrid of these models to suit the demand of the local population. > Define the usage of digital credit in your local context. > Take stock of the different risk profiles applicable such as macro financial risks, strategic risks, operational risks, and cyber risks that apply to your local context if FinTech is to be used as an alternative source of financing for MSMEs. > Identify the legal jurisdiction of these digital alternative financing and integrate within a national legal framework either by adoption or by establishing new laws. > Decide on how to approach developing alternative financing regulations either by collaboration on the supply-side (such as a RegTech taskforce), or collaboration by both supply-side and demand-side (such as a regulatory sandbox). > Understand the market conduct of digital credit and implement and enforce proper disclosure regulations and a consumer recourse mechanism.
> Updated credit referencing systems to include alternative credit financing options and consumer financial data collected by these new FinTech platforms. > Note that data privacy and cybersecurity will be an increasing risk with the usage of FinTech for financing. Policies regarding accuracy and reliability, accountability, consent, consumer’s rights, data collection, security, and transparency will need to be explored through a gender lens for an iron-clad policy framework. > Ensure data collection is disaggregated by a wide range of indicators, with gender and age being paramount > Develop a gender lens with which to view activities to ensure structural bias in omitted and positive steps are taken to reduce the gender gap Aside from the country examples provided in this guideline note, other useful references made in this document should be explored if you wish to seek information from emerging markets and developing countries regarding the use of FinTech for financial inclusion and the responsible use of digital credit, and cybersecurity in digital financial services.
