Small and medium enterprises (SMEs) play a vital role in the Philippine economy, but many still struggle to access the funding they need to grow. According to data presented by payment processor Visa, SMEs in the country face a $221-billion funding demand, but formal lenders can only supply around $15 billion.
“As a result, they often turn to informal lenders, where interest rates can soar to as high as 20%,” said Gareth Parrington, head of Commercial Money Movement: South East Asia (IPVMC), Visa. “These high rates can trap business owners in a cycle of debt, with little to no consumer protection.”
Parrington pointed out that the core issue partly lies in the lack of financial data. Without proper credit scoring systems or verifiable financial histories, banks are less likely to approve loans. Many SMEs are underbanked or operate informally, making it difficult to access credit through traditional means.
Using alternative data to support credit decisions
To improve lending access, Visa encourages the use of alternative data sources to supplement or replace conventional credit checks. These data sources could include transaction histories, digital payment records, or information collected through Visa’s extensive financial network.
“Without comprehensive financial data, banks struggle to assess SME creditworthiness,” Parrington said. He noted that better data can help financial institutions make more informed and inclusive lending decisions.
Visa is working with partner banks to either strengthen their existing credit scoring systems or build new ones using data already available within Visa’s global network. The goal is to fill information gaps and support responsible lending to underserved businesses.
SMEs face multiple financial barriers
Visa’s study also revealed that only a small percentage of total corporate loans go to SMEs, less than 10%. Aside from limited credit access, 44% of SMEs identified cash flow as their top concern. More than half said their financial reserves would not last beyond six months.
Other challenges include the high cost of payment acceptance devices, long application processes for merchant accounts, and fraud risks. Around 33% of SMEs that accept card payments cited fraud prevention as a key concern.
Bridging funding gaps through better data sharing
Globally, the International Finance Corp. has reported a $5.2-trillion annual funding gap for SMEs, with East Asia and the Pacific accounting for the largest share. In the Philippines, despite government programs to boost SME lending, formal credit uptake remains low due to data gaps and limited financial literacy.
Visa aims to bridge this gap by helping improve data connectivity across its network. With more than 15,000 partnerships and 8 billion endpoints globally, Visa can support financial institutions in making faster and more informed decisions.
“At the end of the day, it boils down to what data is available that can allow a financial process,” said Jeff Navarro, country head of Visa in the Philippines.
Visa is also looking at how data inequalities affect different groups, such as women-owned businesses, which often face additional barriers due to differences in asset ownership and cultural practices. Addressing these gaps is a key part of creating more inclusive financial systems.
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