The Plight of SME & HK FinTech Future Development (1): Information Asymmetry in Loan Market.

Nowadays, FinTech is no longer a buzz word in media. In November 2020, International Financial Corporation (“IFC”), members of the World Bank Group, published an influential article, to analyze how small and medium-sized enterprises (SMEs) benefit from FinTech to obtain financial support. Traditional banks have been criticized as unable to satisfy SMEs financing across the globe for a long time. IFC believed, even under the global economic downturn in the pandemic, SMEs represent almost 90% of businesses and generate more than half of employment around the world. That’s the reason why, for SMEs or even local government, FinTech has been their lifesaver under the pandemic. For example, in Mexico, the commercial bank loan application can take an average of two months, on the other hand, FinTech can approve loans in hours.

Hong Kong, a premier international financial centre, also following the fast-growing global financial development trend.  In the Hong Kong FinTech Week 2020, Hong Kong Monetary Authority published a white paper titled “Alternative Credit Scoring of Micro-, Small and Medium-sized Enterprises” that highlighted how cutting-edge FinTech could be applied in SME financing. The White Paper written by Hong Kong Applied Science and Technology Research Institute (ASTRI) highlighted several main points, 

  1. The difficulties faced by SMEs for applying for loans
  2. How does FinTech help SMEs
  3. Roadmap ahead

According to the White Paper, SMEs play a vital role in the economic development of the local business sector. There are currently over 340,000 MSMEs, accounting for over 98% of all enterprises and about 45% of the private sector employment in Hong Kong. Despite their importance to Hong Kong’s economy, SMEs face difficulties in financing their business growth and operations. The White Paper addressed the major problem for SME financing is the asymmetry of information. From the lender’s perspective, it is difficult to evaluate SMEs credit risk since the lack of available transparent management information and SMEs often do not have solid accounting systems.

Indeed, in early 2020, 1 year before the White Paper published by HKMA and ASTRI, FinMonster has been publishing a series of blogs to investigate the difficulties of SMEs financing, and also introduced the story of Orix on financial innovation application, hoping to set the new culture in Hong Kong financial industry. Benefitting from our 2 Co-Founders years of experience in corporate banking, FinMonster is created as the pioneer in SME financing fintech. By utilizing artificial intelligence to develop cutting-edge FinTech, FinMonster endeavour to solve the problem of information asymmetry in SME financing. Since last year, the Hong Kong Government announced the “Special 100% Loan Guarantee of the SME Financing Guarantee Scheme“ (SFGS). Many SMEs obtained financing through  FinMonster amounted to HKD500 million to alleviate their short term cash-flow pressure.

In the coming two articles, we will analyze the development plan mentioned in White Paper and provide our suggestions for future FinTech development supporting SME financing.

FinMonster provides a one-stop platform for Corporates to quickly obtain suitable banking support and compare the best prices. We regularly share the latest banking and FinTech trends, as well as quick tips like info pack that helps SMEs financing. Stay tuned with our website and Facebook.