Digital Lending for Micro, Small and Medium Enterprises (MSMEs) in the Philippines: Challenges and Opportunities

Despite MSMEs' significant contribution to the Philippine social and economic growth, they face many challenges - the foremost of which is access to finance. MSMEs often require access to unsecured credit, ponder funding speed through reliable and convenient channels, and simplified processes over the interest rate. Digitization in MSME lending in other countries is flourishing. However, there's not yet a Philippine bank that has implemented digital lending to MSMEs for business loans. Due to this recognized need, the authors conducted a qualitative descriptive design using semi-structured interviews of twelve (12) MSME lending professionals. The authors utilized content analysis to determine the challenges and opportunities for digital banking and how Philippine banks could encourage MSME clients to adapt to digital lending. Results showed that the challenges to digital lending adoption include: lack of national digital infrastructure, lack of established credit bureau, lack of understanding of digital platform's acceptability, lack of technical information and know-how, lack of reliable financial information on MSMEs, high cost to acquire/develop a digital platform, and traditional nature of MSME owners. The opportunities include easier and simpler onboarding of new and existing clients, b roader reach and faster service, and lower digital cost in the long run. There's a need to enhance financial and digital literacy, ensure ease of onboarding and access, practice transparency in lending terms and conditions, and incentivize customers for digital lending usage to encourage MSME digital lending adoption. Based on the results, the authors provided recommendations to key stakeholders such as the government, banks, and fintechs.