New research from the Center for Financial Inclusion (CFI) at Accion released today reveals that MSEs adopting digital tools are up to 10% more likely to report revenue growth, but usage of these tools remains low.
CFI’s report provides the clearest picture yet of the challenges and opportunities that determine the business trajectory of micro and small enterprises (MSEs) in five rapidly changing emerging markets.
The survey of MSEs across Addis Ababa, Delhi, Jakarta, Lagos, and Sāo Paulo revealed digital products and services offered opportunities for growth and greater efficiencies, while highlighting resource constraints, consumer protection risks, and heightened vulnerability to economic and climate shocks, as challenges faced by the businesses.
Key findings from the study include:
- MSEs adopting digital tools were up to 10% more likely to report revenue growth, but usage of these tools remained low. In Addis Ababa, more than half of MSEs reported using no digital technology applications. MSEs in Delhi, Jakarta, and Lagos were using at least one digital tool.
- Entrepreneurs across the 5 cities reported using an average of 1.8 to 5 formal financial services, reflecting diverse levels of adoption and engagement with financial tools. Businesses that integrated digital payments reported significantly higher revenue per employee.
- Women entrepreneurs represented 70% of MSE owners in Jakarta, but just 11% in Delhi, with figures of 35% in São Paulo, 43% in Addis Ababa, and 53% in Lagos. In many markets, MSEs are not started by choice but as a response to unemployment, making the businesses more vulnerable and reducing long-term resilience, which has implications for financial service design.
- 1 in 3 micro and small businesses reported being impacted by drought, floods, or other environmental shocks, and less than 20% reported being able to come up with emergency funds within one week. Of those entrepreneurs impacted by an environmental shock, up to 29% said they were more likely to invest in adapting their business to the changing climate.
The study, supported by the Mastercard Center for Inclusive Growth, used Adaptive Cluster Sampling – a research technique that enabled a strong focus on urban areas with high numbers of MSEs. CFI focused on understanding the drivers of financial health for MSEs that represent the largest source of income generation in emerging markets.
A total of 20,000 MSEs were surveyed, with 4,000 interviews conducted to build a sample that represents 1.7 million MSEs across the 5 cities.
“Nowadays, small businesses are facing unprecedented threats, from cyberattacks to the economic impact of extreme weather events,” said Payal Dalal, executive vice president of global programs at the Mastercard Center for Inclusive Growth.
“The research released by Accion highlights the opportunity to work alongside small businesses to provide solutions that secure them against these challenges; it’s not only about mitigating risks in the digital economy but making sure small businesses have the opportunity to thrive during this increasingly volatile time.”
The research highlighted the importance of access to digital technology and formal financing, but noted resilience was determined by a wider range of factors including personal safety nets, such as savings and informal support systems.
Businesses that combined access to credit, savings, and insurance with strong financial literacy were better positioned to manage shocks, and entrepreneurs with higher education levels were more likely to use a mix of different formal financial services, contributing to stronger resilience and improved financial health.
Researchers tracked the use of 10 distinct non-financial and financial digital technologies among MSEs, showing stark differences in adoption. In Addis Ababa, MSEs used an average of only 1.6 digital technologies, largely due to poor internet connectivity.
In contrast, Delhi, Jakarta, and Lagos showed wider adoption of digital tools, with messaging apps and social media used widely to engage customers.
E-commerce platforms remained under-utilized by MSEs across all cities, emphasizing potential for significant growth when barriers such as digital literacy and access are addressed.
The study also revealed many MSEs are already making small investments to prepare for shocks, such as stocking up on supplies before expected disruptions, investing in backup power sources, or reinforcing physical infrastructure.
Yet the same businesses reported low levels of borrowing in response to emergencies, demonstrating that financial services are not structured to support these types of preemptive or recovery-oriented investments.
During emergencies, traditional application and approval processes can be disrupted, leaving businesses without timely support, and underscoring the need for disaster-resilient financial services, such as pre-approved credit lines or insurance products that can provide immediate assistance to businesses when they need it most.
Edoardo Totolo, vice president of Research and Programs at the Center for Financial Inclusion at Accion and lead author of the report, said: “Our research shows when micro and small businesses are connected to the digital economy and a range of financial solutions, they are better equipped to withstand real-world emergencies. Unfortunately, insurance, savings, and responsible credit remain out of reach for many of these businesses that are the engines of their national economies.
“While the advantages of going digital are clear, policymakers and financial providers must design products tailored to the needs of these vulnerable businesses that they can easily use and trust to ensure advances in technology improve their financial health.”
