Around 70 per cent of SMEs (small and medium enterprises) in Southeast Asia started their business with seed money raised from their personal savings and from family and friends’ financial support – particularly in Indonesia, Malaysia and Singapore; according to a new report published by In Southeast Asia, Southeast Asia’s largest unified SME digital finance platform.
Funding from traditional banks supported 23 per cent of SMEs in Southeast Asia, while the remaining seven per cent turned to alternative sources such as fintech companies. SMEs in Malaysia had the weakest access to financing from traditional banks (17 per cent) and alternative lenders (three per cent). Inversely, those in Vietnam had the strongest access to alternative lenders (25 per cent).
To better understand how these businesses think, Funding Societies surveyed 977 SMEs in Indonesia, Malaysia, Singapore, Thailand and Vietnam. Its findings suggest that Southeast Asia’s economy is on the road to recovery, after setbacks caused by the pandemic.
Despite recent macroeconomic headwinds, the region appears less impacted when compared to other parts of the world. These factors have brought about innovative solutions for SMEs by both traditional and digital financial companies. However, an abundance of choices has not necessarily equalled greater ease in accessing finance.
SME Digital Finance and Payments Behaviours: Southeast Asia Report 2023 aimed to look into the behaviours and challenges SMEs are facing and how using digital financing and payments can capture business opportunities and efficiencies.
What key trends were seen in SMEs in Southeast Asia?
Bank transfer remains the most popular payment method for SMEs with nearly 90 per cent paying their suppliers and 88 per cent receiving payments from customers through the same method.
Despite this, many SMEs have not forgotten about cash in the region. In fact, 51 per cent of respondents from Indonesia revealed they pay suppliers and receive payments from customers in cash; while 63 per cent of respondents in Malaysia still receive payments from their customers in cash.
While business term loans were cited by respondents as the most used products overall (49 per cent), there were exceptions in Singapore and Vietnam, where card payments are more common in both countries (51 per cent and 49 per cent respectively).
Looking at how these products contributed to an SME’s finances, respondents cited business terms loans as their biggest contributor (41 per cent) – with Indonesia and Malaysia attributing 66 per cent and 63 per cent. Meanwhile, Singapore SMEs leaned towards credit card payments (33 per cent).
Most SMEs surveyed were more concerned about payables, particularly their capacity to pay suppliers. More than a third of the respondents listed access to financing (including loans and credit cards) and fulfilling payments (to suppliers or vendors who may not offer flexible payment options) as their top payable issues.
Across the region, respondents said that their biggest expenses were for daily operations (32 per cent) and inventory and supplies (32 per cent).
Low-interest rates are a significant factor influencing SMEs to switch brands, especially in Singapore. Funding Societies found that 62 per cent of SMEs in the region are likely to switch brands due to their dissatisfaction with the experience offered – with the most likely in Indonesia and Singapore.