Kati Suominen, Nextrade Group and Alliance for eTrade Development

Alliance surveys with developing country firms reveal gains from digitization and interest in it, for firms to streamline and scale their businesses. Both marketplace sellers and social sellers highlight digitizing sales, marketing, finance, and accounting as being among the top needs for their businesses.

 

However, businesses also see access to finance to acquire new technologies as a key constraint to their digital transformation. Firms of all sizes also see access to finance as a leading challenge for their digital transformation. .In response to this market failure, governments around the world have over the past few years set up several digital transformation funds to enable MSMEs to access financing for their digital transformation.

 

This brief discusses how businesses and the development community could build on these efforts to unlock long-term financing for digitizing MSMEs at scale. Some ideas include:

  • Rigorously screen and select viable MSMEs poised to translate their digital transformation into productivity gains and ideally also employment opportunities.

  • Support banks in offering digital transformation loans with guarantees. 

  • Consider long-term loan instruments such as mezzanine funds to promote sustainable funding models. 

 

  • Test crowdfunding for online sellers’ digital transformation. 

 

  • Pilot testing market development funds for scalable solutions.

  • Provide technical assistance for firms’ digital transformation.

 

  • Educate governments and other providers of funding for digitizing firms about the best instruments and practices both to finance firms’ technology transformation at different stages of firms’ lifecycles.

 

  • Promote dialogue of digital transformation funding models and how they can be scaled. 

The author's views do not necessarily reflect the views of the United States Agency for International Development or the United States Government or any of the eTrade Alliance members.