Filling the US$3.4 Trillion SME Funding Gap

Access to the broadest datasets available, investment in the right technology and application of AI and automation can be a win-win for lenders and SMEs seeking funding

Even before the impact of the pandemic started to bite, banks were being asked to help bridge an estimated US$3.4 trillion SME funding gap in unmet trade finance, with demand for funding of small businesses rapidly becoming an acute challenge.

It’s a mind-boggling number largely driven by demand for unfilled or rejected trade finance applications tabled by small businesses in emerging markets. The UN in particular was aware of the challenge. Pre-pandemic, it equated to up to 10% of global merchandise trade, according to estimates from some global banks.

But now it’s likely to be far higher. As a result, banks and lenders are acutely reliant on access to the very best data, automation, and technology to help bridge the rapidly widening funding gap.

Rejection rates have always been higher among micro-businesses, small and medium-sized enterprises, due to the higher costs of serving customers, higher risk profiles for banks, alongside a lack of traditional data to enable accurate evaluation.

As a result, there's a tendency to over-compensate when lending to SMEs, due mainly to lack of viable application information, lack of industry knowledge, gaps in financial performance, or missing collateral guarantees. Know-your-customer (KYC) concerns and the need for more comprehensive information about applicants are among the two top reasons for rejecting SME borrowing. But access to the broadest datasets available, investment in the right technology and application of AI and automation, can be a win-win for all parties.


SME lending often gets turned down due to lack of information about the applicant, limited transaction history from being too new, or the wrong data being provided for funding applications. But as the global data universe expands with access to new and alternate datasets, in part driven by Open Banking, social media insights, web data, analysis of order books via the integration of accounting software, so does the scale of lending opportunities – as long as the mass of information can be accurately shared, segmented and analysed appropriately.


Lenders and banks believe new technologies from artificial intelligence, machine learning and even blockchain could help significantly improve an SME's access to trade finance. Technology can help deliver accurate KYC and financial crime checks through automation, AI and machine learning techniques. Machine Learning can also assist with categorising bank statement data to calculate accurate levels of income, expenses, and affordability for businesses.   

Plugging In to Accurate Insights

Cost-effective SME financing can be quickly improved by plugging directly into APIs that offer investment, transactional bank and financial information underpinned by alternative scoring models based on enriched data. So-called ‘open APIs’ help both companies and their lenders share crucial information in near real-time to get a better understanding of affordability levels and make better-informed decisions. Companies can automate their payments and cash management from a single portal across multiple banks, while lenders can use open APIs to connect and share information with each other. It’s also a fast route to new financial eco-systems.

New Lenders

Technology holds great potential for bridging the trade finance gap. But the drive to digitisation alone will not be enough to close it without new lending sources. Banks and fintechs are the main provider of global trade finance and are likely to remain so in the future, but peer-to-peer lenders will also have an important role to play. In fact, the International Chamber of Commerce has identified the attraction of so-called nonbank capital as the key issue to solving the global trade finance shortage within the next three years.

SMEs Are the Cornerstone of Growth

Clearly there are differences in region and the size of operations, but SME challenges and opportunities are broadly the same. It’s clear the sector is crucial for economic growth and an entrepreneurial culture. In EMEA alone, SMEs are estimated to employ over 80% of the workforce and contribute 35% to GDP - so their future success is crucial for any country.

FICO is already helping lenders across the globe plug the trade finance gap. Thanks to our ability to run our solution in the cloud, we’re enabling financial services companies to improve cross-border lending, speed up decision-making, while increasing agility, operational efficiency and reducing risk by maintaining continual compliance with multiple regulations. To find out how we can help, simply click here.

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