The first article in this series on SMEs and mSMEs discussed projected massive growth in the global micro-SME (mSME) segment. In what follows, we examine the challenges facing this market over the next five years – and potential solutions.

Our analysis of the global mSME market shows just how vital mSMEs are to the global economy, and that of individual emerging markets. We project a 6.7% growth rate for the segment out to 2030, for a total value of $887 billion – around a third of the total value of major European economies such as the UK or France. In many emerging markets we analyzed, mSMEs constitute between 94% to 99% of all businesses. “Mom and Pop” stores account for 25% to 35% all mSMEs and are a bellwether of digital payment and procurement trends among mSMEs.

As the world-wide digital revolution unfolds, many “Mom and Pop” stores in rural areas of emerging economies are moving straight from cash to a fully digital environment without the intermediary steps seen in developed economies, such as ATM use or payment cards with magnetic stripes and memory chips. This rapid digitalization brings with it some challenges, from changing the business practices of store owners through to widening their access to financial services – not to mention historic attitudes in the financial services sector itself towards this segment of the economy.

A Raft Of Challenges…

At the most basic level, many “Mom and Pop” store owners are unclear of how much it costs them to carry cash transactions – and are only intuitively aware of the cost benefits of digitalization.   Typically, they will be aware of the costs of POS devices and transaction fees, but less aware of the positive impacts of digitalization such as higher transaction volumes or the ability to access more working capital through establishing a demonstrable financial history.

To that point, many mSMEs also lack access to the financial services they need, whether that’s a bank account or credit facilities. And to some degree, that’s a question of habit and custom: these operations are comfortable with cash as it’s what they know, and they like the fact that cash payment helps them avoid debt when procuring goods and services, since they can only buy what their cash will let them. More broadly, there’s evidence of a lack of trust in digital money in the segment – not to mention a belief that adopting digital payments would expose them to the scrutiny of the tax authorities in those instances where they may have historically under-reported their income.

… For mSMEs And The Wider Economy

If “Mom and Pop” store owners have some adjustments to make when joining the digital economy, then the same might be said of the companies that supply them. Historically, suppliers to mSMEs have struggled to justify the cost of delivering relatively small orders over what can be large geographical areas, while the costs of handling cash and managing paper-based processes have made the segment less attractive to suppliers.

Likewise, mSMEs have struggled to find adequate sources of credit for several reasons ranging from their own poor record-keeping through to the high-risk premiums credit providers have placed on products offered to the segment. More generally, banks find mSMEs too fragmented, and their financial histories too opaque, to make the prospect of selling to them attractive. Across fifteen countries we analyzed across Africa, South East Asia, and Latin America, mSMEs represented less than 15% of the leading banks’ loan profitability.

Digitalization: Setting Fire To mSME Growth

If all of this sounds complex to the point of being insurmountable, then there’s evidence that the current wave of global digitalization can solve many of these challenges – and act as an engine of growth for at least the next decade. COVID accelerated changes that were becoming evident pre-pandemic, since it meant that mSMEs had to sell remotely to their customers, rather than doing business in-person using cash. In addition, governments often mandated contactless payments over cash, forcing many mSMEs into electronic payment via card as a minimum, with some opting for full digitalization as they emerged from the pandemic.

Building on this positive start, our analysis suggests there are steps that governments, regulators, and the finance industry can take to foster the further digitalization of mSMEs. For instance, governments could mandate benefit and salary payments to prepaid cards and digital wallets, or likewise pass laws for all invoicing to happen electronically from a certain date. Governments could also support the development of fintechs through tax and regulation policies, as has happened in Saudi Arabia, the UAE and elsewhere.

Source: KoreFusion

If governments have an important role to play, then financial sector firms are no less vital. Offering low-cost softPOS options with easy onboarding for mobile devices would widen acceptance networks rapidly, while adding more payment options such as QR-codes and e-wallets that are built for mobile devices would encourage wider user engagement with digital payments. The explosive growth seen by GrabPay in Indonesia shows just how quickly digital payments can proliferate when they are made available for both users and merchants via smartphone: launched just eight years ago, GrabPay now dominates Indonesia’s ride-share market and accounts for just under half (47.8%) of all food delivery payments in the country.[1]

A World of Opportunity

Some of the points we raise above will ignite serious growth for mSMEs as they join the digital economy, both through higher turnover, and through easier access to lending and credit options thanks to established payment and revenue histories. In some economies in South-East Asia, mSMEs already generate up to 97% of employment and 61% of economic value created, serving between 35% and 70% of the population in these markets.[2]

By implication, the effect of improving the efficiency of mSMEs in these economies could be enormous. In Vietnam, for instance, some mSMEs in the grocery segment account for more than US$ 63 billion in grocery sales. Projected to grow at 10% per year, this sub-segment alone could add more than US$ 20 billion to the Vietnamese economy by 2030. Our analysis suggests an even more dramatically positive outcome in Indonesia, where grocery mSMEs account for more than half of US$ 113 billion in sales. Pegged for 8% growth over the next five years, this sub-segment could add almost $32 billion to the national economy by the end of the decade. These number suggest that – challenges notwithstanding – the full digitalization of the mSME segment is a prize worth fighting for.

KoreFusion optimizes SME payments strategy across 80 countries. We help banks, brands, and fintechs develop embedded payment and financial services for SMEs. For more information, please contact hello@korefusion.com.

[1] The Wall Street Journal, 21 February 2025: “How Grab Forged a Path Through Hyper-Localization”: https://partners.wsj.com/grab/delivery/how-hyper-localization-drove-grabs-growth-in-indonesia/

[2] The Asian Development Bank, “2019 Trade Finance Gaps, Growth, and Jobs Survey” https://www.adb.org/zh/subjects/small-and-medium-enterprise-sme-financing?page=44