Digital adoption key to micro and small enterprise revenue growth

Micro and small enterprises (MSEs) play a significant role in shaping and growing economies, particularly in emerging markets. A recent study conducted across five emerging market cities - Addis Ababa, Jakarta, Lagos, Delhi, and Sao Paulo - shed light on the financial health of over 4000 MSEs. In a CNBC Africa interview, Edoardo Totolo, Vice President of Research & Programs at the Center for Financial Inclusion, shared key insights from the study. The comprehensive research aimed to understand the landscape of small businesses, which are the lifeblood of urban economies. Despite their crucial role, micro and small enterprises often operate informally, making them challenging to study. By utilizing geospatial mapping techniques and on-the-ground presence, the study aimed to provide generalizable data that could offer insights into the growth dynamics of these markets. One of the central findings of the research was the uneven pace of digitization among MSEs across the five markets. While many entrepreneurs were leveraging digital tools like mobile payments, social media platforms, and messaging apps for business activities, the full digital transformation seemed elusive. The study revealed that a large proportion of MSEs were only partially digitized, with limited access to reliable internet connections and essential digital infrastructure. For example, in Addis Ababa, smartphone usage was common among entrepreneurs, but less than one in five had dependable internet connectivity, hindering their seamless adoption of digital tools. In Lagos, on the other hand, MSEs exhibited a greater familiarity with digital platforms, including mobile payments and social media. However, challenges related to trust issues, high transaction fees, and inadequate consumer protection mechanisms persisted. Despite the growing prevalence of digital payments, access to formal financial services remained constrained for many MSEs, leading to a reliance on informal financial channels. The lack of inclusive financial products tailored to the needs of micro and small enterprises raised questions about the readiness of the financial sector to cater to this segment effectively. Edoardo Totolo highlighted the pivotal role of digitization in driving the growth and productivity of MSEs. While digital tools offered opportunities for expansion, they also exposed entrepreneurs to heightened risks, particularly in markets with low digital literacy and inadequate consumer protection measures. The need for comprehensive digital protection mechanisms and tailored financial products emerged as critical factors in supporting the digital transformation of MSEs. The interview also delved into the challenges posed by cyber risks and fraud, emphasizing the importance of enhancing digital literacy among MSEs and developing targeted government policies and industry solutions to mitigate these threats. The discussion drew parallels between the cybersecurity challenges faced by small enterprises and larger corporations, underscoring the need for robust risk management strategies to safeguard digital operations. In conclusion, the study underscored the transformational potential of digital adoption for micro and small enterprises in driving revenue growth and fostering economic resilience. As MSEs navigate the evolving digital landscape, a concerted effort from policymakers, financial institutions, and businesses is essential to facilitate a more inclusive and secure digital ecosystem for small enterprises to thrive.