Posted originally on The Banker website.
Article by Lesly Goh, SME Finance Forum Senior Advisor, and former chief technology officer at the World Bank.
Closer partnerships between governments and innovative companies will help our communities during and after the COVID-19 crisis, says the World Bank's Lesly Goh.
It is a grim reality for small and medium-sized enterprises (SMEs) during the coronavirus pandemic. According to a report by insurer MetLife and the US Chamber of Commerce, one-quarter of small businesses have already temporarily shut down in the US. What is more striking is that 54% of all small businesses indicated in the survey that they are closed or could close within the coming weeks.
Most business owners have limited runway to survive; 51% of survey respondents say their business will only be able to continue to operate for a maximum of three months given these circumstances. To make ends meet, business owners are seeking financial assistance in the form of direct cash payments, disaster loans and the temporary cancellation of business payroll taxes. SMEs are also seeking more guidance on how to keep their customers and employees safe, how to respond to the crisis, and how to understand the outbreak. Governments need to focus both on size and on ease of deployment of those funds.
For example, while the US has announced a $2284bn rescue package, the largest in its history, which includes a $350bn programme for small and medium-sized firms (defined as with fewer than 500 employees), more than two-thirds of business owners are uncertain as how to apply for emergency funding, according to a survey by Goldman Sachs.
Access to the programme is vital not only for entrepreneurs but for their employees too, as it would also give loans without interest of up to
$1Om per business to pay for staff salaries, rental costs and other expenses. These loans would be forgiven in proportion to the share of staff kept in employment.
The public sector should also leverage businesses' ingenuity. In south-east Asia, super app Grab has been working with governments in the region and has launched programmes for driver-partners to mitigate the impact of COVID-19. In Singapore, for example, the company has partnered with the Land Transport Authority to expand its GrabExpress Car pilot programme to allow driver-partners to support food and parcel deliveries.
Grab has also created new products to help driver-partners directly. These include fuel cards that essentially provide a revolving credit line, as they allow the drivers to fill the tank and repay in installments later. The same applies to food purchases through grocery vouchers. Grab is focused on supporting merchant-partners during this period, particularly their GrabFood merchants in need of loans.
It is also working on other financial products. For existing driver and merchant borrowers, Grab is preparing relief structures ranging from payment deferrals to loan restructuring to ease debt burdens during this period. To drive the above products, Grab leverages access to real time transaction data in its platform to understand the macroeconomic issues in order to tailor loan amount, pricing and tenor proposals. These insights are used in Grab's credit assessment models. Government incentives for companies that create new ways of financially supporting the community would be welcome.
There are other examples of public sector businesses helping in this time of crisis. Ant Financial, together with the government in China's Zhejiang province, has launched a blockchain-powered online information platfonn for epidemic prevention materials, ensuring that the logistics and use of these materials can be more transparent. In Gansu province, Ant Financial has also launched a blockchain-powered online bid opening system, enabling SMEs to participate in contactless bidding remotely during the COVID-19 outbreak. Ant's consortium blockchain technology ensures materials and processes of the bid openings are tamper-proof, therefore ensuring even contactless bidding participation is transparent and trustworthy.
While most SMEs are focusing on survival today, it is also important to plan for 'the day after'. Here, international organisations can help by acting as knowledge hubs. The SME Finance Forum, managed by the International Finance Corporation, the private sector arm of the World Bank, is active in this area.
One member, GlobalLinker, a fintech start-up offering a digital platform for 270,000 SMEs globally, provides practical advice on preparing for the future by focusing on a digitalisation strategy. Some advice includes how to set up an online store, access online banking services and create a financial plan to ensure sufficient cash flows to withstand disruption.
In this time of global crisis, governments' funds are indispensable. But their effectiveness depends on smooth, joined up and fast transmission channels, which can truly go as far as the network at the disposal of the public sector. Now is the time for all parties - governments, multilateral organisations and businesses - to launch themselves into new, innovative partnerships.