From driving innovations to creating jobs and playing a crucial role in providing essential goods and services in the global supply chain, micro, small and medium enterprises (MSMEs) are a cornerstone of economic development and inclusive growth. The numbers tell a story, too. A recent UNDP report highlights how MSMEs are deeply ingrained into the economic and social structure of the countries and communities within the Association of Southeast Asian Nations (ASEAN) region. They account for 97% of all enterprises, 85% of the labour force, 45% of regional GDP and 10-30% of exports.
Globally, MSMEs account for 90% of businesses, about 70% of employment, and contribute to 50% of GDP, notes UN data, adding that the sector is essential for local and national economies for most societies where it contributes to sustainable livelihoods, especially among the working poor, women, youth, and groups in vulnerable situations.
More than 60% of ASEAN’s population lives in rural areas. And micro-entrepreneurs and small-scale businesses are more than just contributors to the local economy in such areas. They are core to the survival and development of their communities.
The Role of Micro-Entrepreneurship in Rural Development
According to available data, there are over 70 million MSMEs in the ASEAN region, of which the majority are micro-enterprises. The share of medium-sized enterprises is relatively low across the region. World Bank figures suggest that 7 out of every 10 jobs globally are created by small and medium-sized enterprises, a key factor for inclusive economic growth in the long term. In rural areas, where large-scale industrialisation has yet to take root, micro-entrepreneurs fill a vital gap. They create jobs, stimulate local economies, and provide essential goods and services that might otherwise be inaccessible. MSMEs operate across various sectors in the ASEAN region, including manufacturing, construction and agriculture.
However, the majority operates in the services sector, accounting for 67–87% of all enterprises. Within the services sector, a large majority operates in the retail and wholesale trade. Data shows that at the end of fiscal year 2022, 84.4% of all MSMEs in Malaysia were engaged in wholesale and retail trade activities, the most common business for MSMEs across ASEAN countries. Similarly, in 2023, the wholesale and retail trade sector accounted for nearly 42% of the largest MSMEs employed in Thailand.
Micro-entrepreneurship is transformative in alleviating poverty by empowering communities to be self-reliant. Typically, micro-entrepreneurs in rural areas involve individuals or families engaged in small-scale income-generating activities, often within the informal sector, without registering their status. These ventures — from local farming and handicrafts to small retail operations — have fewer than five workers.
Thanit Apipatana, a Bangkok-based entrepreneur, philanthropist and startup investor, points out that for Southeast Asia (SEA) to move up the value chain, it is important to ensure inclusive growth that benefits everyone. “The region’s rapid economic progress should not be restricted to the urban areas alone but shared widely by creating more opportunities and resources for micro-entrepreneurs who can create jobs and enhance livelihoods in underserved areas.”
Challenges and Finding Solutions
For micro-entrepreneurs to succeed in rural markets, it is important to create an ecosystem that allows small businesses to grow. This includes access to financial services and products, infrastructure and connectivity, skill-based training programmes, government subsidies, and incentives.
Despite being home to over 71 million MSMEs, small businesses in Southeast Asia need access to essential financial services, limiting their growth and creation of new job opportunities. Southeast Asia has a significant untapped market, with approximately 225 million individuals needing access to bank accounts and 350 million without formal credit. Additionally, about 39 million MSMEs in the region face a funding gap of up to US$300 billion.
Traditional banks often deny credit or small loans to micro-entrepreneurs due to difficulties in verifying their creditworthiness. More than 70% of adults in Southeast Asia need access to financial services, while millions of small and medium-sized enterprises face large funding gaps, notes Temasek. This presents immense potential for the digital financial services industry, which could address these banking needs by leveraging technology and data. The industry is currently worth US$11 billion but could generate up to US$60 billion by 2025, adds Temasek.
Industry experts point out that rural banks in the region play a critical role in bridging the financial gap in underserved areas. For example, in May 2022, The Philippine Central Bank (Bangko Sentral ng Pilipinas) launched the Rural Bank Strengthening Program to ramp up its rural banking sector aiming to improve the functioning and competitiveness of small lenders who typically provide financial services to rural customers.
“As the digital financial services market is poised to grow rapidly in Southeast Asia, rural banks can leverage innovations from the fintech sector to accelerate their digitalisation efforts and serve better in underserved areas. It’s like having the best of both worlds: the advancements of fintech combined with the reach of rural banking,” says Apipatana.
Typical rural banks are well-positioned to address the financial gap due to their location advantage and extensive networks. There were 3,371 rural bank offices in the Philippines, including microfinance-oriented banks, as of December 2023, according to Statista data, which suggests a gradual increase in these types of banks since 2015.
Early this year, the Asian Development Bank announced that it will grant US$655,000 to nine rural banks and a banking consortium in the Philippines to implement digital transformation solutions to strengthen financial inclusion initiatives in underserved sectors of the country.
Tapping into the Potential
Over the next decade, the ASEAN region is expected to remain one of the fastest-growing markets in the global economy and a crucial growth engine for the Asia-Pacific region.
The region’s fast-paced economic growth has led to a vibrant digital economy backed by emerging technologies and innovations. This is reflected in numbers as well. Southeast Asia’s digital economy is projected to reach up to US$1 trillion in gross merchandise value by 2030. A World Economic Forum report points out that SEA has vast potential for long-term growth driven by factors such as a growing working-age population, opportunities for income expansion, and ongoing urbanisation prospects.
To cash in on the opportunity, it is important to ensure that micro, small, and medium-sized enterprises can participate in the digital economy for inclusive growth. However, despite their significant contribution to the socio-economic landscape in the region, micro-entrepreneurs face considerable challenges. These include limited access to financing, inadequate infrastructure, and regulatory issues often disrupt their growth.
In order to help small-scale businesses reach their full potential, governments across the region increasingly recognise the need to back these ventures through policy reforms, access to microcredit, and training programmes to boost local entrepreneurship.
As Southeast Asia continues to evolve, nurturing these small but critical businesses will be key to unlocking the full potential of the region’s economic future.
About the author:
Thanit Apipatana is a Bangkok-based entrepreneur, investor, and advisor with a keen interest in venture building, real estate, F&B, education, sports, and philanthropy. Thanit Apipatana has advised companies in the region including Singapore-based proptech company Mogul.sg and Thai-based Life Below Labs, a project that is looking to catapult the Thai beer market to a new level with liquid yeast.
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Source: Story.KISSPR.com
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