Enterprises have taken big strides in digitalization over the past few years, using all manner of data-driven technologies to improve their operations and explore completely new ways of doing business. Small businesses, however, have been left chasing the heels of technological progress that large organizations are shouting about. The pandemic has only accelerated this digitalization inequality, with the largest businesses finding even more ways to profit from advanced technology and small businesses worldwide struggling to survive, let alone optimize their operations.
I spoke with Mastercard’s Center for Inclusive Growth about the company’s ambitious plans to close the gap on digital transformation and promote financial inclusion for small businesses in an increasingly digital economy.
For everyone else, there’s Mastercard
With eyes firmly on this disparity between large and small organizations, Mastercard has announced their Strive initiative, a philanthropic initiative designed to “close the gap that is growing between digital haves and the digital have-nots” says Shamina Singh, Founder and President of Mastercard’s Center for Inclusive Growth. Mastercard has invested an initial $25 million in the initiative, which “will hopefully accelerate small business growth in a digital economy,” says Singh, by providing access to “e-markets, business operations efficiencies and financial services” to small and ‘micro’ businesses around the world. World Bank research suggests that this category of business represents around 90% of business and more than 50% of employment worldwide. With local programs and partnerships across Europe, Latin America, Asia and Africa and ambitions to help more than five million businesses worldwide, Mastercard is keenly aware of the impact that these businesses could have with a digital helping hand.
Although the company has been working on these kinds of projects for around seven years already, the rollout of their Strive initiative has been timed to help struggling businesses recover from a year that has seen larger, digitized enterprises move even further ahead. “Through our work during the pandemic, we found that there is a segment of small businesses that are not benefitting from the digital economy at all,” says Singh, “what we’re trying to do here is intervene in a way that allows businesses on the smaller end to access digital tools and services that their larger counterparts have been using for years.”
While these interventions generally involve improving access to digital markets, digital tools and services, and training, Singh emphasizes that “the most important thing is to meet businesses where they are rather than assuming that there’s a one size fits all solution.” In Indonesia, for example, Singh describes the Center for Inclusive Growth’s “micro-mentoring” program which “connects small businesses to local business leaders who can offer them advice and show people how they made their small business work in that particular market.” This micro-mentoring program alone has helped around 25,000 businesses grow so far, with around 30% of the participants in Indonesia taking on new employees after the program – “if that’s an indication of growth, and I think it is, then this program seems to be working,” says Singh.
MORE FOR YOU
Systemic change for a digital world
Aside from working with small businesses directly, the Center for Inclusive Growth’s work has been focused on leveraging partnerships to adapt long-standing systems and ensure they are financially inclusive in a digital world. Discussing a small machining business in India, Singh explains how “there are many businesses like Intezaar’s that are too large for micro-loans, but that are too small and lack formal credit history for low-interest bank loans – despite having a thriving business and a great track record of growth.” Mastercard partnered with a fintech called Aye Finance in India, and, with a lack of a formalized credit history, were able to use “[Intezaar’s] payment history, his customer base, his propensity to pay back a loan and use that as criteria to give him a loan,” says Singh. Partnering with fintechs and banks in this way goes further than helping local businesses, it also helps to digitally transform the way that business is done in countries that have a large majority of small businesses – 95% of India’s industrial units are occupied by small and medium enterprises (SMEs), for example.
This particular issue of small businesses “falling in the crack” and being unable to access low-interest loans is felt around the world. For example, Mastercard has partnered with Unilever in Kenya looking at 18,000 micro-merchants in their supply chain to help change loan criteria there as well. As Singh explains: “With our histories of being purpose-driven companies, we approached Unilever to see if we could use their data (about the buying and selling history of small merchants in their supply chain) and bring those together with banks in a way that allows the bank to look at that data differently.” So far, Singh states, around 18,000 of those businesses in Kenya have benefitted, by being able to formally prove their efficacy and grow beyond “stocking their stores with what they could pay for in cash at one time.” This change is particularly important for women, as in these markets “women don’t necessarily own assets (such as a tractor) to use as collateral, so their ability to access lending at a smaller scale really does depend on organizations like ours doing the work.” In certain markets like Asia, even access to smartphones is more difficult for female business owners, as Singh explains: “without access to collateral you cannot finance a smartphone, so we’re also working with fintechs to change this financing to allow women to take advantage of this digital shift.”
These partnerships with private sector companies (such as Caribou Digital who are helping Mastercard build their “community of ‘Strivers’ [entrepreneurial support organizations] that provide access to the services, training, and the networks that allow them to grow”) also extend into the public and civil space, with the program’s scope and data-driven focus leading to interesting collaborations with governments. “For the last seven years we’ve tested out so many different digital modalities – does text on phone work better than in-person training, does a POS [point of sale system] work better than a phone – and we’ve invested the time to really dig in to what works best,” explains Singh. Using this intensive testing and background work with local communities and small businesses, Mastercard is hoping that their Strive program “will have an outsized impact of working with governments and building on our data, our work in this space,” says Singh, through bringing together organizations who support small businesses and leveraging each other’s assets. For example, with Strive UK, Mastercard is complementing the UK Government’s Help to Grow Scheme to ensure “that these interventions reach the communities and micro-businesses that need it,” says Singh.
Scaling up financial inclusion
The timing of the Strive program’s release is no accident, as Singh states: “Covid has surfaced a lot of issues that were already there… businesses are at the brink right now, and what we’re seeing is that smaller businesses are failing if they do not digitize, so we’re accelerating our efforts, but really building on ten years’ worth of work in this sector.”
This multi-faceted program of partnerships with local organizations, governments and multinationals is allowing Mastercard to make real differences to the small business sector worldwide. Instead of following a ‘trickle-down tech’ approach to digital transformation, the Strive initiative aims to build a strong community of small and micro-businesses “in a way that allows them not only to work together but move them from analog to digital at scale,” says Singh, “we’re at least trying to get them to a point where they can take advantage of the technology that big business takes for granted.”