Policies for MSME survival, resilience and recovery
By Amina Tirana, Social Impact, Visa Inc.
As the world faces the momentous impact of COVID-19, central banks, government ministries and private industry leaders are implementing solutions to address the immediate needs of their communities, in particular micro, small and medium enterprises (MSMEs). MSMEs play an outsized role in livelihoods, employment and national gross domestic product, particularly in emerging markets, and public and private sector leaders all have a role to play informing and delivering policies that support MSMEs for today, tomorrow and future years.
Policies that have an intentional focus on enabling trusted digital payments and financial services offer opportunities for greater participation in digital ecosystems and can help to position MSMEs for success in an increasingly digitized world. We have an opportunity now to address how to best equip MSMEs to survive, build future resiliency and recovery. These interventions include:
Advancing an open, inclusive and secure payments network
A first priority draws lessons from the past. Unprecedented political will and leadership present an opportunity to build back better by advancing open, inclusive and secure payments and financial services.
The COVID-19 pandemic reminds us that access to payments is still a big need for many MSMEs. Those with an existing relationship with a bank have an advantage in gaining access to stimulus loans and emergency grants. Getting support is much more difficult for the many informal and quasi-formal businesses, many of which are in emerging markets. Policy opportunities include making it easier for MSMEs to open formal payments and financial accounts. Already, central banks are looking at how to extend risk-based financial regulations to promote the flexibility that the Financial Action Task Force has encouraged as a response to COVID-19.
Once businesses are connected through formal payment channels, financial service providers and policymakers will have more options to extend better financial tools to them, including savings, lines of credit and business insurance. For example, connection to financial institutions through digital payments can help to build credit worthiness and access to lower-cost and longer-term loans. Expanding interoperability across providers and channels creates more opportunity for use, simplifies processes and expenses for small businesses, and builds scale.
Facilitating contactless and digital transactions
The COVID-19 pandemic has made digital the new normal. In addition to immediate relief for MSMEs through stimulus packages, many governments are promoting digital interactions and payments as a way to protect public health and foster commercial activities. In more than 60 countries, central banks regulations and bank policies have increased limits for contactless payments without a pin or signature. Customers do not have to touch the same single keypad or digital device nearly as often, which helps build consumer confidence to shop in stores. Central banks and financial institutions have also made it easier for small business owners to transact digitally, for example, by increasing mobile deposit and on-line transfer limits.
Participation in e-commerce and digital ecosystems
Participating in online commerce is now a key differentiator for MSME survival and growth. Policymakers can accelerate this shift and set a precedent for the future digital economy by extending the use of digital identity. Policies are needed to enable both consumers and MSMEs for identity verification that promote fully digital onboarding and payment transactions. E-Know Your Customer (KYC) and tiered KYC, which offer flexible account opening requirements for lower value transactions, are an important complement.
It is equally important to make digital identification widely available through multiple channels and to protect consumer data privacy with regulations and best-in-class industry standards that support multiple technologies and private sector innovation. Simultaneously, industry leaders can apply shared global standards to permit portability of a verified identity from one institution to another, and security of data transmissions. Combined, these approaches can lower costs of adoption, reduce complexity and provide the ability to scale quickly.
Public private partnerships as a path forward
Visa’s experience tells us that small business owners who have access to the resources and opportunities offered by networks are better able to confront challenges such as the COVID-19 pandemic. Visa is doing its part to help micro and small businesses everywhere manage their way through this crisis, recover and be resilient. In April 2020, the Visa Foundation announced two programs totaling USD210 million designed to support organizations on the frontlines of providing COVID-19 relief and MSMEs for long-term recovery, aligning with its long-term focus on women’s economic advancement and inclusive economic development. Concurrently, Visa is working to ensure the stability, security and resiliency of payments systems for all. For example, it is streamlining the disputes process so that businesses can focus on their recovery, and enabling small businesses to send and receive money faster. Visa is enhancing its Back to Business on-line platform to draw consumers to small businesses that are open, and its Practical Business Skills platform to have greater global reach and to build capacity of small business owners.
By working together, public and private institutions can promote and implement the policy solutions needed for long-term success.