E-Finance and Small and Medium-size Enterprises (SMEs) in Developing and Transition Economies

This paper discusses the potential contribution of e-finance for facilitating the development of small and medium enterprises (SMEs) in developing countries. The authors:

• Draw conclusions about the success of e-finance based on their global experiences;
• Analyze e-finance initiatives for supporting SME development;
• Examine ways of promoting SME development through e-finance in the future.

Some of the common misconceptions about e-finance are:

• Cost reduction potential: Though e-finance leads to cost reduction, its extent is exaggerated;
• Ease of implementation: While it is cheap and easy to create a basic website, designing and implementing a fully functional, industrial strength application requires time;
• Revolutionary impact: Changes are gradual and occur inside the established systems and structures;
• Disintermediation: New categories of intermediaries, such as financial portals and transaction aggregators also emerge.

At present e-commerce for SMEs focuses on two types of services:

• SME specific information networks;
• Investor networks.

Some of the private sector efforts for supporting SMEs through e-commerce are:

• Business portals for providing cheap, convenient answers to variety of small business needs;
• Business to business market places for SMEs.

The authors point out some of the challenges for developing SMEs through e-commerce as:

• Reconciling incompatible opposites: global and local, digital opportunity and digital divide, public and private, closed and open.
  Developing new forms of business organizations: new cross-border, cross-sectoral cooperative and partnership arrangements.