The United Nations Development Program (UNDP), the Monetary Authority of Singapore (MAS), Bank of Ghana (BoG), Global Legal Entity Identifier Foundation (GLEIF) and the SME Finance Forum announced Tuesday the launch of an open global initiative – Universal Trusted Credentials (UTC) – to improve micro, small and medium-sized enterprises (MSMEs) access to financing.
UNDP sand MAS said in a statement that MSMEs account for up to 90 percent of businesses and 70 percent of employment worldwide, and globally, they still face significant challenges in accessing affordable finance to grow their businesses.
These challenges are compounded when MSMEs pursue cross border opportunities which require them to navigate different regulatory frameworks, financial systems, and lending norms, according to the statement.
The UTC initiative proposes a framework for the creation of trusted credentials that characterize an MSME’s financing worthiness based on traditional and alternative data sets including source data and derived data.
In terms of source data, information about an entity may be verified from a variety of sources such as utility providers, trade platforms, national registry, to include data on trade flows, and trade concentrations of buyers and suppliers, active and timely payment of utilities and telco bills.
Coupled with source data, derived data or additional indicators like an MSME’s willingness to upskill itself in financial literary and an MSME’s past repayment behavior, help to derive an MSME’s “intent to pay” track record.
This gives financial institutions greater confidence that an MSME can be trusted to pay back the small value loans provided.
According to the statement, the UTC initiative will focus on building the capacity of MSMEs and improving access to data and financing through collaborations in key emerging markets.
UNDP, MAS and partners will extend their existing capacity building efforts to develop an ecosystem of suitable data source providers that would contribute towards the creation of alternative data sets for UTC.
A steering committee of central banks, financial institutions and multilateral agencies will be explored to identify suitable trusted data sources and vet international UTC issuers.
UNDP, MAS and partners will enhance the UTC platform, presently tested in Ghana, to cater for a wider set of alternative data.
Further work will be conducted with central banks and financial institutions in other emerging markets to fine-tune and test the use of UTCs across borders.
UNDP, MAS and partners will collaborate with international partners including the private sector and the public sector to develop a common UTC standard to ensure interoperability internationally and to cater for the evolving needs of the industry.
Marcos Neto, Assistant Secretary General and Director, Bureau of Policy and Program Support, said that the Universal Trusted Credentials initiative has the potential to revolutionize how they tackle the global MSME financing gap in a way that empowers SMEs to support business growth and their green transition, encourages financial institutions to reach to new clients, leaves no one behind, and supports a greener, more sustainable economy.
“This is a key priority for UNDP, which already works with thousands of MSMEs across the world on digitalization, access to financing and integration of sustainability practices, and recognizes the role that automated, data-driven digital solutions could play in driving scale,” he said.
Sopnendu Mohanty, Chief FinTech Officer, MAS, said that the UTC represents a game-changing opportunity to augment the traditional collateral or asset-backed financing that almost all MSMEs face, towards a holistic approach that includes self-owned non-financial and financial credentials that each MSME should possess.
He said MAS is excited to join hands with the UNDP, central banks, financial institutions, FinTechs and trusted national data partners in empowering each MSME with a self-owned standardized set of UTC credentials.
“This is an important opportunity to revolutionize the way MSMEs can access essential financing and financial services, particularly in emerging markets,
“With a new global consensus around the UTC, there can be many more innovative solutions which will supercharge impact financing, embedded FinTech, digital banking and cross-border growth for many economies,” he added.
As the United Nations lead agency on international development, UNDP works in 170 countries and territories to eradicate poverty and reduce inequality.
UNDP helps countries to develop policies, leadership skills, partnering abilities, institutional capabilities, and to build resilience to achieve the Sustainable Development Goals.
It partners with people at all levels of society to help build nations that can withstand crisis, and drive and sustain the kind of growth that improves the quality of life.
MAS is Singapore’s central bank and integrated financial regulator. As a central bank, it promotes sustained, non-inflationary economic growth through the conduct of monetary policy and close macroeconomic surveillance and analysis.
As an integrated financial supervisor, MAS fosters a sound financial services sector through its prudential oversight of all financial institutions in Singapore – banks, insurers, capital market intermediaries, financial advisors, and financial market infrastructures.
It also works with the financial industry to promote Singapore as a dynamic international financial center.
It facilitates the development of infrastructure, adoption of technology, and upgrading of skills in the financial industry.