Leonard Theosabrata, president director of SMESCO, a government institution responsible for training and facilitating SMEs, said one of the reasons why SMEs struggled to receive funding was the lack of a credit score.

“Without proper credit scores, banks will not know if a business is risky or not. Therefore, it is important for SMEs to digitize and use fintech or point-of-sales [POS] apps to get credit scoring,” he said in a webinar hosted by KoinWorks on Thursday.

He went on to say that SMESCO was planning to develop a credit-scoring system in the future based on various data, such as online sales, but the institution was now focusing on helping SMEs board digital platforms.

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The country’s small businesses, which account for more than 60 percent of the gross domestic product (GDP) and employ a vast majority of the labor force, have been hit hard by the COVID-19 outbreak, as the economy has entered a recession with economic contraction recorded in the second and third quarter.

According to a Mandiri Institute study, SMEs that have an online presence are more resilient, as they are more likely to continue producing and selling goods to survive the economic slowdown.

Cooperative and SMEs Minister Teten Masduki stated earlier this year that 10.2 million SMEs were on digital platforms as of November. The share of SMEs using online platforms relative to the overall number of small businesses, thus, rose to 16 percent from 13 percent earlier this year.

However, the minister also said this week that there were still 23 million small business owners in the country with no access to financing from the banking sector. Fintech could help boost financial inclusion for these businesses, he said.

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Meanwhile, Financial Services Authority (OJK) data show that the country’s fintech lending platforms have disbursed a total of Rp 56.16 trillion (US$3.98 billion) in new loans as of October this year, marking a 23.88 percent year-on-year (yoy) increase. Meanwhile, in the same period, outstanding loans stood at Rp 13.24 trillion, up 18.39 percent yoy.

Meanwhile, fintech platform KoinWorks COO Bernard Arifin also emphasized the importance of SMEs to digitize and create a positive track record so that fintech companies could create a good credit score based on online data.

With many SMEs only starting their business, they often do not have reliable asset and cashflow data, Bernard added.

“Digitizing does not mean instant success for SMEs. The most important thing is to keep nurturing these budding businesses with continuous training programs,” he said at the same event, adding that SMEs needed to learn skills such as digital bookkeeping and business management.

The fintech firm reported that, throughout 2020, more than 30,000 SMEs had requested productive financing through its peer-to-peer (P2P) lending platform, in which KoinWorks disbursed up to Rp 2.5 trillion in loans.

Read also: Offline engagement key to SMEs credit scoring, prevent bad loans: Payfazz

Bank Indonesia SME development and consumer protection director, Bandoe Widiarto, echoed the statement, stating that, even though there was an improvement in the number of SMEs going digital, small businesses often still lacked the capacity to grow. Hence, training to use such financial aid was necessary, he said.

“After they secure financing, it’s important to train and mentor these SMEs, because giving them only theories about good business is not enough,” Bandoe said.

Bedding store owner Dedy Liem also said that SMEs needed business coaching, especially in handling finances after receiving funds from either banks or fintech platforms.

“Fintech has actually helped solve SMEs funding problems. However, if we have the money but no skills in management, we can make bad business decisions and there could be dire consequences for our business,” he said.