Small businesses and AI: Accelerating innovation and inclusion

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Highly confident, women entrepreneurs still face systemic barriers

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Unlocking the power of small businesses to drive climate-smart inclusive growth

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By Payal Dalal, Senior Vice President, Social Impact, International Markets, Mastercard Center for Inclusive Growth and Luz Gomez, Director, Latin America and the Caribbean, Mastercard Center for Inclusive Growth2020 was a year like no other. The COVID-19 pandemic disrupted every facet of life, from lives to livelihoods to long-term prospects. Micro, small and medium enterprises (MSMEs)—the lifeblood of local communities and economies—were hit extremely hard by the lockdowns, shifts in consumer behavior, evaporation of capital and financing and disruptions to supply chains and financial systems. While the situation remains fluid amid a second wave of lockdowns,&nbsp;<a href="https://cdn.ymaws.com/ande.site-ym.com/resource/resmgr/publications/covid_and_sgbs_issues_brief-.pdf" rel="noopener noreferrer" target="_blank" style="font-size: 16px;">early data suggest</a>s that approximately 42 percent of MSMEs are at risk of failing.The Mastercard Center for Inclusive Growth has always focused on connecting MSMEs to the networks that power the modern economy, including financial services and capital, markets and supply chains, digital platforms, investors and mentors. In 2020, the modern economy became synonymous with the digital economy, and the Center re-doubled efforts to help MSMEs survive and thrive, building on Mastercard’s global commitment to bringing 1 billion people and 50 million micro and small businesses into the digital economy by 2025.&nbsp;It will take unprecedented collaboration to realize our collective aspirations. A critical element will involve new nodes of knowledge sharing to disseminate timely lessons and insights that inform action.With grants from the Mastercard Impact Fund, the Center has helped advance inclusive digitization of MSMEs around the world. As we reflect on our portfolio and impact and listen to our partners on the financial security front lines, we’ve identified four guiding principles that we will be incorporating into our work in 2021 to help bring about an inclusive and sustainable digital economy that works for everyone, everywhere.Move from a growth mindset to a resilient oneIn our grants focused on digitizing MSMEs, the primary outcomes we pursued were business growth and job creation. But the pandemic exposed the tenuous nature of micro and small businesses and their lack of financial resilience. We realized we had to take a step back and foster survival and financial resilience before we even contemplated growth-oriented outcomes. In fact,&nbsp;<a href="https://www.financialaccess.org/blog/2020/5/21/how-resilient-are-we-a-dive-into-the-global-data-on-how-people-deal-with-unexpected-shocks" rel="noopener noreferrer" target="_blank" style="font-size: 16px;">research has shown</a>&nbsp;that even before the pandemic, individuals and small businesses globally had little savings to fall back on, implying that financial resilience of the sector was always low.The imperative now, in addition to reprioritizing a new set of outcomes, is to understand what resilience looks like in a more digital world and which digital tools can advance it. Similar to the global debate around the transition from financial inclusion to financial health, we anticipate that the evolution to financial resilience in a digital world will be more complex and require holistic and multilayered interventions.Our starting point in 2020 was for our grantees to integrate empowerment and change-management approaches into program design as a way to equip MSMEs with digital behavioral tools to weather the long recovery period.&nbsp;For instance, in the Middle East, the mentoring platform&nbsp;<a href="https://www.micromentor.org/" rel="noopener noreferrer" target="_blank" style="font-size: 16px;">MicroMentor</a>&nbsp;quickly shifted gears to certify a cohort of online mentors who could help MSMEs adapt their business operations to account for new challenging business environments. At the same time, they automated a way for businesses to virtually raise their hand to receive that targeted support.&nbsp;Looking ahead to 2021, our new partner&nbsp;<a href="https://advanced-hindsight.com/commoncents-lab/" rel="noopener noreferrer" target="_blank" style="font-size: 16px;">Common Cents Lab</a>&nbsp;seeks to embed behavioral science approaches into digital platforms in Latin America to build the financial resilience of users through short-term savings.For inclusive digitization to succeed, invest in the entrepreneurial support systemFor all MSMEs to benefit from the digital economy we cannot neglect the modernization of entrepreneurial support organizations (ESOs). ESOs must embrace the digital agenda and capitalize on the moment. By and large, our grantee partners were able to pivot their service offerings to digital approaches and, for some ESOs, it was the first time they had been faced with the urgency to do so. For others, digital had already been core to their work and the pandemic merely accelerated their development.With our global partner Accion, we helped financial services providers in Bolivia, Colombia, Ecuador, India, Indonesia, Mexico and Nigeria leverage digital tools to support underserved micro and small businesses, including reimagining group lending in a socially distant world, enhancing digital channels and implementing remote customer service. Our work with Accion Microfinance Bank in Nigeria involved incubating a digital unit within the bank that allowed it to not only serve more MSMEs through upgrades to its digital channels but also facilitate connections to digital e-commerce platforms as part of its COVID-19 response strategy so that MSME clients could sell online. In a similar vein, our work to support BancoSol’s internal innovation hub included pro bono data science analysis to help inform its initial approaches to growing its digital services offerings.As funders, we realized we should be doing more to support the build-out of organizational capacity, especially for ESOs with less of a technological orientation. Core investments in infrastructure, IT and data science might not be attractive to many donors, but it’s never been more critical. And as modernization advances, so too does the opportunity to deploy more sophisticated models of monitoring, measurement and rapid iteration. ESOs will need support in building and implementing these new systems, and funders need to be ready to join their partners on this journey....as modernization advances, so too does the opportunity to deploy more sophisticated models of monitoring, measurement and rapid iteration. [Entrepreneurial support organizations] will need support in building and implementing these new systems, and funders need to be ready to join their partners on this journey.Be gender intentional rather than gender-neutralFor digitization to be truly inclusive we need to be gender intentional rather than gender blind. Women entrepreneurs engage with technology differently from their male counterparts. Based on the data we’ve seen from grantees, we’ve realized that gender-neutral programming doesn’t necessarily lead to gender-inclusive outcomes; women-owned MSMEs are at risk of being left further behind in an increasingly digital economy.The Future of Business Survey (Wave III) found that compared with male entrepreneurs, women entrepreneurs were more likely to migrate online and make more than 50 percent of their sales from digital sources. However, recent data collected by Accion from global financial institutions showed less sanguine results: although female customers outnumbered male customers by as much as 2 to 1, women did not use digital financial services at higher rates than men. Moreover, our gender-neutral program with&nbsp;<a href="https://www.linkedin.com/pulse/new-paradigms-training-micro-small-enterprises-luz-gomez/" rel="noopener noreferrer" target="_blank" style="font-size: 16px;">Juntos in Colombia</a>, which targeted more than 134,000 MSMEs, showed that women-owned MSMEs engaged less with an entirely SMS-focused business training program than their male counterparts.Given these and other findings, in 2021 we will more proactively seek out and integrate gender considerations in our program design and learning activities to ensure the digital economy works for women-owned MSMEs as well.&nbsp;Digital skills alone won’t guarantee success in the digital economyAs grant makers, we have focused heavily on testing a variety of digital approaches to business training and capacity-building that are most often paired with financial services. 2020 reaffirmed our hypothesis that training in isolation doesn’t drive the impact we seek. Yet there has been a tendency among many funders to focus on training as a stand-alone feature and digital and financial exclusion as a simple information and skill problem. As we think about business support and the inclusive digitization of MSMEs, we need to go beyond financial and digital literacy to change behaviors and improve resilience.Partner&nbsp;<a href="https://www.mastercardcenter.org/insights/know-how-helps-women-entrepreneurs-in-rural-india" rel="noopener noreferrer" target="_blank" style="font-size: 16px;">Mann Deshi Foundation</a>&nbsp;in India, for example, has done expansive work in integrating empowerment approaches (including creating community nodes that serve as information exchanges and networking hubs) with rural women entrepreneurs. These approaches have reaped dividends in terms of cultivating business connections and the grit needed to weather the current economic turmoil. Our grantees have shown that business support services need context, require tools to put that knowledge into practice and must be actionable in the short and medium-term. These principles are even more critical in a digital context because they engender trust among the newly financially and digitally included. Without trust and capacity, the digital economy will only work for the few.Underpinning these principles is a recognition that it will take unprecedented collaboration to realize our collective aspirations.&nbsp;A critical element will involve new nodes of knowledge sharing to disseminate timely lessons and insights that inform action.Innovative partnerships will also be needed—between private sector companies and between private sector, government and the non-profit sector.&nbsp;Collaborative philanthropy helps advance large-scale impact while managing risk. Private-private partnerships can bring together complementary assets and networks to address the scalability and sustainability of initiatives.&nbsp;Public-private sector partnerships can evolve to more fully leverage private sector expertise and assets to design and build digital ecosystems that include everyone.&nbsp;While certainly a tall order, it is these kinds of grand ambitions and mutual commitments that we need if we hope to build back stronger.

Four guiding principles to help bring about an inclusive and sustainable digital economy that works for everyone, everywhere.

2020 hindsight to 2021 foresight: Driving the inclusive digitization of MSMEs