Fintech exec: 70% of Philippine SMEs locked out of formal credit

By Francis Allan L. Angelo

Seventy percent of small and medium enterprises in Southeast Asia still cannot access formal credit — not because they are bad borrowers, but because their records do not fit conventional banking systems, according to a fintech executive focused on credit infrastructure for underserved businesses in the region.

In an interview with Daily Guardian, Abdul Mikael, Head of Sales at AND Solutions, a fintech company focused on credit infrastructure and embedded finance for underserved SMEs across Southeast Asia, said the gap is fundamentally about financial visibility rather than any single failure in infrastructure, trust, or regulation.

“The 70 percent gap is a structural mismatch more than a single failure point. Small businesses generate real economic activity, but the way they operate doesn’t map cleanly onto traditional credit evaluation. Banks are built around documentation. SMEs run on relationships and behavior. Those two systems aren’t naturally speaking the same language,” Mikael said.

Across markets like the Philippines and Indonesia, more than 99 percent of businesses fall into the micro, small, and medium enterprise (MSME) category.

The GSM Association (GSMA) estimates that 345 million of the 400 million micro-enterprises in emerging markets are informal.

Many still rely on handwritten ledgers, stacks of delivery receipts, and screenshots of mobile payments rather than cloud-based accounting platforms.

Mikael said this is especially true outside major cities, where businesses move goods daily, employ people, and are profitable — yet banks tell them they lack the required documents.

“A lot of so-called ‘informal’ businesses aren’t high risk. They’re just undocumented. The goal isn’t to hold them to a documentation standard they were never built for. It’s to understand how the business actually runs,” he said.

The breakthrough, Mikael explained, comes from technologies such as Intelligent Document Processing and AI-driven data extraction, which can digitize handwritten records, pull transaction histories from screenshots, interpret informal ledgers, and convert unstructured information into structured, analyzable data.

The focus then shifts to behavioral patterns — whether a business pays suppliers regularly, whether customers return each month, whether sales follow seasonal cycles, and how long it takes to collect after a delivery.

“In Southeast Asia, the gap isn’t about creditworthiness. It’s about translation. AI becomes the bridge between how informal businesses operate and what formal financial systems need to see,” Mikael said.

On the Philippine market specifically, Mikael noted that digital infrastructure is less of a bottleneck than it used to be, with mobile wallets, QR payments, and digital banking growing quickly.

However, around 43 percent of commerce remains cash-based, meaning most of a business’s real performance does not leave a verifiable trail.

“When revenue comes in as cash and expenses go out the same way, most of a business’s real performance doesn’t leave a verifiable trail. From a lender’s perspective, that’s genuinely hard to work with, even if the business itself is doing well,” he said.

Trust also plays a role, Mikael noted, with many small business owners viewing formal banks as institutions built for bigger companies, with collateral requirements and documentation processes that do not fit their situation.

Philippine banks, for their part, operate under conservative risk frameworks that, while reasonable from a financial stability standpoint, are designed differently from how most small businesses operate day-to-day.

“So, if there’s a single thread running through all of this, it’s financial visibility. As long as informal and cash-heavy activity can’t be consistently translated into verifiable data, the mismatch stays in place. That’s the core problem, and it’s the one worth solving,” Mikael said.

On the growing role of embedded finance — where credit is built into accounting platforms, marketplaces, and payment systems that SMEs already use — Mikael acknowledged the concern that frictionless lending could become a digitized version of predatory lending if not properly governed.

“A frictionless PHP 50,000 loan is still debt. If pricing is buried in complex daily rates, layered fees, or unclear repayment terms, then the technology is just a faster channel for the same problem. The issue isn’t the access. It’s the transparency,” he said.

He called for clear disclosure standards, standardized presentation of total repayment costs, appropriate fee caps, and enforceable collection practices, arguing that good guardrails do not slow things down but make the whole system more trustworthy.

“Embedded finance is infrastructure. When it’s well governed, it meaningfully expands who gets access to credit. That’s the version of this worth building toward,” Mikael said.

On invoice financing, which allows businesses to access funds tied up in 30- to 90-day receivables, Mikael acknowledged the challenge that many large corporate buyers in Southeast Asia have little incentive to integrate with supply-chain platforms, leaving smaller suppliers waiting on extended payment cycles.

However, he said financing can still be structured around historical payment behavior even without full buyer integration.

If a conglomerate has a consistent track record of paying its invoices, that receivable still carries predictable value, allowing financiers to advance funds and price the risk accordingly.

“Invoice financing doesn’t fix the underlying power dynamic. It doesn’t compress a 90-day cycle into a 30-day one. What it does is make timing something you can act on rather than just wait out. A receivable becomes an asset rather than a calendar problem. That’s not a complete solution, but it’s a meaningful one,” Mikael said.

AND Solutions is a fintech solutions provider delivering AI-powered, end-to-end technologies that enable financial institutions and enterprises to scale efficiently and securely.

The company focuses on credit infrastructure and embedded finance for underserved SMEs across Southeast Asia, including the Philippines, Indonesia, and Vietnam.