Study: MSMEs Sold 30% More in Digital Ecosystem After Access to Fintech Credit

• The COVID-19 pandemic highlighted the importance of closing the gap in access to credit and digitization for MSMEs.

• IDB Invest conducted an evaluation of Mercado Crédito data to measure the impact of fintech credit in Argentina.

• For companies that took out a loan, their sales were 30% higher than those similar companies that did not take the credit offered during the first semester after the deal.

According to a study by IDB Invest on the impact of working capital loans from Mercado Libre fintech in Argentina, micro, small and medium-sized enterprises (MIPYME) that took out a loan reported a  34% average bump on sales in that quarter, when compared to similar companies that did not take the line of credit offered. Furthermore, this effect continued in the following quarter, with sales up 26%.

This means that an average seller who took out a loan with Mercado Crédito sold AR$376,000 more (almost $4,300) during one semester than they would have sold without the loan.

For the period after the start of the COVID-19 pandemic, the effects of credit were even greater. Their sales were, on average, 55% higher than similar companies that did not accept the credit line offered in the first quarter; and 36% higher in the subsequent quarter.

“E-commerce is a key solution to counteract the economic impact of the pandemic on MSMEs. IDB Invest seeks to partner with companies like Mercado Libre to support a sustainable and inclusive recovery, investing in digital solutions to increase access to financing for MSMEs in the region,” said James P. Scriven, IDB Invest’s Chief Executive.

In summary, according to the IDB Invest study, the impact of credit is relevant, statistically significant and lasts one semester, which is consistent with the type of financing offered by Mercado Crédito. As these are mainly short-term loans that companies use to finance their working capital needs, once they used that additional working capital the companies report a return to their average sales level.

“Mercado Crédito has been able to reach a public that went underserved or unattended by the traditional financial system, using alternative information and through the application of machine learning models,” said Martín De Los Santos, SVP of Mercado Libre.

Mercado Crédito is an innovative credit platform that offers loans to consumers to finance payments both inside and outside the Mercado Libre marketplace, and also working capital loans to MSMEs that sell through Mercado Libre or that process their collections with Mercado Pago. Its objective is to provide financing in a simple, flexible and customized way to the needs of its own clients to promote financial inclusion and enhance entrepreneurship.

In the evaluation carried out by IDB Invest, in collaboration with Mercado Crédito, on the impact of operations in Argentina, the database used contains information on the monthly sales of more than 1 million companies for the period January 2018-December 2020.

MSMEs are a very important part of the economies of Latin America and the Caribbean. These companies concentrate 99% of the companies and 60% of the employment. However, they receive less than 15% of corporate credit and only 1% of them participate in e-commerce. These differences are closely related to their low productivity and low growth, which is even more evident when one takes into account that they only represent 40% of GDP.

The new study shows that the interaction between a fintech and an e-commerce platform can contribute to MSMEs increasing their sales within the digital ecosystem.

 

About Mercado Crédito

Mercado Crédito is an innovative credit platform that offers loans to consumers to finance payments inside and outside the Mercado Libre marketplace, as well as working capital for MSMEs that sell through Mercado Libre or that process their collections with Mercado Pago. Its objective is to provide financing in a simple, flexible and customized way to the needs of its own clients, to promote financial inclusion and enhance entrepreneurship.

 

About BID Invest

IDB Invest, a member of the IDB Group, is a multilateral development bank committed to promoting the economic development of its member countries in Latin America and the Caribbean through the private sector. IDB Invest finances sustainable companies and projects to achieve financial results and maximize economic, social, and environmental development in the region. With a portfolio of $13.1 billion in asset management and 385 clients in 25 countries, IDB Invest provides innovative financial solutions and advisory services that meet the needs of its clients in a variety of industries.