Lending Suite for small business – Moody’s

Report on Digitizing SME Lending to Advance Sustainable Development Goals

Executive Summary

This report examines the critical role of digital transformation in small and medium-sized enterprise (SME) lending. Traditional lending models present significant barriers to financing for SMEs, thereby impeding progress toward several United Nations Sustainable Development Goals (SDGs). The implementation of digital lending platforms, such as Moody’s Lending Suite, offers a scalable solution that enhances operational efficiency for financial institutions while simultaneously fostering inclusive economic growth and advancing key SDG targets.

Challenges in Traditional SME Lending and Impact on SDGs

The operational inefficiencies inherent in conventional lending processes pose a substantial obstacle to SME financing. This limitation directly impacts sustainable development by constraining the growth of enterprises that are fundamental to local economies.

• Manual and Time-Consuming Processes: Traditional credit evaluation is resource-intensive, slowing down capital deployment to businesses.
• High Transaction Costs: The cost structure of manual lending often renders small business loans unprofitable for banks, leading to market exclusion.
• Hindrance to SDG 8 (Decent Work and Economic Growth): Lack of access to finance for SMEs, which are major employers, stifles job creation and economic vitality.
• Barrier to SDG 9 (Industry, Innovation, and Infrastructure): SMEs are unable to invest in innovation and infrastructure without adequate financial services, contrary to Target 9.3 which aims to increase their access to credit.

A Digital Solution for Sustainable and Inclusive Finance

Digital lending platforms address these challenges by re-engineering the credit lifecycle. This technological advancement is a key enabler for achieving financial inclusion and supporting the SDG framework.

1. Workflow Digitization: Transforms paper-based processes into efficient, streamlined digital workflows, reducing the time and resources required for each loan application.
2. Automated Credit Decisioning: Utilizes data and algorithms to automate credit assessment, enabling faster and more consistent decision-making.
3. Real-Time, Risk-Based Pricing: Allows financial institutions to dynamically price loans based on real-time risk assessment, making it viable to serve a broader spectrum of SMEs.

Direct Contributions to Sustainable Development Goals

The adoption of digital lending technology creates a direct and positive impact on multiple SDGs by fostering a more inclusive and robust economic environment.

• SDG 8: Decent Work and Economic Growth: By expanding access to capital, these platforms empower SMEs to grow, innovate, and create stable employment, driving sustainable economic growth from the ground up.
• SDG 9: Industry, Innovation, and Infrastructure: The solution itself is an innovation in financial infrastructure. It directly supports Target 9.3 by increasing the access of small-scale industrial and other enterprises to financial services, including affordable credit.
• SDG 10: Reduced Inequalities: Automating and standardizing credit access helps to reduce biases inherent in traditional models, promoting financial inclusion and providing economic opportunities to a wider range of entrepreneurs, thereby reducing inequality.
• SDG 17: Partnerships for the Goals: The collaboration between technology providers and financial institutions exemplifies a multi-stakeholder partnership dedicated to achieving common sustainable development objectives.

Conclusion: Fostering a More Profitable and Sustainable Lending Ecosystem

The digitization of SME lending results in a faster, more scalable, and more profitable operation for financial institutions. More importantly, it aligns the objectives of the financial sector with the global agenda for sustainable development. By removing barriers to finance, these technological solutions empower the small business sector to become a more powerful engine for achieving the Sustainable Development Goals.

1. Which SDGs are addressed or connected to the issues highlighted in the article?

The issues discussed in the article, primarily focusing on improving access to finance for small businesses through technological solutions, are directly connected to the following Sustainable Development Goals:

• SDG 8: Decent Work and Economic Growth
• SDG 9: Industry, Innovation and Infrastructure

2. What specific targets under those SDGs can be identified based on the article’s content?

Based on the article’s content, the following specific targets can be identified:

SDG 8: Decent Work and Economic Growth

1. Target 8.3: Promote development-oriented policies that support productive activities, decent job creation, entrepreneurship, creativity and innovation, and encourage the formalization and growth of micro-, small- and medium-sized enterprises, including through access to financial services.
   • Explanation: The article directly addresses this target by describing a solution that helps “expand access to financing for more small businesses.” By making lending to small businesses more efficient and profitable for banks, the solution encourages the growth of these enterprises, which are vital for economic growth and job creation.
2. Target 8.10: Strengthen the capacity of domestic financial institutions to encourage and expand access to banking, insurance and financial services for all.
   • Explanation: The article highlights how Moody’s Lending Suite helps “banks” (domestic financial institutions) to serve small businesses more efficiently. By digitizing workflows and automating decisions, the tool strengthens the capacity of these institutions to provide lending services, thereby expanding access to finance.

SDG 9: Industry, Innovation and Infrastructure

1. Target 9.3: Increase the access of small-scale industrial and other enterprises, in particular in developing countries, to financial services, including affordable credit, and their integration into value chains and markets.
   • Explanation: The core focus of the article is on a tool that increases “access to financing for more small businesses.” This directly aligns with the goal of increasing access to financial services and credit for small-scale enterprises, enabling them to operate and grow.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

The article does not mention official SDG indicators but implies several metrics that can be used to measure progress towards the identified targets:

• Increased number of small businesses receiving financing: The text explicitly states the solution allows banks to “expand access to financing for more small businesses.” This is a direct measure of progress for targets 8.3, 8.10, and 9.3.
• Increased efficiency of the lending process: The article mentions the solution helps “reduce time and resources spent on each deal.” This can be measured by tracking the average time to approve a loan or the operational cost per loan, indicating progress towards Target 8.10 (strengthening the capacity of financial institutions).
• Increased profitability of small business lending: The article notes that the result is a “more profitable small business lending operation.” This financial incentive for banks is a key driver for expanding services, and its measurement would indicate a sustainable mechanism for achieving the targets.

4. Create a table with three columns titled ‘SDGs, Targets and Indicators” to present the findings from analyzing the article.

Source: moodys.com