New initiative called Universal Trusted Credentials to help MSME better access finance launched: UNDP, MAS and partners

The UTC proposes a framework that assesses an MSMEs financing worthiness based on traditional and alternative data sets.

An open global initiative to improve the access of micro, small and medium-sized enterprises (MSMEs) to financing has been announced. It is called the Universal Trusted Credentials (UTC), an initiative between the United Nations Development Programme (UNDP), the Monetary Authority of Singapore (MAS), Bank of Ghana (BoG), Global Legal Entity Identifier Foundation (GLEIF) and the SME Finance Forum.

This announcement was made on Nov 14, ahead of the inaugural Singapore Fintech Festival. The release notes that MSMEs account for up to 90% of businesses and 70% of employment worldwide, but face big challenges in accessing affordable finance to grow their businesses.This problem is amplified when MSMEs pursue cross-border opportunities.

Thus, the UTC initiative proposes a framework for the creation of trusted credentials that characterise an MSMEs financing worthiness based on traditional and alternative data sets.

This includes tapping on source data and derived data. Source data refers to information about an organisation which are taken from various sources such as utility providers, trade platforms, national registries. Meanwhile, derived data refers to additional indicators such as an MSME’s willingness to upskill itself in financial literacy, and its past repayment behaviour.

“This gives financial institutions greater confidence that an MSME can be trusted to pay back the small value loans provided,” the release notes.

In addition, the UTC initiative will foster collaborations in key emerging markets. According to the release, the UNDP, MAS and partners will extend their existing capacity building efforts to develop an ecosystem of suitable data source providers that would contribute towards the creation of alternative data sets for UTC.

A steering committee of central banks, financial institutions and multilateral agencies will be explored to identify suitable trusted data sources and vet international UTC issuers. UNDP, MAS and its partners have also conducted a pilot testing of its UTC platform in Ghana.

Finally, the UTC initiative will work towards the development of a uniform standard to ensure interoperability internationally and to cater for the evolving needs of the industry.

“The UTC initiative has the potential to revolutionise how we tackle the global MSME financing gap in a way that empowers SMEs to support business growth and their green transition, encourages financial institutions to reach new clients, leaves no one behind, and supports a greener, more sustainable economy,” says Marcos Neto, assistant secretary general and director of the bureau of policy and programme support.

Sopnendu Mohanty, chief fintech officer of MAS, calls the UTC represents a game-changing opportunity to augment the traditional collateral or asset-backed financing that almost all MSMEs face, towards a holistic approach that includes self-owned non-financial and financial credentials that each MSME should possess.

“This is an important opportunity to revolutionise the way MSMEs can access essential financing and financial services, particularly in emerging markets. With a new global consensus around the UTC, there can be many more innovative solutions which will supercharge impact financing, embedded fintech, digital banking and cross-border growth for many economies,” he adds.

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