Small and medium-sized enterprises (SMEs) power economic growth and employment worldwide, representing 90% of businesses and over half of all jobs. Yet within this dynamic group lies a segment often overlooked — the so-called “missing middle”. These are businesses too large for microfinance but too small, informal, or risky for commercial banks. Their financing needs remain underserved, constraining innovation and job creation across emerging markets.

The Financing Gap in ASEAN

In ASEAN, SMEs account for the bulk of private-sector employment. Yet most operate with lean teams, limited collateral, and informal accounting, leaving them excluded from traditional finance. The result is a structural gap: firms with strong potential cannot scale, while lenders remain unable to assess or price their risk.

The diversity of SME business models adds complexity.
A digital-first retailer in Manila might need short-term working capital to prepare for seasonal demand, while a chain of kindergartens in Viet Nam may seek multi-year financing to open new locations. Designing fit-for-purpose products for such varied needs is central to closing the gap.

Digital Finance Expands Access — But Not for All

Digital inclusion has reshaped the financing landscape. Fintechs, digital wallets, and embedded finance platforms use real-time data from e-commerce transactions, logistics, and payment histories to evaluate creditworthiness. This data-driven approach reduces friction and costs, allowing SMEs to access loans in hours rather than weeks.

A retailer in Brunei, for example, can now qualify for a loan through a point-of-sale app based on daily revenues, while an online seller in Manila can obtain invoice financing directly through an e-commerce platform. These tools bring speed, transparency, and predictability — qualities SMEs value most.

Initiatives like Mastercard Strive, which supports digital and financial inclusion across ASEAN, demonstrate the potential of such tools. In Indonesia and Viet Nam, Strive has expanded embedded finance to reach underserved SMEs, particularly women-led and informal businesses. Yet digital access alone is insufficient. Without financial literacy and management skills, access does not automatically translate into resilience.

Where Digital Solutions Fall Short

Despite digital progress, many SMEs remain outside the data economy.
Manufacturers, education providers, and healthcare operators — sectors that rely on long-term contracts and physical assets — often lack continuous digital records. These firms are creditworthy by traditional measures but remain invisible to algorithmic lenders.

Beacon Fund, a private debt fund focused on Viet Nam, observes this disconnect regularly. Many of its investee companies have proven track records but no digital footprints. Their financing needs also exceed the small-ticket loans typical of fintechs, leaving a persistent mismatch between business fundamentals and the data-driven lending models available.

Private Credit: Filling the “Missing Middle”

This is where private credit — bespoke lending outside traditional banking — offers a complementary path. Unlike algorithmic lending, private credit allows for tailored structures aligned with cash flows, sector dynamics, and business cycles. It combines financial analysis with relationship-based underwriting, often suited for growing SMEs seeking flexible capital.

In ASEAN, however, private credit remains nascent.
Large regional funds typically view SMEs as too small or operationally intensive. At the same time, most business owners are unfamiliar with private credit as an alternative. For them, “getting a loan” still means “going to a bank.”

Beacon Fund provides a case in point. A renewable energy company in its portfolio, despite stable cash flows and long-term state contracts, struggled to secure bank financing due to rigid collateral requirements. A customized private credit structure bridged the gap — proof that well-performing SMEs can fall through traditional cracks and that alternative finance can unlock real growth.

Building a Connected Financial Ecosystem

No single model can solve the “missing middle” challenge. What ASEAN needs is a connected financing ecosystem that combines digital innovation, traditional banking, and alternative credit.
Each serves distinct SME segments — from digital micro-merchants to established mid-sized manufacturers — and together, they can form a continuum of capital.

This requires collaboration, not just innovation. Banks, fintechs, private funds, development finance institutions (DFIs), and business associations must align standards, share data responsibly, and coordinate incentives. Fragmentation limits scale; alignment multiplies impact.

Progress is already visible.

The Philippines has expanded SME credit guarantee schemes.

Singapore and Thailand have implemented instant payment networks (PayNow, PromptPay) that enable seamless SME transactions.

DFIs are piloting blended finance models with local intermediaries to distribute risk and attract private participation.

Yet these efforts often remain siloed. Without a unifying framework, capital flows remain uneven and progress fragmented.

From Fragmentation to Coalition

The task ahead is to move beyond standalone programmes toward coalitions of action — linking digital lenders, private funds, and policy enablers into an integrated system. SMEs do not need competing financing models; they need complementary ones that evolve with their growth trajectory.

Progress should be measured not only by the volume of credit extended, but by how effectively it matches the right capital to the right business at the right time. When SMEs can access financing that fits their operational reality — whether through data-driven fintechs, tailored private credit, or risk-sharing guarantees — the entire ecosystem benefits.

In ASEAN, the “missing middle” is not a marginal segment; it is the growth engine waiting to be unlocked. The challenge is clear — and so is the opportunity: to connect the dots between innovation, inclusion, and investment, and in doing so, build a financial system that grows with its entrepreneurs.