Small and medium-sized enterprises (SMEs) contribute significantly to global economies, in both advanced and emerging markets. For instance, in the European Union (EU), SMEs represent 99% of all businesses, employ two thirds of the work force and account for more than half of the region’s GDP. These numbers can be even higher in emerging markets.

In addition to these impressive numbers, SMEs, as they are generally run by entrepreneurs, contribute significantly to innovation and shaping future economies. They are present in all industries where barriers to entry can be relatively low and do not require a large group of people at the beginning. Recently, the SMEs that have drawn the most attention are Fintech firms.

Historically, SMEs face significantly more difficulties in obtaining bank loans when compared with their larger counterparts. They have to rely more on internal funding or funding from family and friends. This is because (1) SMEs generally possess higher default risk than individuals or large corporates due In summary
to their higher failure rate and (2) there is generally a lack of quality data for banks to assess the creditworthiness of SMEs to support their lending decisions.

However, thanks to Fintechs and government support, the availability of both higher quality traditional data and alternative data is now growing. Banks are therefore reconsidering SME lending. In this paper, we will focus on discussing SME credit scoring, as a critical tool for SME lending.