How fintech can help SMEs achieve green transition

The backbone of many world economies is SMEs, contributing significantly to employment and economic growth. In the face of global environmental challenges, there is a growing need for SMEs to adopt sustainable practices. However, accessing green financial services, which can fund environmentally friendly initiatives, has traditionally been a challenge for SMEs. 

Fintechs can play a role in enhancing access to green financial services for Small and Medium Enterprises (SMEs), which is becoming increasingly important to ensure sustainable development and address climate change. 

Fintech, short for financial technology, refers to technologies that ensure financial services more efficiently and effectively. Fintech companies leverage technology to provide solutions that enhance and streamline various aspects of the financial industry, including banking, investing, payments, insurance, lending and more. 

Fintech innovations can make financial services more accessible, cost-effective and convenient for consumers and businesses. However, they also raise regulatory and security challenges, which must be addressed to ensure the integrity and safety of financial systems.

Why fintech has an important role to play 

Fintech in Bangladesh has changed many financial concepts. The pandemic has inspired many people to do cashless transactions. In Bangladesh, fintech companies have welcomed these opportunities to create a meaningful and noteworthy impact. 

Digital banking services can radically change the lives of workers in the informal sector. Mobile Financial Services (MFS) and agent banking are key drivers in the country's financial inclusion strategy for allowing low-income and disadvantaged people to access financial services at affordable costs. 

Due to technological improvement and the replacement of traditional systems, customers can have access to banking services from anywhere. Fintech can provide easy transaction processes like MFS. In Bangladesh, bKash, Nagad, Rocket, SureCash and Upay are the most famous among consumers. 

Remittances are an essential part of the economy for countries like ours. There are many expenditures, like currency conversion rates and service maintenance fees, which financial institutes calculate. Fintech can reduce a lot of these costs. With the implementation of artificial intelligence, blockchain, big data and other supportive technologies, the financial markets can work more efficiently and securely. 

Fintech in Bangladesh is particularly important because a large portion of the population in Bangladesh lives in the rural areas. To attain SDG goals, rural residents must not be deprived of financial services. With the help of the government's digitalisation initiatives and the growing number of fintech companies in Bangladesh, the gap can be closed. 

How SMEs can fight climate change effects

The 21st century has witnessed an alarming acceleration of environmental degradation. The signs of a planet in crisis are undeniable, from rising global temperatures and extreme weather events, to loss of biodiversity and pollution. In the face of these challenges, the international community has rallied around the United Nations' Sustainable Development Goals (SDGs) and the Paris Agreement on climate change. 

These global frameworks address pressing environmental issues while promoting economic and social development. Achieving these goals requires significant investments in green and sustainable initiatives, setting the stage for the emergence of green finance as a vital tool in the fight against climate change. 

SMEs are a crucial part of this transformation, as they often comprise the majority of businesses in many countries. A prosperous economy needs a combination of development and the existence of large corporations and SME enterprises. 

Green finance defines financial products and services that promote environmentally sustainable activities. These include green loans, bonds, sustainable investments and other financial mechanisms that support eco-friendly projects. Its primary goal is to allocate financial resources toward a positive impact on the environment and contribute to controlling climate change and promoting environmental sustainability. 

By facilitating investments in sustainable and green projects, enhancing transparency, and providing tools for responsible financial decision-making, fintechs can contribute to the growth and integration of sustainable finance and green finance into the mainstream financial system. It can enable individuals, businesses and investors to align their economic activities with environmental and social values, ultimately driving positive change toward a more sustainable future. 

The intersection of green finance and fintech holds immense promise for the future. As the demand for sustainable and environmentally responsible practices continues to grow, fintech companies are likely to play an even more significant role in supporting SMEs in their efforts to contribute to a greener and more sustainable global economy. 

SMEs must have the knowledge and skills to navigate the complex world of green finance and fintech. Fintech and financial literacy are interconnected in several ways. 

Fintech can play a significant role in promoting financial literacy such as educational tools and resources, digital budgeting and tracking, automated savings and investing, financial dashboards, personalised financial advice, credit score monitoring, peer comparisons, financial education content, financial inclusion and goal setting and visualisation, etc. 

Fintech has made investing more accessible to the general public. Many platforms offer fractional shares, allowing individuals to invest with smaller amounts of money. This can be an educational experience for novice investors.

Collaboration between fintech firms, traditional financial institutions, governments and environmental organisations is essential to create a holistic ecosystem that supports green finance. Collaboration within the fintech ecosystem is crucial for the growth and success of fintech companies and the broader financial services industry. 

Fintech ecosystem collaboration involves partnerships, alliances and cooperation among various stakeholders, including fintech startups, traditional financial institutions, regulatory bodies, investors and technology providers. 

These industries in South Asia, particularly in Bangladesh, are currently in the developing phase. Despite being a Least Developed Country (LDC), Bangladesh has made significant strides in adopting digital financial services. The government has also initiated various programmes to promote the growth of the fintech sector, recognising its potential to improve financial inclusion and economic development. 

One of the challenges Bangladesh faces is financial inclusion, with a large segment of the population still unbanked. Fintechs can be transformative in enhancing SMEs' access to green financial services. Through digitisation, alternative lending, data analytics and other innovative solutions, fintech is breaking down barriers and making green finance more accessible, efficient and transparent. 

As we move toward a more sustainable future, the synergy between green finance and fintech will continue to evolve, empowering SMEs to participate actively in the global transition for a greener economy. With the proper support and regulatory frameworks, fintech can help SMEs become catalysts for positive environmental change worldwide. 

The subsequent development relies on fintech. This technology has the potential to bring financial inclusion, modify ongoing service qualities, develop unfolded service ideas, innovate, and save on sustainable investments. 

Ahmed Shamir Sakir is a banker and he can be reached at ahmedshamir082@gmail.com.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.