They run taxi services, take in laundry, sell groceries, style hair, and give new life to ailing cell phones, among a variety of other endeavors. Collectively, these entrepreneurs run more than 300 million micro and small enterprises around the world. While such modest firms rarely capture the attention of the business press, they account for more than half of global employment, according to the World Bank. For most, the goal isn’t rapid scaling or market disruption, but building stable, dependable livelihoods – ensuring steady income, protecting against risk, and laying foundations for long-term security.
Those who have embraced digital tools have reaped benefits – including more efficient transactions and the ability to reach new customers. But they have also encountered a minefield of digital risks, from online scams to predatory loans and opaque terms. Designed primarily for larger businesses, many of these platforms remain ill-suited to the realities of low-margin enterprises.
Country representatives convened last week in Washington, DC, for the World Bank and IMF spring meetings, against a backdrop of rising global trade tensions, record-breaking heatwaves, and slowing economic growth. Policy makers must refocus their attention on the financial lives of the small entrepreneurs who power the world’s informal economy.
Uneven gains
To better understand their needs, the Center for Financial Inclusion recently conducted an in-depth survey of more than 4,000 MSEs operating in five urban centers: São Paulo, Addis Ababa, Delhi, Jakarta and Lagos. We found that in cities with strong digital infrastructure, small businesses have embraced digital tools at scale. In São Paulo, for instance, every business surveyed reported using at least one digital application, and nearly 40% used three or more. Similarly, in Delhi, digital payments are nearly universal, driven largely by demonetization and government initiatives.
Entrepreneurs using digital tools report stronger business outcomes. Small businesses that had adopted digital tools were more likely to report growth – up to 10% more for each tool – and those integrating digital payments reported significantly higher revenue per employee.
But not all markets are equally positioned to benefit. While businesses in Delhi, Jakarta, and Lagos typically used at least one digital application, more than half of small businesses in Addis Ababa, where internet and mobile access is low, reported using none.
Risks on the rise
Increased digitization also increases exposure to new risks. Fraudulent transactions and outright scams are widespread. Hidden fees, unexpected charges, high-pressure sales tactics and other exploitative practices by providers themselves are also common. And those seeking redress encountered inferior customer service.
In São Paulo, one in three of our respondents reported dealing with fraud or unfair practices related to digital applications. Among business owners in Delhi and Lagos using three or more tools, 20% to 30% had negative experiences.
One of our respondents, the owner of a mobile accessories shop in Addis Ababa, was an early adopter of digital tools, despite the city’s unreliable service. He uses digital applications to manage transactions with both suppliers and customers. But his enthusiasm has been tempered. A close friend was tricked by a scammer using fake screenshots to confirm a supposed payment transfer.
For a Lagos-based proprietor, the issue was predatory lending. When the man missed a payment on a small digital loan, the provider responded by calling his relatives and even sending out a fake obituary with his picture. He now avoids digital loans entirely, relying on informal borrowing instead.
Climate pressure mounts
Digital tools are not the only force reshaping the small business landscape. Across the five cities surveyed, an average of one in three small businesses had been affected by a climate event in the past year. In Delhi, the share was closer to two in three.
These shocks impact revenue, supply chains, and labor availability. Yet only about 20% of affected businesses reported being able to access emergency funds within a week of the disruption. Those that had previously experienced a shock are more likely to invest in preventive measures – such as stockpiling materials or reinforcing their premises.
But these actions typically came only after a disruption had already occurred, and they were almost always self-financed. Very few entrepreneurs had access to insurance, and uptake remained strikingly low across all five cities. This underscores a key gap: financial services today are largely designed to support recovery, when what small businesses urgently need are tools that help them prepare in advance.
The way forward
Evidence of higher growth among informal and small businesses using digital tools makes it tempting to assume that more digitization is always better. But real impact depends on tools that take into account the realities MSEs face. To truly support these entrepreneurs, governments, institutions, and private providers should focus on three priorities:
- Emphasizing stability. Most MSEs are focused on maintaining steady income and securing their longterm viability – rather than rapid expansion. Financial tools should reflect these priorities. Underused services like business insurance and emergency credit could offer critical protection against economic disruptions, supply chain breakdowns, and increasingly frequent climate shocks.
- Closing the digital safety gap. Tools must do more to prevent fraud—utilizing basic cyber safeguards like real-time verification, and spreading awareness of scams, especially in high-risk markets. Efforts should also address trust barriers that hold back women entrepreneurs, who remain cautious adopters in many contexts.
- Building trust. Platforms must be designed for transparency and accountability, with strong consumer protections and responsive customer service that addresses user concerns fairly and reliably.
Digital tools can help local low-income businesses survive climate shocks, economic disruptions, and rising trade barriers. But without proper guardrails, they risk amplifying them, leading to devastating losses for small businesses already operating on the brink. Cultivating the use of such tools requires smarter, safer and more thoughtfully tailored digital finance ecosystems that combine a deep understanding of the needs of the end user, strong consumer protections, and an emphasis on long-term economic health.
Edoardo Totolo is the deputy managing director of Accion’s Center for Financial Inclusion.
