Small and medium-sized enterprises (SME) are steadily gaining traction in digital finance, rapidly claiming their position as the backbone of economic growth. However, industry analysts indicate that despite the positive outlook, risk literacy remains a persistent challenge.

According to risk management experts, EIRS, this represents a gap that may be holding back the very financial inclusion that promises to uplift these important engines of job creation and innovation across Africa and the Middle East.

SMEs constitute an overwhelming majority of firms in the Middle East and North Africa, about 96% of registered companies and roughly half of employment, yet they receive just 7% of total bank lending, among the lowest globally. In sub-Saharan Africa, SMEs often find themselves starved of capital, with many reporting limited access to loans or credit lines and enduring high borrowing costs that dwarf those in more developed markets.

Digital finance growth

The digital finance revolution, powered by mobile money, e-lending, and embedded financial services, has unlocked new avenues for inclusion. Digital solutions tailored for SMEs are growing rapidly, with fintech adoption rising across the region with digital platforms designed for business invoicing recording positive uptake in 2024. However, access is only part of the puzzle.

“What we’re seeing is that SMEs can reach digital finance solutions, but many still can’t use them effectively. Risk literacy, understanding credit, insurance, cash-flow dynamics and digital finance mechanisms, is the missing bridge between access and sustainable growth,” noted Abhishek Jain, chief executive officer, EIRS.

This gap has real business impact. While digital payment adoption in some markets is high, for example, 91% of Kenyan SMEs now use digital payments, many still lack the financial and risk acumen to leverage that access into credit worthiness, scalable lending, or meaningful insurance coverage.

Risk literacy is key

Across the region, the potential of SMEs remains high but despite their significant contribution to employment in Africa, they still face a persistent financing deficit. Without risk comprehension, lenders often view these enterprises as high-risk or unbankable.

Even in markets where mobile fintech adoption is strong, understanding remains uneven. Financial literacy enhances adoption with research showing that numerically and digitally literate SME owners are substantially more likely to adopt mobile banking, which in turn, improves their financial outcomes. This dynamic illustrates why risk literacy, not just access, is the linchpin to inclusive finance.

Financial inclusion and risk literacy aren’t merely aspirational goals; they can concretely improve macroeconomic performance. Based on the IMF analysis, closing financial inclusion gaps could boost annual growth rates by up to 1% over the medium term in SME-dependent regions.

According to Abhishek, the conversation must shift from access to competence. “Policymakers, fintechs and financial institutions need to embed education into the SME onboarding process,” he noted. “When entrepreneurs comprehend risk, and can articulate it, lenders respond with capital, insurers design appropriate products, and ecosystems flourish.”

When risk literacy is elevated to strategic priority, SMEs may finally unlock their potential. And for the millions of entrepreneurs across the MEA region, understanding risk could be the key that turns inclusion into sustainable success.