Digital tools fuel MSE growth in Nigeria, Ethiopia

Micro and small enterprises (MSEs) that adopt digital tools are up to 10% more likely to report revenue growth, but usage of these tools remains low in emerging markets like Nigeria and Ethiopia.

That’s according to new research from the Center for Financial Inclusion (CFI) at Accion supported by the Mastercard Center for Inclusive Growth. The researchers conducted a survey with MSEs in five cities in emerging markets, including the African cities of Addis Ababa in Ethiopia and Lagos in Nigeria, alongside Delhi, India; Jakarta, Indonesia; and Sāo Paulo, Brazil.

The survey of over 20,000 small businesses shows that digital tools are driving sales and improved productivity, but flexible financial services are needed to strengthen businesses’ financial health.

In Addis Ababa, more than half of MSEs reported using no digital technology applications while most MSEs in Lagos were using at least one digital tool.

The CFI report described MSEs as “a critical engine of economic activity in emerging markets” but said their ability to thrive is shaped by an evolving mix of technological, financial, and environmental challenges.

“Our research shows when micro and small businesses are connected to the digital economy and a range of financial solutions, they are better equipped to withstand real-world emergencies,” said Edoardo Totolo, vice president of research and programs at CFI and lead author of the report.

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“Unfortunately, insurance, savings, and responsible credit remain out of reach for many of these businesses that are the engines of their national economies. While the advantages of going digital are clear, policymakers and financial providers must design products tailored to the needs of these vulnerable businesses that they can easily use and trust to ensure advances in technology improve their financial health,” Totolo added.

Adopting digital tools

CFI’s report tracked the use of ten distinct financial and non-financial digital technologies among small businesses, pointing to stark differences in adoption across the five markets.

The ten digital technologies were listed as:

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In Lagos, MSEs use on average 3.5 digital technologies, but in Addis Ababa small businesses only use an average of 1.6 digital technologies, largely due to poor Internet connectivity.

“This lack of access [in Addis Ababa] limits entrepreneurs from utilizing tools like ecommerce platforms, operational software, and digital loans that can help them modernize business practices, reach a larger customer base, manage transactions with greater security, and save resources,” the report said.

This finding is corroborated by GSMA research, which notes that a substantial usage gap persists in Ethiopia, with 76% of the population not using mobile Internet despite living within network coverage.

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(Source: CFI report titled ‘Small Firms, Big Impact: Digitization, Financial Services, and Climate Resilience in Five Emerging Markets’)

In contrast, Lagos, Delhi and Jakarta exhibited wider adoption of digital tools, particularly in communication, where messaging apps and social media are widely used to engage customers.

In Lagos, some MSEs rely on social media platforms for marketing and business promotion. The survey found that entrepreneurs in Lagos utilize Facebook, Instagram, TikTok and messaging apps such as WhatsApp to maintain consistent communication with customers through daily posts and status updates. These platforms enable businesses to implement referral programs and collaborate with influencers through sponsored advertisements, effectively expanding their reach and visibility.

Content creation also plays a vital role in digital marketing efforts for Lagos entrepreneurs who regularly produce videos and images showcasing their products, manufacturing processes and behind-the-scenes content.

Overall ecommerce platforms remained under-utilized by MSEs across all cities, emphasizing potential for significant growth when barriers such as digital literacy and access are addressed, the report found.

Gender gaps persist

Women entrepreneurs represented 53% of MSE owners in Lagos and 43% in Addis Ababa. Meanwhile, 70% of MSE owners in Jakarta are women, compared to just 11% in Delhi, and 35% in São Paulo.

“Women entrepreneurs face additional barriers to finance, technology, and business networks, limiting their ability to scale or build financial resilience. In many cases, these businesses operate out of necessity rather than strategic choice, making them more vulnerable to economic shocks and fluctuations in demand,” the report said.

“Addressing these disparities requires financial solutions and business support programs that account for the specific constraints women entrepreneurs face, including access to credit, digital literacy, and market linkages,” the authors added.

(Source: CFI report titled ‘Small Firms, Big Impact: Digitization, Financial Services, and Climate Resilience in Five Emerging Markets’)

The researchers said the dramatic differences in women’s participation across cities emphasize the need for tailored interventions to foster inclusive entrepreneurial ecosystems.

“Understanding the nuanced dynamics of each local context is critical for designing policies that empower women and maximize their contributions to urban economies,” the report said.

Economic or environmental shocks

The research highlighted the importance of access to digital technology and formal financing, but noted resilience was determined by a wider range of factors including personal safety nets, such as savings and informal support systems.

Businesses that combined access to credit, savings and insurance with strong financial literacy were better positioned to manage shocks, and entrepreneurs with higher education levels were more likely to use a mix of different formal financial services, contributing to stronger resilience and improved financial health.

The report found that one in three MSEs reported being impacted by drought, floods or other environmental shocks, and less than 20% reported being able to come up with emergency funds within one week.

Of those entrepreneurs impacted by environmental shock, up to 29% said they were more likely to invest in adapting their business to the changing climate.

“Nowadays, small businesses are facing unprecedented threats, from cyberattacks to the economic impact of extreme weather events,” said Payal Dalal, executive vice president of global programs at the Mastercard Center for Inclusive Growth.

Dalal said it is important to provide small businesses with solutions that secure them against these challenges.

“It’s not only about mitigating risks in the digital economy but making sure small businesses have the opportunity to thrive during this increasingly volatile time,” Dalal added.

Methodology

The CFI is an independent think tank using research and advocacy to advance inclusive financial systems for low-income people around the world. CFI was founded by global nonprofit Accion in 2008.

The study used “Adaptive Cluster Sampling” – a research technique that enabled a strong focus on urban areas with high numbers of MSEs. A total of 20,000 MSEs were surveyed, with 4,000 interviews conducted to build a sample that represents 1.7 million MSEs across the five cities.