Small Firms, Big Shifts: How Asia’s MSMEs Navigate Digital Growth and Tough Challenges

Asia’s small businesses are rapidly transforming as governments push digitalisation, climate adaptation, and export readiness, but challenges like limited finance, weak data, and rural–urban gaps continue to slow progress. The Asia SME Monitor 2025 shows that while MSMEs remain the backbone of regional economies, their future resilience depends on stronger financial systems, better infrastructure, and inclusive policy support.

The Asia SME Monitor 2025, produced by the Asian Development Bank (ADB) with support from national MSME ministries, financial regulators, SME development agencies, and research institutes including India’s Ministry of MSME, the Small and Medium Business Development Agency of Azerbaijan, Papua New Guinea’s SME Corporation, and several national statistical offices, offers a sweeping look at how Asia’s small businesses are adapting to economic shifts. Across 22 economies, the study shows MSMEs at a turning point, facing a mix of digital opportunity, financial pressure, and climate-related risks.

A Region Growing, but Unevenly

Asia’s developing economies expanded by 5.1% in 2024, driven mostly by domestic demand and service-sector recovery. MSMEs continue to dominate the economic landscape, especially in traditional sectors like retail, transport, food services, and tourism. Agriculture remains central in Nepal, Tajikistan, Kazakhstan, and Uzbekistan, although its role is slowly declining as manufacturing gains ground. Tajikistan even reported more MSMEs in manufacturing than in agriculture for the first time in 2024. Urban concentration remains high: in Armenia, Azerbaijan, Georgia, and the Kyrgyz Republic, over half of MSMEs operate in capital cities, highlighting persistent rural-urban divides.

Digitalisation Takes Centre Stage

One of the strongest trends across the report is the rapid push toward digital transformation. India leads the charge with its Digital MSME Scheme, the World Bank–supported RAMP program, and the massive Udyam Registration system, which now lists more than 59 million MSMEs. The 2025–26 national budget strengthens this shift through digital credit guarantees and a large fund supporting first-time entrepreneurs. In Central Asia, Tajikistan has declared 2025–2030 as the “Years of Digital Economy and Innovation,” focusing on 5G rollout, digital public services, and e-commerce growth. Azerbaijan is moving fast too, introducing a national AI strategy that aims to improve governance and attract investment through new computing infrastructure and technology incentives.

Financing Constraints Remain Tough

Despite digital progress, financing remains a major bottleneck. Banks across the region still view small firms as high-risk borrowers. Laos is a clear example: MSME lending rose by 13% in 2024, yet it made up only around 10% of all bank loans. Papua New Guinea is attempting to fix long-standing weaknesses through a new financial inclusion strategy, but coordination problems and outdated data continue to slow progress. A few countries are trying innovative solutions. Tajikistan issued its first local-currency green bond in 2024, backed by the International Finance Corporation, to support climate-friendly MSME projects. These innovations are promising but still rare. High interest rates, collateral requirements, and low financial literacy remain widespread challenges.

Women Entrepreneurs Gain Ground, Slowly

Gender-inclusion efforts are gradually expanding, though gaps remain. Tajikistan has continued to roll out grants and training programs for women-led businesses, and India has strengthened initiatives like the Women Entrepreneurship Platform. Yet many countries still lack reliable data on women-owned MSMEs, making it hard to design effective policies. The report notes that without proper data, women’s real economic contribution remains under-recognized and under-supported.

Climate and Trade Pressures Shape the Future

Climate change is becoming an increasingly important factor in small-business policy. India is integrating MSMEs into national climate goals through sustainable finance and energy-efficiency programs, while Azerbaijan’s environmental impact laws set the stage for future green initiatives. Pacific nations face the dual challenges of climate vulnerability and limited financial resources. Many MSMEs understand the need to adapt, but the lack of capital and technology makes the transition difficult.

Trade opportunities also remain uneven. India is expanding export incentives and supply-chain support for MSMEs, while Tajikistan is pushing new e-commerce frameworks to reduce trade barriers. Papua New Guinea is experiencing a growing interest in exporting agricultural products and handicrafts, but institutional fragmentation and weak logistics continue to hinder firms' progress.

A consistent challenge across nearly all countries is the lack of up-to-date data on MSMEs. Several economies have failed to conduct comprehensive surveys for years, leaving policymakers without accurate information on employment, informality, women-led businesses, or green transition efforts.

Still, the overall direction is clear. Whether through digital public infrastructure in South Asia, AI policies in the Caucasus, green finance in Central Asia, or export-readiness programs in the Pacific, governments are pushing reforms at a pace not seen before. The next few years will reveal whether these efforts can build more resilient, competitive, and inclusive MSME ecosystems, or whether long-standing structural barriers will continue to slow progress across the region.