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Entrepreneurial Finance,
Innovation and Development

Entrepreneurship is now unanimously considered a major engine for socio-economic

development, mainly because it creates jobs and innovation. Governments around the world
pay special attention to removing entrepreneurial barriers in order to support development
via different policies, especially entrepreneurial finance. Developing, emerging and
transition economies (DETEs) significantly differ from industrialized countries because of
their specific conditions: institutions, infrastructure facilities, and bureaucratic procedures
within the administrative system. Thus, firms and their entrepreneurs in and from DETEs
may behave differently, particularly in terms of their financial strategies. Therefore,
contextualizing is critical to better understand the relationship between entrepreneurial
finance, innovation, and development in DETEs.
This book provides a systematic and profound understanding of how finance,
entrepreneurship, innovation, and their interactions contribute to economic development
in DETEs, which cover a large number of countries in Asia, Central and Eastern Europe,
Latin America, and Africa. The book mainly includes empirical studies and is divided
into four parts. Part A includes four chapters which adopt a multinational approach to
examine different sources and types of finance for entrepreneurship and small business in
different groups of countries classified as DETEs. Part B also includes four chapters and
focuses on entrepreneurial finance in specific countries belonging to the DETEs. Part
C goes beyond the business scope of entrepreneurial finance and includes three chapters
concerned with the relationships between finance, women’s entrepreneurship, and
poverty. Part D includes three chapters focusing on the comparison within developing
countries as well as between developing and developed countries.
This essential and comprehensive resource will find an audience amongst academics,
students, educators, and practitioners, as well as policymakers and regulators.

Vi Dung Ngo is a Lecturer in Strategic Entrepreneurship and Innovation at the Faculty

of Business and Economics, Phenikaa University, Hanoi, Vietnam. He is a Humboldt’s
research fellow at Trier University, Germany, and an affiliate research fellow at the IPAG
Business School, France.

Duc Khuong Nguyen is Professor of Finance and Deputy Dean for Research at
IPAG Business School (France). He is also a visiting professor at International School,
Vietnam National University (Hanoi, Vietnam). He is the Co-Founder of the Paris
Financial Management Conference (PFMC) and Vietnam Symposium in Banking and
Finance (VSBF).

Ngoc Thang Nguyen is an currently Associate Professor of Human Resource Management

and Vice Dean at Hanoi School of Business and Management, Vietnam National University,
Hanoi. He is also an affiliate research fellow at the IPAG Business School, France.
Routledge Research Companions in Business
and Economics

Contemporary Talent Management

A Research Companion
Edited by Ibraiz Tarique

Business with a Conscience

A Research Companion
Edited by Joan Marques

Entrepreneurial Finance, Innovation and Development

A Research Companion
Edited by Vi Dung Ngo, Duc Khuong Nguyen and Ngoc Thang Nguyen
Entrepreneurial Finance,
Innovation and Development
A Research Companion

Vi Dung Ngo, Duc Khuong Nguyen

and Ngoc Thang Nguyen
First published 2022
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
and by Routledge
605 Third Avenue, New York, NY 10158
Routledge is an imprint of the Taylor & Francis Group, an informa business
© 2022 selection and editorial matter, Vi Dung Ngo, Duc Khuong
Nguyen and Ngoc Thang Nguyen; individual chapters, the contributors
The right of Vi Dung Ngo, Duc Khuong Nguyen and Ngoc Thang
Nguyen to be identified as the authors of the editorial material, and of the
authors for their individual chapters, has been asserted in accordance with
sections 77 and 78 of the Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or reproduced or
utilised in any form or by any electronic, mechanical, or other means, now
known or hereafter invented, including photocopying and recording, or in
any information storage or retrieval system, without permission in writing
from the publishers.
Trademark notice: Product or corporate names may be trademarks or
registered trademarks, and are used only for identification and explanation
without intent to infringe.
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data
A catalog record for this book has been requested
ISBN: 978-0-367-68103-6 (hbk)
ISBN: 978-0-367-68116-6 (pbk)
ISBN: 978-1-003-13428-2 (ebk)
DOI: 10.4324/9781003134282
Typeset in Bembo
by Apex CoVantage, LLC
Contents

List of figuresviii
List of tablesx
Acknowledgmentsxii
Editors’ biographiesxiii
Authors’ biographiesxv
Prefacexxiii

PART A
Entrepreneurial finance in DETEs: regional approach1

1 Digital finance and SMEs in Southeast Asia: an overview 3

NHUNG NGUYEN AND VI DUNG NGO

2 Crowdfunding in DETEs: a literature review 25

SAYEMA SULTANA AND FIZA QURESHI

3 Crowdfunding and entrepreneurship in the Western Balkans 50

LUCA SABIA, ROBIN BELL AND DAVID BOZWARD

4 Foreign portfolio investment: opportunities or

challenges for transition countries? 69
CESARIO MATEUS AND TRUNG BAO HOANG

PART B
Entrepreneurial finance in DETEs: country approach95

5 Peer-to-peer lending in Malaysia 97

YONG CHIN LEE AND HOOI HOOI LEAN
vi Contents
6 An institutional perspective on the development of the
venture capital market in Brazil 120
IRINEU DE SOUZA LIMA JÚNIOR, NICHOLAS SPYRIDON VONORTAS
AND SÉRGIO ROBLES REIS DE QUEIROZ

7 Bilateral relations and venture capital financing in India 146

NIVEDITA SINHA AND SHREYA BISWAS

8 Asymmetric impact of financial market development

on entrepreneurship in Nigeria 160
HYELADI STANLEY DIBAL, AKURAUN SHADRACH IYORTSUUN
AND HABILA ABEL HARUNA

PART C
Entrepreneurial finance, gender, and poverty189

9 Finance and women’s entrepreneurship in DETEs:

a literature review 191
ERUM SHAIKH, MUHAMMAD NAWAZ TUNIO AND FIZA QURESHI

10 Emergence of women’s entrepreneurship in rural

local development processes: insights from Gadouan,
Ivory Cost 210
AYI GAVRIEL AYAYI, CHANTALE DALI AND THÉOPHILE SERGE NOMO

11 The potential of zakat productive assistance

programme involving agricultural activities in Brunei
Darussalamh 230
ZAKI ZAINI AND KHAIRUL HIDAYATULLAH BASIR

PART D
International comparisons and lessons253

12 Growth, financial development and nascent

entrepreneurship: does the level of development matter? 255
HARSHANA KASSEEAH

13 Are family firms more efficient? evidence from

developing, emerging and transition economies 282
MARIAROSARIA AGOSTINO AND SABRINA RUBERTO
 Contents vii
14 Financial capabilities, entrepreneurial self-belief and
motivations among Israeli female and male entrepreneurs 303
DAFNA KARIV, DIKLA ELISHA AND DAFNA SCHWARTZ

Index332
Figures

2.1 Systematic literature review method 30

2.2 Types of studies 32
2.3 Publication details 33
4.1 Ratio of net inflows of FPI to GDP in transition countries 75
4.2 Ratio of net inflows of FDI to GDP in transition countries 76
4.3 Foreign portfolio investment by sector in transition countries 77
4.4 Percentage of FPI firms in total public companies 79
4.5 Foreign portfolio ownership (mean values) 80
4.6a Percentages of FPI investee firms with state ownership in 2014 81
4.6b Percentages of FPI investee firms with state ownership in 2018 81
4.7 FDI and FPI and their firm-effect channels 84
4.8a Proportion and Tobin’s Q of firms by FPI in Bosnia & Herzegovina 88
4.8b Proportion and Tobin’s Q of firms by FPI in Serbia 89
4.8c Proportion and Tobin’s Q of firms by FPI in Ukraine 90
4.8d Proportion and Tobin’s Q of firms by FPI in Vietnam 91
5.1 Flowchart of systematic literature review using the PRISMA
guidelines104
6.1 Framework of the institutional environment related to VC 123
6.2 Timeline of the development of the VC market in Brazil 126
6.3 Committed capital to VC in Brazil 128
6.4 Investments in VC in Brazil 128
6.5 Number of companies invested and average value of
investments in VC in Brazil 129
6.6 Rate of investments in PEVC by GDP in Brazil, the United
Kingdom, and the United States 129
6.7 GDP growth and interest rate in Brazil 130
6.8 Number of IPOs in Brazil 132
6.9 Public and private expenditures on R&D in Brazil 136
7.1 Amount of venture capital funding received by Indian start-
ups during 2004–2020 (million dollars) 151
7.2 Amount of venture capital funding received by Indian start-
ups during 2004–2020 by location of VC firms 151
8.1 CUSUM and CUSUM of squares test for Model 1 176
 Figures ix
8.2 CUSUM and CUSUM of squares test for Model 2 177
8.3 CUSUM and CUSUM of squares test for Model 3 178
11.1 Types of PROPAZ programmes 238
11.2 Challenges of Az-Ziraah244
Tables

1.1 Definitions of SME in Southeast Asian countries 5

1.2 SME-dominated sectors and their roles in the economy 6
2.1 Developing economies 27
2.2 Emerging economies 28
2.3 Transition economies 28
2.4 Basic crowdfunding models 28
2.5 Keywords used for search strategy 31
3.1 Western Balkans economic indicators 55
3.2 Western Balkans start-up figures 55
3.3 Local and indigenous crowdfunding platforms in the
Western Balkans 61
4.1 The legal and regulatory environment for foreign investment
in transition countries 72
4.2 Protecting minority investors score in 2019 82
5.1 P2P lending key statistics 99
5.2 Comparison of P2P platforms in Malaysia 102
5.3 Matrix with key benefits and risks of investors and borrowers 109
7.1 List of foreign VC countries investing in Indian start-up
landscape based on bilateral trading volumes 152
7.2 Summary statistics 152
7.3 Bilateral trade ties and start-up funding 153
7.4 Bilateral trade ties and start-up funding – non-linear relation 154
7.5 Bilateral trade ties and start-up funding – round of funding 155
7.6 Bilateral trade ties and start-up funding – spatial pattern 156
8.1 Descriptive statistics and correlation matrix 170
8.2 Stationarity test 171
8.3 Bound test for cointegration results 172
8.4 Bound test for cointegration results 172
8.5 ARDL estimations 174
8.6 ARDL estimations Model Two 174
8.7 Diagnostic test results 175
8.8 Error correction model 179
8.9 Hypothesis One 179
 Tables xi
8.10 Hypothesis Two 180
8.11 Summary of findings 182
9.1 Bibliographic status 196
9.2 Literature review 197
9.3 Funding sources 202
10.1 The three dimensions of emergence of women’s
entrepreneurship in a rural setting 216
10.2 Results of the analysis of planning that favors women’s
participation217
10.3 Results of the analysis of women’s entrepreneurial competencies 219
10.4 Results of the analysis for “area that incubates
entrepreneurship” dimension 222
11.1 JAPEM monthly welfare assistance recipients, 2009–2018 235
11.2 MUIB monthly welfare assistance recipients, 2012–2019 235
11.3 Proportion of population living below the national poverty
line in ASEAN, 2016–2018 (%). 235
12.1 Stages of development 265
12.2 Level of development of countries in the sample by
categorisation of countries 266
12.3 Definitions of variables 267
12.4 Summary statistics 269
12.5 Correlation matrix 270
12.6 Results of the ANOVA 271
12.7 Results of the baseline specification 272
12.8 Multicollinearity tests 273
12.9 Robustness checks 274
12.10 Accounting for different levels of development 275
13.1 Description and summary statistics of the variables in the
benchmark model for family and non-family firms 285
13.2 Correlation matrix 286
13.3 Estimation results 287
13.4 Estimation results using FAM100290
13.5 Estimation results for SMEs 293
13.6 Estimation results for young firms 295
13.7 Estimation results – probit model 297
14.1 Gender differences in entrepreneurial perception 317
14.2 Gender differences in the motivations to start a business 317
14.3 Students’ interest in HEOs related to business and finance;
regression analyses 319
14.4 Summary of regression analyses for variables predicting
student-entrepreneurs’ interest in HEOs related to business
and finance 320
14.5 Difference between female student-entrepreneurs and female
students320
Acknowledgments

We would like to thank, first and foremost, the contributors of this book.
Together, we developed this collective project with strong commitments and
high-quality outputs.
Our special thanks go to Ms. Kristina Abbotts, Senior Editor in Economics,
Finance and Accounting, and Ms. Christiana Mandizha, Editorial Assistant:
Economics, at Routledge for their kind and effective support during the entire
production process.
Financial support from Vietnam National Foundation for Science and Tech-
nology Development (NAFOSTED) under Grant Number 502.02–2017.10 is
gratefully acknowledged.
Editors’ biographies

Vi Dung Ngo is a Lecturer in Strategic Entrepreneurship and Innovation at

the Faculty of Business and Economics, Phenikaa University, Hanoi, Viet-
nam. He is a Humboldt’s research fellow at Trier University, Germany, and
an affiliate research fellow at the IPAG Business School, France. His back-
ground includes sociology (BSc and MSc) and economics and management
(PhD). His current research interests include institutions, innovation and
internationalization focusing on entrepreneurship, small business and fam-
ily business in emerging and transition economies. Before working in the
higher education sector, he had professional experiences in the public sector
(as researcher at the Institute of Policy and Strategy, Ministry of Agriculture
and Rural Development of Vietnam) and private sector (as consultant at the
InvestConsult Group and VICA Consultant). His work has been published
in international academic journals such as Journal of Business Research, Journal
of International Entrepreneurship, Journal of Developmental Entrepreneurship, Post-
Communist Economies, and Revue de l’Entrepreneuriat.
Duc Khuong Nguyen is Professor of Finance and Deputy Dean for Research
at IPAG Business School (France). He holds a PhD in finance from the
University of Grenoble Alpes (France) and a Habilitation for Supervising
Scientific Research (HDR) in management science from University of
Cergy-Pontoise (France) and completed an executive education program
in Leadership in Development at Harvard Kennedy School (United States).
He is also a visiting professor at International School, Vietnam National
University (Hanoi, Vietnam). His research works focusing on asset pric-
ing, emerging market finance, energy finance, and risk management have
been published in European Journal of Operational Research, Journal of Economic
Dynamics and Control, Journal of Banking and Finance, Journal of International
Money and Finance, and Macroeconomic Dynamics, among others. Professor
Nguyen has edited many books on corporate finance and financial mar-
ket issues and serves as subject and associate editor of several finance jour-
nals. He is the co-founder of the Paris Financial Management Conference
(PFMC) and Vietnam Symposium in Banking and Finance (VSBF).
xiv Editors’ biographies
Ngoc Thang Nguyen is currently an Associate professor of human resource
management and Vice Dean at Hanoi School of Business and Manage-
ment, Vietnam National University, Hanoi. He is also an affiliate research
fellow at the IPAG Business School, France. He holds a PhD in applied
economic sciences from Ghent University, Belgium. His current research
interests include human resource management, knowledge management,
and corporate social responsibility (labor practices). His work has been pub-
lished in international academic journals such as Asia Pacific Business Review,
Journal of Asia-Pacific Business, International Journal of Training and Development,
Asian Academy of Management Journal, Post-Communist Economies, and Journal
of Developmental Entrepreneurship.
Authors’ biographies

Mariarosaria Agostino is Associate Professor in Economics at the Depart-

ment of Economics, Statistics and Finance (DESF), University of Calabria
(UNICAL), Italy. She is also a member of the Centre of Excellence Rossi-
Doria, University of Roma Tre. Her main research interests concern pro-
ductivity analysis employing non-parametric and parametric techniques,
institutional quality effects, determinants of environmental performance of
firms, global value chains, and gravity models. Her 53 publications include
contributions to books, and articles in journals such as Applied Economics;
Journal of Productivity Analysis; World Development; World Economy; Regional
Studies; Journal of Agricultural Economics, Journal of Industry, Competition and
Trade, Food Policy, Journal of Small Business Management, Small Business Eco-
nomics, and International Small Business Journal.
Ayi Gavriel Ayayi holds a PhD in financial economics from HEC Montreal
and is currently Professor of Financial Economics at University of Québec at
Trois-Rivières, Québec, Canada. He is a co-founder of the Business Devel-
opment Laboratory in Developing Countries (Larideped.org) at the School
of Management of the Université du Québec à Trois-Rivières. His current
research fields are in microfinance and development finance. Over the past
12 years, he has extensively published in microfinance in leading academic
journals and has been awarded many research grants. Professor Ayayi was the
founder holder of the microfinance chair at AUDENCIA Business School
in Nantes, France. He is currently the Co-Founder of LARIDEPED at the
University of Québec in Trois-Rivières. Moreover, he is an academic staff at
Africa Growth Institute at University of Cape Town in South Africa, editor
and associate for academic peer-review journals, and a reviewer for many
leading academic journals.
Khairul Hidayatullah Basir is Assistant Lecturer at the Faculty of Agricul-
ture, Universiti Islam Sultan Sharif Ali, Brunei. His research interest lies
in socio-economic development, particularly in the areas of agriculture
and resource economics, youth unemployment and entrepreneurship, and
Islamic social finance. To date, he has successfully published two books and
written a number of journal articles and book chapters. He has acted as
xvi Authors’ biographies
an ad-hoc peer reviewer for Scopus indexed journals. Khairul completed
his undergraduate studies at the University of Brunei Darussalam, where
he earned a BA (Hons) in economics and minored in Islamic banking and
finance. He holds an MA in development studies from the University of
Melbourne, Australia, and went to the University of Oxford, United King-
dom, for the Global Mobility Program, where he was awarded a Global
Mobility Grant from the University of Melbourne.
Robin Bell is Senior Lecturer at the Worcester Business School. He led the
development of the School’s first online undergraduate and graduate pro-
grams. Previously, he spent four years as the Business School’s Director of
International Partnerships and was responsible for research collaboration with
partners and supporting inbound and outbound student and staff mobility
to achieve the school’s internationalization agenda. He is also an associate
professor at Beijing Foreign Studies University, teaching entrepreneurship
and innovation. As well as being an academic, he is an entrepreneur and has
acted as a consultant for the development of numerous entrepreneurship
programs across China.
Shreya Biswas is Assistant Professor in the Department of Economics &
Finance at the Birla Institute of Technology & Science, Pilani, Hyderabad
Campus, India. She attained her PhD from Indira Gandhi Institute of
Development Research, India. Her research interests include corporate gov-
ernance issues and topics in household finance in India. She has published
papers in international journals on the importance of the board’s social
capital and board diversity for non-financial firms and banks in India. She
has presented papers at several national and international conferences. Her
research involves understanding the investment mistakes made by house-
holds and determinants of the household portfolio in India, along with
what interventions can rectify such common investment mistakes. She has
obtained research grants to analyze the socio-economic determinants of the
household portfolio in the Indian context and the role of female directors
on corporate boards.
David Bozward is Head of Entrepreneurship at the Royal Agricultural Uni-
versity. His main research interest centers around entrepreneurship ecosys-
tems, from those within education to business start-ups. He published work
on entrepreneurial education includes the design and review of venture
creation programs, teaching social enterprise, entrepreneurial identity, and
competency sets for entrepreneurs. In 2016, he was invited to be a member
of Maserati 100, the top 100 individuals in the United Kingdom actively
supporting the next generation of future entrepreneurs, and was awarded a
lifetime fellowship of the Institute of Enterprise and Entrepreneurs.
Chantale Dali’s research focuses on entrepreneurship as a factor of local
development. She is particularly interested in the factors for the emergence
of female entrepreneurship using a territorial approach.
 Authors’ biographies xvii
Hyeladi Stanley Dibal is Lecturer in the Department of Banking and Finance,
Federal University Wukari, Nigeria. Hyeladi is currently a PhD student
in the Department of Banking and Finance, University of Nigeria, with
research interest in institutional investors and capital markets.
Dikla Elisha is Faculty member in the School of Multidisciplinary Studies in
Social Sciences at Ashkelon Academic College. Her main areas of exper-
tise are organizational misbehaviors, organizational citizenship behavior, and
leadership.
Habila Abel Haruna is Lecturer in the Department of Banking and Finance,
Federal University Wukari-Nigeria, and a PhD candidate in the Depart-
ment of Banking and Finance, Nnamdi Azikiwe University Awka-Nigeria.
Research interests are development finance, risk management, capital mar-
kets, and portfolio management.
Trung Bao Hoang is a PhD candidate at the University of Greenwich. He
has received a scholarship for research study from the Vietnam Ministry of
Education, Vietnam Ministry of Transportation, and Association for Het-
erodox Economics. His research interests include corporate governance,
international finance, behavioral finance, and Asian financial markets.
Akuraun Shadrach Iyortsuun is Lecturer in the Department of Business
Administration, Federal University Wukari, Nigeria. Akuraun has an MBA
and MSc in management and is currently pursuing a PhD in management
with specialization in entrepreneurial passion and growth of SMEs in the
University of Jos, Nigeria. His research interest is entrepreneurship and small
business development.
Harshana Kasseeah is Associate Professor at the University of Mauritius.
Her research areas include entrepreneurship and finance, sustainable devel-
opment, and internationalization of firms, with particular focus on micro,
small, and medium-sized enterprises. She has completed several projects and
consultancies with a socio-economic dimension and has also published in
several international journals.
Dafna Kariv is Researcher in entrepreneurship, gender, and entrepreneurial
education. She is the Head of the Capstone Program at ASE, at IDC, Her-
zelya, Israel, and Affiliate Professor at HEC, Montreal, Canada.
Yong Chin Lee is a graduate student of master of economic management at
the School of Social Science, Universiti Sains Malaysia in 2021. She is also
an Accountant in a private company and a part-time tuition teacher. Yong
Chin completed her bachelor’s degree in finance and investment at Tunku
Abdul Rahman University College in 2018. Her research interests include
global finance, financial development, and digital finance.
Hooi Hooi Lean is Professor at the School of Social Sciences (Econom-
ics Program), Universiti Sains Malaysia. She is also an affiliated professor
xviii Authors’ biographies
at IPAG Business School, France, and Universitas Indonesia. She has pub-
lished more than 160 articles in many reputed international journals. Her
H-index is 45, and there are more than 9000 citations to her works on
Google Scholar. She was listed among the top 2% scientists in the world by
Stanford University. Prof. Lean was awarded the Top Research Scientists
Malaysia by Academy of Sciences Malaysia in 2018. She received Malay-
sia’s Research Star Award in 2017 from the Ministry of Higher Education
Malaysia and Clarivate Analytics and the National Academic Award in 2015
from the Ministry of Higher Education Malaysia. Prof. Lean is a fellow of
the East Asian Economic Association. She serves as an associate editor for
the Singapore Economic Review, Frontiers in Energy Research, Malaysian Journal
of Economics, and International Journal of Economics and Management. She is also
an editorial board member of the Energy Research Letters, Journal of Asian
Finance, Economics and Business, and Asian Journal of Economics and Finance.
She also sits on the editorial advisory board of the Indonesian Capital Market
Review and the Labuan Bulletin of International Business & Finance.
Irineu de Souza Lima Júnior holds a bachelor’s degree in law from the Law
School of University of São Paulo (USP). He is currently a PhD student
in the Science and Technology Policy Program at University of Campi-
nas (Unicamp) and part of the Innovation Systems, Strategies and Policy
(InSySPo) project team. He was a visiting scholar at the Institute for Inter-
national Science and Technology Policy at George Washington University.
Irineu has worked with corporate law related to technology transactions
and start-ups, such as financing contracts with public and private funds,
strategic alliances, R&D and technology transfer, and intellectual property
rights. His research interests are venture capital, entrepreneurial finance, and
knowledge-intensive entrepreneurship.
Cesario Mateus is Full Professor of Finance. He joined Aalborg Univer-
sity, Denmark in 2019. Prior to that, he worked at different universities in
various countries; these include Cass Business School, Universitat Pompeu
Fabra, University of Melbourne, Grenoble Ecole Management, University
of Greenwich, Southampton Business School, and Porto Business School,
among others. He also worked for private and public companies (e.g. Por-
tuguese Securities and Exchange Commission, Banco Comercial Portugues,
Ocidental Insurance Company, Aldersgate Investment Managers). He has
served as a member of the Board of Directors at the Asian Finance Asso-
ciation. His research interests include corporate finance (taxation, capital
structure, cash holdings, right issues, etc), asset management (mutual fund
performance, style investments, institutional investors, hedge funds), and
commodity markets (volatility transmission, hedging risks, etc). He has pub-
lished over 40 refereed research papers in international journals.
Vi Dung Ngo is Lecturer in Strategic Entrepreneurship and Innovation
at the Phenikaa University, Hanoi, Vietnam. He earned a PhD from the
 Authors’ biographies xix
Université Catholique de Louvain, Belgium. He is a Humboldt’s research
fellow at Trier University, Germany. His works have been published in Jour-
nal of Business Research, Journal of International Entrepreneurship, and Journal of
Developmental Entrepreneurship and Post-Communist Economies.
Nhung Nguyen is Researcher with a focus on Micro Finance, Social-Ecolog-
ical Transformation and Community Development in developing countries.
She earned her Bachelor of Finance and graduated from National Econom-
ics University in Vietnam in 2017 and her Master’s degree in International
Cooperation Policy from Ritsumeikan Asia Pacific University in 2020. Since
2018, Nguyen has been a fellow of the Ryoichi Sasakawa Young Leaders
Fellowship Fund (Sylff). Nguyen acquired both empirical and theoretical
insights on Vietnamese entrepreneurship from years of working experience
and conducting research on Vietnamese family business development.
Théophile Serge Nomo is presently Associate Professor of Corporate
Finance, the Chair of the Department of Finance and Economics, and
Co-Founder and Co-Chair of the Business Development Laboratory in
Developing Countries (Larideped.org) at School of Management of the
Université du Québec à Trois-Rivières. From 2011 to 2017, He was Direc-
tor of MBA and MSc programs. He was Director of the Diagnosis and
Restructuring Program for Manufacturing SMEs in Cameroon and Ivory
Coast. The current research interests of Prof. Nomo are in entrepreneurial
finance, venture capital/private equity, financial accounting, performance,
and risk management. His recent publications are published in the Cana-
dian International Journal of Social Sciences and Education, Gestion 2000, Social
Responsibility Journal, Transnational Corporations Review, and Venture Capital:
An International Journal on Entrepreneurial Finance.
Fiza Qureshi has a PhD (Finance) from the Faculty of Business and Account-
ancy, University of Malaya, Malaysia. Her doctoral thesis and the major-
ity of her research papers explore the relationship between mutual funds,
markets, and macroeconomic variables. Her areas of research include insti-
tutional investing, financial markets, behavioral finance, the exchange rate,
commodities, FDI, and economic growth. She has several publications in
top-tier international journals. She is also a reviewer of peer-reviewed inter-
national journals. She has achieved awards and distinctions in national and
international research projects and conferences. She is currently working as
an assistant professor at the Institute of Business Administration, University
of Sindh, Jamshoro, Pakistan.
Sérgio Robles Reis de Queiroz is Full Professor at the Science and Tech-
nology Policy Department, Geosciences Institute, University of Campinas,
Brazil. He received an engineering degree in 1978 and a BA–Philosophy
in 1983 from the University of São Paulo and his MSc (1987) and DPhil
in economics (1993) from the University of Campinas. He was a visit-
ing research fellow at SPRU–Science Policy Research Unit, University of
xx Authors’ biographies
Sussex, England, in 2000. He was Coordinator of Science and Technol-
ogy and Deputy Secretary of the Secretariat of Science, Technology and
Economic Development of the State of São Paulo and Coordinator of
Research for Innovation at the São Paulo Research Foundation (FAPESP).
His research interests include technological learning processes, technology
globalization, foreign direct investment in R&D, university–industry part-
nerships, and knowledge-intensive entrepreneurship.
Sabrina Ruberto is Research Fellow at the Department of Political Sciences,
University of Naples, Federico II, Italy. Her publications include contribu-
tions to books and articles in journals such as Journal of Productivity Analy-
sis and Journal of Applied Finance and Banking. Her main research areas are
productivity analysis, quality of institutions and economic performance,
bank–firm relationships, family business strategies, and determinants of
environmental performance of firms.
Luca Sabia is Lecturer in enterprise and entrepreneurship within the Interna-
tional Centre for Transformational Entrepreneurship at Coventry University.
His main research interest revolves around the intersection of start-up financ-
ing and entrepreneurial marketing. A member of the Chartered Institute of
Marketing (MCIM), over a decade, he has helped start-ups, charities, trade
bodies, SMEs, and Fortune 500 companies across different sectors, including
aerospace, e-commerce, engineering, financial services, FMCG, healthcare,
manufacturing, and media. Holding an MBA from Durham University, he has
contributed to the Financial Times and worked on his PhD in entrepreneur-
ship by focusing on the behavior of retail investors in equity crowdfunding.
Dafna Schwartz is Professor at Adelson School of Entrepreneurship and the
Director of the Research Authority, at Interdisciplinary Center Herzliya,
Isral. Her areas of expertise are entrepreneurship and innovation, high-tech
industry, start-ups, SMEs, and regional and local economic development.
Erum Shaikh obtained her PhD from the Institute of Business Administra-
tion, University of Sindh, Jamshoro, Pakistan. She is Assistant Professor at
the Faculty of Business Administration, The University of Modern Sci-
ences, Tando Muhammad Khan, Pakistan. Her research area is corporate
social responsibility (finance and management). She has a good number of
publications in her research area in different phases of being published, sub-
mitted, under review, and accepted. Her field of interest are corporate social
responsibility, corporate governance, sustainability, corporate finance, and
entrepreneurship. She has wide experience of teaching more than seven
years at University of Sindh, universities, and other affiliated and private
universities. She has participated in and organized several research work-
shops and research events.
Nivedita Sinha is Assistant Professor at the Department of Economics &
Finance at the Birla Institute of Technology & Science, Pilani, Hyderabad
 Authors’ biographies xxi
Campus, India. She obtained her PhD in finance and control from the
Indian Institute of Management, Bangalore, India. Nivedita’s research
focuses on entrepreneurial finance, corporate governance, and principal–
principal agency conflicts in family business groups. She has received project
funding from her institute to study venture capital financing in the cleantech
industry. She has also received project funding from her institute to study
minority shareholder protection and its relationship with the business group
ownership structure.
Sayema Sultana is Director-management consultant at Saif Kashem & Co.,
Chartered Accountants, Chittagong, Bangladesh. Previously, she was a lec-
turer at the Department of Economics and Finance, Sunway University
Business School, Sunway University, Malaysia. She completed her PhD in
2018 from the Department of Accounting, Auditing, and Taxation, Faculty
of Business & Accountancy, University of Malaya, Malaysia. She also has a
master of business administration (MBA) with a major in finance that was
completed in 2011 from Independent University, Bangladesh, where she
was awarded the Chancellor’s Gold Medal for her academic excellence. Her
research interest encompasses the field of sustainable development, behavio-
ral finance, business ethics, corporate governance, and crowdfunding.
Muhammad Nawaz Tunio is Associate Professor, Department of Business
Administration, Greenwich University, Karachi, Pakistan. Dr. Tunio is a
PhD in the Doctoral Track Entrepreneurship, Innovation and Economic
Development from Alpen Adria University, Klagenfurt, Austria, through
the government scholarship of Higher Education Commission of Paki-
stan. He won a prestigious research fellowship, the Young Scientist Award,
from Alpen Adria University, Klagenfurt, for Kent State University, Ohio,
USA. His areas of research interest are entrepreneurship, youth develop-
ment, self-employment, ICT, education and qualitative methods. He has
a few publications in the mentioned areas. Mr. Tunio has written a book
chapter, “Academic Entrepreneurship in Developing Countries: Contextu-
alizing Recent Debate,” that was a part of the Research Handbook on Entrepre-
neurship in Emerging Economies, Edward Elgar Publishing. He has presented
papers at international conferences, including Academy of Management and
EURAM, and has attended research workshops.
Nick Vonortas is Professor of Economics and International Affairs at the
George Washington University in Washington DC. He currently holds
a São Paulo Excellence Chair in Technology and Innovation Policy at the
University of Campinas, Brazil. He is a leading research fellow at the Insti-
tute for Statistical Studies and Economics of Knowledge, National Research
University Higher School of Economics, Russian Federation. He is Editor
of the peer-reviewed journal Science and Public Policy. Professor Vonortas’
teaching and research interests are in industrial organization, the economics
of technological change, and technology and innovation policy and strategy.
xxii Authors’ biographies
He holds a PhD and MPhil in economics from New York University
(USA), an MA in economic development from Leicester University (UK),
and a BA in economics from the National and Kapodistrian University of
Athens (Greece).
Zaki Zaini is Lecturer in economics and presently serves as Deputy Dean at
the Faculty of Islamic Economics and Finance, Universiti Islam Sultan Sharif
Ali (UNISSA), Brunei Darussalam. Dr Zaki holds a PhD in economics from
the University of Exeter, United Kingdom, MSc in operational research and
applied statistics from Cardiff University, United Kingdom, and BSc (Hons)
education in mathematics and physics from Universiti Brunei Darussalam.
He wrote his PhD thesis on an analysis of the management of zakat alloca-
tion and distribution in Brunei Darussalam. He is an active researcher and
has published a number of journal articles and book chapters. He also served
as a panel speaker at the 13th Muzakarah Cendekiawan Syariah Nusantara
(Muzakarah-13) (Regional Shari’ah Scholars Dialogue).
Preface

Entrepreneurship is now unanimously considered a major engine for socio-

economic development mainly because it creates jobs, enables innovation, and
allows for economic growth and poverty alleviation (Si et al., 2019; Alvarez &
Barney, 2014). Therefore, governments around the world have been dedicating
special attention to removing barriers to entrepreneurship as well as supporting
entrepreneurial development via different policies, especially entrepreneurial
finance. The rationale is obviously that, without financial resources, entrepre-
neurs would not neither start nor grow their businesses and, therefore, create
revenue and jobs (Rahaman, 2011).
Developing, emerging, and transition economies (DETEs) significantly dif-
fer from developed ones due to their specific development conditions such as
finance, culture, institutions, infrastructure facilities, and administrative proce-
dures (Bonin & Wachtel, 2003; Ngo et al., 2016). Within this context, firms
and their entrepreneurs in and from DETEs can behave differently, particularly
in terms of their financial strategies. Thus, contextualizing is a must to better
understand the relationship between entrepreneurial finance, innovation, and
development in DETEs (Dana, 1995; Peng & Heath, 1996; Bruton et al., 2008;
Welter, 2011; Hoskisson et al., 2000; Wright et al., 2005; Zahra et al., 2014).
On another ground, Denis (2004) shows that little was known about entre-
preneurial finance in both DETEs and developed countries until the early
1990s. In the period of 1990–2002, the number of published entrepreneurial
finance articles never exceeded six per year in major scientific journals of the
field. Since then, this topic has gained ground and increased in the last two
decades, especially in the aftermath of the 2008–2009 global financial crisis
(Wright et al., 2016). To date, however, our existing knowledge of the rela-
tionship between entrepreneurial finance, innovation, and development in
DETEs remains limited and dispersed (Beck et al., 2005; Beck et al., 2008;
Beck & Demirguc-Kunt, 2006).
This book proposes a timely collection of high-quality chapters. Divided
into four parts, it offers an up-to-date and systematic understanding of finance,
entrepreneurship, innovation, and development, with a focus on an important
number of countries in Asia, Central and Eastern Europe, Latin America, and
Africa.
xxiv Preface
Part A: “Entrepreneurial finance in DETEs: Regional approach”
includes four chapters which adopt a multinational approach to investigate
finance, entrepreneurship, and small business in DETEs. These studies examine
different sources and types of finance for entrepreneurship and small business in
different groups of countries classified as DETEs.
Nhung Nguyen and Vi Dung Ngo (Chapter 1) begin by providing an over-
view of the current situation of the digital finance (Fintech) instruments avail-
able for small and medium enterprises in Southeast Asia. They apply the digital
finance cube (Gomber et al., 2017) to map the digital financial instruments
available to entrepreneurs. They also address the regulatory dimension of digi-
tal finance that is missing in the digital finance cube. They found that fintech
technology in Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia,
the Philippines, Singapore, Thailand, and Vietnam utilizes digital data scoring
through data analytics and blockchain technologies with the help of artificial
intelligence. Regarding business functions of digital finance, they are limited
to payment, e-money, and peer-to peer lending. Only a few economies in the
region provide peer-to-peer lending or robo advice using data analytics. Mobile
payment is the most common function. These authors argue that the major
challenges when entering the financial services markets in this region include
an unregulated environment. They conclude that Fintech regulations should be
evaluated by uniform standards for financial inclusion in Southeast Asia.
In Chapter 2, Sayema Sultana and Fiza Qureshi explore the present global
crowdfunding market with a special focus on DETEs through a systematic
literature review (SLR). They first discuss the present state of crowdfunding
around the world and in different regions of DETEs. The theoretical dimen-
sions of previous studies on crowdfunding are also analyzed. These authors
posit that various blockchain models are a momentous innovation of Fintech
which can accelerate the success of crowdfunding platforms in DETEs. They
argue that DETEs would indeed eminently benefit from the crowdfunding
ecosystem. They further discuss how crowdfunding can expedite the achieve-
ment of sustainable development in DETEs through various approaches.
Luca Sabia, Robin Bell, and David Bozward (Chapter 3) provide a very help-
ful overview of crowdfunding and entrepreneurship in the Western Balkans,
where there is currently a dearth of research into crowdfunding and entrepre-
neurship. These former communist countries, which have made the transition
to capitalist economies, continue to develop their entrepreneurial ecosystems
to support private business and innovation and are labeled the next frontier
of start-ups in Europe. These authors show that, in the context of financial
constraints, crowdfunding could be a useful tool to support the financing of
entrepreneurship in the region. However, whilst crowdfunding could provide
valuable support to start-ups in Albania, Bosnia and Herzegovina, Kosovo,
Montenegro, North Macedonia, and Serbia, the platforms operating in the
region and the ecosystem are currently underdeveloped.
In Chapter 4, Cesario Mateus and Trung Bao Hoang discuss the role of for-
eign portfolio investment (FPI) as an important source of not only finance but
 Preface xxv
also corporate governance, innovation, and knowledge spillover for local listed
firms in Bosnia and Herzegovina, Serbia, Ukraine, and Vietnam. These authors
find that local public firms with foreign portfolio ownership tended to perform
better than those without ownership by foreign investment funds. However,
there is no clear conclusion about whether the coexistence of state ownership
in public firms promotes the efficiency of FPI.
Part B: “Entrepreneurial finance in DETE: Country approach” also
includes four chapters and focuses on entrepreneurial finance in specific coun-
tries belonging to the DETEs. Different financial sources such as peer-to-peer
lending and venture capital as well as the financial market in general are both
considered.
Yong Chin Lee and Hooi Hooi Lean (Chapter 5) provide an up-to-date
overview of peer-to-peer (P2P) lending in Malaysia. They discuss the regula-
tory environment and the role of the Securities Commission (SC) Malaysia,
which is responsible for financial technology (Fintech) in Malaysia. The major
P2P lending platforms in Malaysia are presented and analyzed. Then, these
authors provide in-depth and insightful information about the prospects and
challenges of P2P development in Malaysia as the first country in ASEAN
imposes regulations on the P2P lending industry. In fact, this chapter is strongly
related to studies in Chapters 2 and 3.
In Chapter 6, Irineu de Souza Lima Júnior, Nicholas Spyridon Vonortas,
and Sérgio Robles Reis de Queiroz investigate the development of the venture
capital (VC) market in Brazil from the institutional perspective. They attempt
to show how the depth of the capital market for IPOs, the tax system, the inno-
vation system, intellectual property protection, and the legal environment can
influence VC market development in Brazil, a leading market for VC activities
in Latin America.
Nivedita Sinha and Shreya Biswas (Chapter 7) also investigate venture capi-
tal, but in another major developing country, India. The authors look at the
link between bilateral trade relationships and foreign venture capital funding for
Indian start-ups and find that foreign venture capital funding increases with bilat-
eral trade ties. Furthermore, this funding–bilateral ties relationship depends on
the stage of financing and region where the start-up firm is located. They recom-
mend that Indian domestic policy focus on early-stage start-ups, as they are less
likely to receive large-scale foreign venture capital funding. Also, policymakers in
India should initiate region and state-specific initiatives in line with the Startup
India initiative to reduce the spatial disparities in start-up funding space.
In Chapter 8, Hyeladi Stanley Dibal, Akuraun Shadrach Iyortsuun, and
Habila Abel Haruna explore the asymmetric link between financial market
development (FMD), regulatory quality, and entrepreneurship in Nigeria, a
major developing country in Africa. Using the finance-growth model, they
find that regulatory quality positively moderates the relationship between insti-
tution depth index, financial institution access index, and financial institution
efficiency index as dimensions of FMD and self-employment in the long run,
while the short run effect was inconsistent.
xxvi Preface
Part C: “Entrepreneurial finance, gender and poverty” goes beyond
the business scope of entrepreneurial finance. The three chapters in this section
are concerned with the relationship that involves finance, women’s entrepre-
neurship, and poverty.
Erum Shaikh, Muhammad Nawaz Tunio, and Fiza Qureshi (Chapter 9) pro-
vide an up-to-date review of various funding sources for women’s entrepre-
neurship in DETEs. They find that various financing barriers prevent female
entrepreneurs in the entrepreneurial process from starting, maintaining, and
growing their businesses. Moreover, they note that emerging sources of fund-
ing like crowdfunding and business incubators can provide suitable solutions
for women’s entrepreneurship in DETEs.
In Chapter 10, Ayi Gavriel Ayayi, Chantale Dali, and Théophile Serge
Nomo examine the factors that foster the emergence of women’s microen-
terprises in a rural area of Ivory Coast from a territorial development per-
spective. They show that the combination of entrepreneurial competencies,
an area that incubates women’s entrepreneurship, and the implementation of a
planning strategy that favors women’s participation plays a vital role. Addition-
ally, the more women feel competent, the more they will participate in local
development processes and create an area that incubates their microenterprises
through economic interest groups. Yet the capacities of rural women to mobi-
lize endogenous resources can enhance the financing of local development.
Zaki Zaini and Khairul Hidayatullah Basir (Chapter 11) investigate a special
source of Islamic social finance called a “zakat fund” (i.e., a form of almsgiving
as a religious obligation in Islam or tax in the productive assistance program,
Az-Ziraah in Brunei Darussalam). They seek to understand the major factors
which influence the success of this program based on the experience of its pilot
stage. Interestingly, the application of a zakat fund is mainly in entrepreneurship,
especially in the agriculture sector. In other words, Islamic social finance could
encourage entrepreneurship among the poor because government recognizes
that “it can be learned that this programme is able to inculcate entrepreneurial
mindset amongst the participants” and they “had to train the participants to be
an agripreneur and change their mindset from seeking a secured and stable job
to entrepreneur.” This chapter finds that the availability of land is very impor-
tant for the program to run, and strong support from top management is also
required to ensure its success and smooth realization.
Part D: “International comparisons and lessons” includes three
chapters focusing on the comparison within developing countries as well as
between developing and developed countries. An exception is Chapter 14,
which stresses the role of higher education offerings (HEOs) for the develop-
ment of female entrepreneurs and can be considered lessons learned from a
more-developed country, Israel.
In Chapter 12, Harshana Kasseeah investigates the relationship between
growth and financial development while accounting for nascent entrepreneur-
ship. The author finds evidence to suggest that financial development mat-
ters for economic growth even when controlling for nascent entrepreneurship.
 Preface xxvii
Interestingly, there is no significant, positive, and direct effect of nascent entre-
preneurship on economic growth. However, the mediating effects of finance
on entrepreneurship need to be considered.
Mariarosaria Agostino and Sabrina Ruberto (Chapter 13) focus on family
businesses. They study the relationship between family firms and technical effi-
ciency as well as the potential relevance of financing constraints. Using a large
sample of firms operating in Eastern European, Central Asian, Middle Eastern
and North African countries, they find that family firms tend to be character-
ized by lower efficiency, which does not seem to be driven by difficult access
to credit.
In Chapter 14, Dafna Kariv, Dikla Elisha, and Dafna Schwartz try to “deci-
pher” female and male Israeli students’ choices of higher education offerings,
with a focus on business and finance as the main drivers of entrepreneur-
ial capability acquisition. Each gender group’s perceived “gap” between the
“ideal-type” and their own entrepreneurial capabilities is assessed with respect
to their HEO choices. Their sample consists of university students and a spe-
cific sample of student-entrepreneurs. They find that in both the student and
student-entrepreneur samples, women’s HEO choices stemmed from their
entrepreneurial self-beliefs and not from a perceived “gap” or motivation.
Moreover, female student-entrepreneurs ranked higher than female students in
their choices of business and finance HEOs, with a higher similarity to male
student-entrepreneurs, showing decreased gender differences in the student-
entrepreneur sample. This chapter provides helpful implications and lessons
from the Israeli ecosystem, and impacts on other entrepreneurial ecosystems
are discussed.
We believe that this book will be a useful source of references and important
materials for all stakeholders seeking to understand the multidimensional links
between finance, entrepreneurship, and innovation in developing and transi-
tion economies.

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Part A

Entrepreneurial finance
in DETEs
Regional approach
1 Digital finance and SMEs
in Southeast Asia
An overview
Nhung Nguyen and Vi Dung Ngo

1. Introduction
In recent years, developing economies in the Southeast Asian region become
important partners of many larger multinationals in developing new products
or serving new markets owing to their greater flexibility and productivity
(Google, Temasek and Bain, 2018). These economies actively participate in
the global value chain and strongly contribute to the global economy (Bosma
et al., 2020). Small and medium-sized enterprises (SMEs) account for up to
99% of business establishments in key sectors, contribute to more than 50% of
Southeast Asian countries’ GDPs, and employ more than 80% of the workforce
(ADB, 2020). However, like SMEs around the world, SMEs in this region face
many constraints such as access to information, skills, technology, finance, trade
facilitation, and connectivity (IFC, 2017). About half of the formal SMEs in
Southeast Asia do not have access to formal credit, with a widening financing
gap when micro and informal enterprises are included (Wyman, 2017). SMEs
are underserved by traditional bank-based institutions, and alternative finance
sources for SMEs include informal channels that may charge significantly higher
interest rates and use the less-scrupulous business practices of unregulated play-
ers. Limited access to credit further exacerbates the disadvantages of SMEs as
well as Southeast Asian economies to integrate into global value chains.
On the other hand, new forms of entrepreneurial finance are emerging for
firms, especially SMEs (Cumming et al., 2019). These companies are often
called “Fintechs” or “technology platforms” and provide direct financing or
enable financing by other financial institutions (Gomber et al., 2017). Owing
to advanced technology and digitization, these financial services are gaining
popularity among SMEs such as marketplace lending, supply chain financing,
non-cash merchant payments, alternative data, advanced analytics, and under-
writing process automation. Southeast Asia is one the fastest-growing economic
regions in the world, and this creates strong fundamentals for SMEs to acceler-
ate business digitization across platforms (Google, Temasek and Bain, 2018).
The growing online population, both consumers and SMEs, motivates the sup-
ply side: about 94% of internet users have adapted to digital services. Further-
more, it was suggested that the level of digital literacy is opening more reliable

DOI: 10.4324/9781003134282-2
4 Nhung Nguyen and Vi Dung Ngo
alternative financing sources for Southeast Asian entrepreneurs (Vandenberg,
2020). Continued regulatory support for innovation, established financial ser-
vices and consumer players, and continuous infrastructure improvement create
a strong digital economy outlook (Google, Temasek and Bain, 2020).
Digital finance, or Fintech, is a new research field that is lacking both theo-
retical and empirical bases (Gomber et al., 2017). Gomber et al. (2017) provided
a comprehensive framework called “the digital finance cube” which constitutes
three dimensions to review the progress of the field. The first dimension is the
business function, claimed to be the most important and the most commonly
applied in the cube. The second dimension is technologies and technological
concepts. Regarding the institution dimension, Gomber et al. (2017) claimed
Fintech has disruptive power in its competition with traditional services pro-
viders. These institutions provide digital finance and banking services but with
limited uptake. Nevertheless, the digital finance cube does not include the
regulatory dimension of digital finances and Fintech, which should play a criti-
cal role in the development of this entrepreneurial phenomenon. In addition,
Gomber et al.’s (2017) review did not pay attention to digital finance and Fin-
tech in different regions and countries around the world.
This chapter aims to fill these gaps by providing an overview of digital finance
in nine Southeast Asian countries: Brunei Darussalam, Cambodia, Indonesia,
Lao PDR, Malaysia, the Philippines, Singapore, Thailand, and Vietnam. We
plan to review different dimensions of digital finance and Fintech in this region
and the key regulatory conditions of digital finance and Fintech in these coun-
tries. A special attention is devoted to SMEs because of their role, as well as
financial constraints in this region. The rest of this chapter is organized as fol-
lows: The next section presents the background of SMEs and SME finance
in the region. The third section discusses the various dimensions of digital
finance, followed by one missing dimension in the fourth section. The last sec-
tion summarizes digital finance in Southeast Asia from a regulatory perspective.

2. Background of SMEs, finance, and digitization

in Southeast Asia
Table 1.1 provides an overview of the definitions of SMEs in Southeast Asian
countries. In general, employment is commonly used to define SMEs, but the
size of SMEs by their number of employees greatly varies by countries. For
example, in Lao PDR and Indonesia, small enterprises can operate with fewer
than 20 employees, and medium size is fewer than 100 (Lao National Chamber of
Commerce and Industry, 2018). Large enterprises have more than 200 employ-
ees in Cambodia, the Philippines, and Thailand (The Philippines Department of
Trade & Industry, 2018). Industry is also a determining factor of SME sizes. The
Malaysian manufacturing industry defines small enterprises as 5–50 employees
and medium enterprises as 51–150 employees, while it is 5–19 employees for
small and 20–50 for medium in the service industry (Malaysia SME Corpora-
tion, 2020). Singaporean non-manufacturing enterprises with 0–200 employees
are considered small and medium (Government of Singapore, 2020).
 Digital finance and SMEs in Southeast Asia 5
Table 1.1 Definitions of SME in Southeast Asian countries

Country Definition of SME Source

Brunei Small enterprise: 6–50 workers Organization of Small and

Darussalam Medium enterprise: 51–100 workers
Cambodia Small enterprise: 10–59 workers
Medium enterprise: 50–199 workers
Large enterprise: 200 workers or
more
Indonesia Small: 0–19 workers
Medium: 20–99 workers
Large: 100 workers or more
Lao PDR Small: 1–19 workers
Medium: 20–99 workers
Malaysia Small: 5–50 workers
Medium: 51–150 for manufacturing
industry: 20–50 for service industry
The Philippines Small: 10–99 workers
Medium: 100–199 workers
Singapore Small and medium: 0–200 workers
for non-manufacturing companies
Thailand Manufacturing and service industry
Small: 0–50 workers
Medium: 51–200 workers
Vietnam Small: 20–200 workers for service
industry
Medium: 200–300 workers
Source: Author’s illustration (2021)
Medium Enterprises and
Regional Innovation Japan
Ministry of Industry, Mines
and Energy
Ministry of Cooperative and
SMES
Lao National Chamber of
Commerce and Industry
National SME Development
Council
The Philippines Department
of Trade & Industry (2018)
Government of Singapore
(2020)
Ministry of Industry
Ministry of Planning and
Investment

Although SMEs make a structural contribution to the economy, there are

a significant number of unregistered businesses (OECD/ILO, 2019). Tackling
vulnerability in the informal economy can be challenging due to the populated
workforce. For instance, about 62.8% of total employment in the Philippines
is in the informal sector (Bersales & Ilarina, 2019). The Vietnamese informal
sector is estimated to contribute 20% of the GDP, and around 82% of jobs are
defined as informal (Pasquier-Doumer et al., 2017). They are not protected,
as Vietnamese policy makers have only recently started to address the posi-
tive impacts of formalization. Current measures to tackle the informal econ-
omy primarily focus on the target of reaching 1 million operating enterprises
(OECD/ERIEA, 2018b). Prior research on non-regulated SME activities
helps governments to break the vicious cycle of exploitation and informality
and provide strong incentives to these micro enterprises to register formally.
The ultimate goal is to extend the security systems of social protection and
labor laws to encompass all workers (OECD, 2020).
According to Table 1.2, agricultural SMEs make the least contribution. In
Thailand, there are more than 1 million SMEs, most engaged in agriculture-
related activities (OECD, 2011). In 2015, the agriculture sector only accounted
6 Nhung Nguyen and Vi Dung Ngo
Table 1.2 SME-dominated sectors and their roles in the economy

Country SME-dominated sectors Role in the economy

Brunei Wholesale and retail trade sector
Darussalam (38.5%); manufacturing (11.9%);
and professional, technical,
administrative, and support
services (8%) in 2017 (OECD/
ERIEA, 2018a)
Cambodia Agriculture and industrial sector:
food, apparel, and household
goods for domestic consumption
Indonesia Wholesale and retail trade sector
(63.5 %), manufacturing sector
(16.7%), transportation and
communication sector (7.3%)
Lao PDR Agriculture and manufacturing
sector: food, apparel, and
household goods for domestic
consumption
Malaysia Service sector: mostly retail, motor
vehicles, lodging, restaurants,
personal services, health,
education and social services,
recreational services (Bosma, 2020)
The Wholesale and retail trade, repair of
Philippines motor vehicles and motorcycles,
accommodation and food service
activities, manufacturing
Singapore Manufacturing sector: 5% in 2007,
service, transportation, wholesale
Thailand Wholesale and retail trade sectors Out of 2.7 million enterprises,
and automobile repair (42.37%),
service sector (37.87%),
manufacturing sector (18%),
agriculture (1.1%) (OSMEP, 2015)
Vietnam Agriculture and industrial sector: Start-ups and SMEs contribute up
food, apparel, and household
goods for exporting
Source: Author’s illustration (2021)
5.1% of employment and 3.4% of
gross business revenue in 2017
72% of enterprises are family-run
businesses with one to three
employees in 2009 (The Asia
Foundation, 2013)
Since 2010: 99.99% enterprises
are SMEs (International Labor
Office, 2019)
In 2018: 99.8% of enterprises are
SMEs (Lao National Chamber of
Commerce and Industry, 2018)
65% total employment
(Chin & Lim, 2018)
99.5% total enterprises, 62.4%
of total employment (The
Philippines Department of
Trade & Industry, 2018)
44.7% total enterprise nominal
value added in 2019
(Government of Singapore, 2020)
99.7% of enterprises are SMEs
(OSMEP, 2015).
to 50% of employment across the
country (OECD/ERIEA, 2018b)

for 1.1%. SMEs across the region are heavily involved in indirect exporting.
Vietnamese SMEs make up more than an 80% share of total export firms,
mostly due to their foreign-owned suppliers; the main export activities are
industrial production of clothing, plastic goods, and wooden furniture, as well
as transportation and wholesale machinery (OECD, 2021). Vietnamese SMEs
are indirectly integrated into global value chains (GVCs) because they spe-
cialize in non-critical segments of the production process (The World Bank,
2017). For domestic SMEs that mainly provide for the local market, they
 Digital finance and SMEs in Southeast Asia 7
manufacture food, apparel, and household goods. There are no international
standards required for the informal sector to enter these domestic market-ori-
ented industries. According to Uchikawa and Keola (2009), Laos and Cambo-
dia follow suit.
Low investment in R&D impedes innovation of capability and technology
readiness in Southeast Asia. A survey with the six core ASEAN markets of
Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam showed
that digitization is relatively new to SMEs (EYGM Limited, 2019). They are
required to leverage new tools and applications, digital talent, new ways of
working, and ecosystem connectivity to deliver enhanced products and services
and pursue new markets and customers. With risks intensifying alongside digi-
tal adoption, they also need to consider new dimensions of security challenges
such as cyber threats and vulnerabilities. Innovations and productivity devel-
opment are currently held back by a lack of technology. Thailand is slow to
absorb foreign practice or investment of domestic R&D spending. Only 0.25%
of the GDP was reported to be invested in 2007, which is significantly less than
China’s or India’s investment (OECD, 2011).
Although many SMEs have limited access to finance, it is often unclear
whether credit represents a binding constraint on firm growth. Few studies
have explicitly tested the positive link between access to finance and the growth
of small firms in the long run. Stein (2013) reported 17 million firms (60% of
SMEs worldwide) report that their financial needs are unmet, with more than
half of these (9 million firms) in Asia. As SMEs have more difficulty in access-
ing finance partly because of their small size, the lack of creditworthiness adds
to the inefficiency of credit markets (Wignaraja & Jinjarak, 2015). Accordingly,
smaller firms lack the resources and experience required to attain scale and to
finance for new investment. Southeast Asian SME participation in the GVC
takes place through participation (both forward and backward) in the produc-
tion of the exports of larger firms (López-González, 2017). SMEs face consid-
erable constraints in engaging in international markets. Southeast Asian SME
participation in the GVC takes place through indirect contributions to the
production of the exports of larger firms – or indirect exporting (Piacentini &
Fortanier, 2015; Fortanier & Miao, 2016).

3. Digital finance in Southeast Asian countries

3.1. Methods
A systematic literature review includes objective identification, research selec-
tion, and assessment (Creswell, 2013; Li et al., 2021). This section applies the
digital finance cube of Gomber et al. (2017) to review digital finance and Fin-
techs in Southeast Asian countries. The three different categories/dimensions
of digital finance will be investigated: technologies, business functions, and
institutions. This chapter aims to create an overview and generate awareness of
the uncertainties of Fintech regulation as an opportunity for SME financing.
Hence, studies that relate to Fintech and SMEs financing are identified. The
8 Nhung Nguyen and Vi Dung Ngo
first Fintech to provide peer-to-peer (P2P) lending for SMEs, Funding Socie-
ties was launched in Singapore in 2015. The search covers the literature that
was published up to 2021.
Moreover, the data sources were obtained from online resources such as the
Economic Research Institute for ASEAN and East Asia, ResearchGate, AIS,
Springer, SSRN, EconPapers, Taylor & Francis, and Semantic Scholar data-
bases via Google Scholar. The search methods were determined by the relevant
keywords or a search for alternative words as follows: (1) “digital finance,” (2)
“fintech,” (3) “benefit of fintech,” (4) “advantage of fintech,” (5) “challenge of
SMEs financing,” (6) “risk of digital finance,” (7) “issue in traditional banks,”
(8) “risk of digital finance,” (9) “prospect of digital finance”. Furthermore, the
article searches were in English and involved the specified term related to “fin-
tech” presented in the full text of the articles.

3.2. Results

Digital finance – technologies

The first characteristic that makes Fintech appeal to SMEs is that technologies
allow matching lenders and investors with borrowers at low risk. There are also
cases where the platforms provide direct lending to the ultimate beneficiaries
and take balance sheet risks, whereas in other cases, they simply connect busi-
nesses that need financing with investors who have a higher risk appetite. Up
to now, the technologies available in Southeast Asian countries were limited to
credit scoring, blockchain technologies, and social networks (Wyman, 2017).
Digital finance is the most dynamic engine of the new economy because it
is a new financial paradigm created from the use of technologies such as big
data, cloud computing, and artificial intelligence (AI) in financial industry pro-
cesses (Deloitte, 2020). According to a report by Deloitte, digital finance tech-
nologies transform the entire ecology of traditional financial services. With
hundreds of millions of customers in the region, Fintech continues to bring
unprecedented change to the financial industry. Still, developing economies
have yet to address regulation difficulties for Fintech and technology develop-
ment (Suryono et al., 2020).

DIGITAL DATA SCORING THROUGH DATA ANALYTICS

First, the increased usage of data analytics allows Fintech to digitally gener-
ate client profiles, which leads to more informed lending decisions (Bendana
et al., 2020). The unbanked have an advantaged because they can submit
behavioral data, historical payment data, and a digital footprint for credit-
worthiness evaluation. For instance, Trusting Social is the largest provider of
credit risk profiles in Asia. By 2020, it expects to create and manage 1 bil-
lion credit risk profiles across India, Indonesia, the Philippines, and Viet-
nam. Trusting Social provides its clients with two scores: a credit score and
 Digital finance and SMEs in Southeast Asia 9
a fraud score. It evaluates the borrower’s creditworthiness using only their
phone numbers and telecommunications data. Their clients include under-
banked consumers, real-time underwriting, and minimizing credit and fraud
risks. The company also provides personalized product offerings to maximize
profitability and market share (Trust IQ Pte. Ltd., 2021). Similarly, another
popular service provider is Ayannah, founded in the Philippines, which also
uses artificial intelligence to assess behavioral data. Ayannah’s profile scoring
provider, KayaCredit, connects borrowers to established lending institutions
through an online lender marketplace, which opens opportunities for SMEs
and their potential financing sources overseas. Ayannah made the Top 100
Fintech Southeast Asia Influencers for 2019 out of 11,000 Fintech start-ups
worldwide (LATTICE80, 2019).

BLOCKCHAIN TECHNOLOGIES

The informal sector of SMEs in Southeast Asia, also known as the unbanked,
can also utilize the advantages of blockchain technologies. Transactions such as
paying bills, buying load credits, and sending and receiving money can be done
without a bank account. For example, Coins.ph, founded in the Philippines,
uses blockchain technology to store, transfer, and convert cryptocurrencies like
bitcoins and Ethereum to pesos and vice versa. Because of its convenience, it
currently serves over 10 million clients nationwide after starting in 2014. It has
also built the largest cash distribution network in the Philippines, operating via
33,000 partner locations domestically and over 500,000 locations worldwide.
The customized services for SMEs also include assisting in the cryptocurrency
trading process (Coins.ph, 2020).

PEER-TO-PEER LENDING TECHNOLOGY

Modern peer-to-peer lending effectively and timely functions with the help
of an automated credit analytics system. Moreover, it helps minimize human
error in the process and benefits from the regularities in data discovered by
credit analytics (IFC, 2017). However, crowdfunding and P2P lending tech-
nology remain at a nascent stage in Southeast Asia. Less than 0.1% of all loans
originate from P2P lenders (Vidal-Abarca, 2017). According to the same
research by BBVA, there are 54 P2P lenders in the ASEAN region, com-
prising 8% of the Fintech market. Nevertheless Vandenberg (2020) refers to
crowdfunding as a potential aspect of Fintech in Southeast Asia. These online
platforms refer to innovative financial instruments where a large and selec-
tive pool of individuals are looking for capital raising. These include market-
place/peer-to-peer consumer lending, P2P business lending, invoice trading,
equity-based crowdfunding, reward-based crowdfunding, and donation-based
crowdfunding. In the case of donation-based crowdfunding, donors provide
funding to individuals, projects, or companies based on philanthropic or civic
motivations with no expectation of monetary or material return. Probably the
10 Nhung Nguyen and Vi Dung Ngo
biggest donation-based crowdfunding platform in the world is the US-based
gofundme.com. On a reward-based crowdfunding platform, backers provide
funding to individuals, projects, or companies in exchange for non-monetary
rewards or products, such as Kickstarter (Fintechnews Singapore, 2017).

Digital finance – business functions

DIGITAL PAYMENT

The adoption of digital payments and the stages of maturity vary across coun-
tries. For example, Indonesia, Singapore, Malaysia, Thailand, and Vietnam
developed national plans for the adoption of digital payments, whilst Singa-
pore and Thailand have moved further into national and bilateral interoper-
ability (Hopped et al., 2018). Barriers to adoption of digital payment have
been lowered by the COVID-19 pandemic, so it is expected to become a
lasting habit for Southeast Asian countries (Google, Temasek and Bain, 2020).
Ascend Money, Thailand’s leading payment services and micro-loans provider,
was funded by China’s Ant Financial with a 20% stake for expanding the digi-
tal payments business by the end of 2016 (Vidal-Abarca et al., 2017). Ascend
Money and its digital wallet platform brand, TrueMoney Wallet, had made
their active user base four times bigger by the end of 2017. Besides a digital
wallet, the firm offers many services, ranging from mobile top-up, digital con-
tent, and P2P to retail payments. As the first Southeast Asian Fintech company
licensed in the region’s digital money financial services market, Ascend Money
claims to enable its agents domestically and regionally so that both digital and
unbanked SMEs have the opportunity to access innovative financial services
(Ascend Money, 2018). Also, Chinese investor Elang Mahkota Teknologi (part-
nered with Alibaba) launched Dana, a mobile wallet running on Blackberry
Messenger (ILO, 2019). Telkomsel, Singapore-based ride-hailing service Grab,
and popular Indonesian e-commerce site Tokopedia – all of which have their
own e-payment platforms – are also perceived as emerging banking competi-
tors. As a result of the early introduction of digital financial services across the
region, payment, the most used business function, makes up only a small por-
tion, about 20% gross transaction value (account-to-account is 18%, e-wallet is
1%), while cash transactions dominate (Google, Temasek and Bain, 2020). For
Vietnam, the use of non-cash payments has been promoted since 2016 under
a scheme that aims to enhance infrastructure for electronic transactions. By
2020, the creation of an automatic payment center by the State Bank of Viet
Nam had connected leading banks, service providers, retailers, and customers
in an ecosystem across the country. Leading players include pure Fintechs like
MoMo, VNPay, and Payoo; consumer technology platforms such as Grab with
Moca and SEA with AirPay; and established consumer companies like retailer
Vingroup with their own respective digital wallet offering, VinID Pay, and
Viettel with Viettel Pay (Fintechnews Vietnam, 2020).
 Digital finance and SMEs in Southeast Asia 11
DIGITAL MONEY

Initial coin offerings (ICOs) consist of the creation of digital tokens by Fintech
and their distribution to investors in exchange for fiat currency or, in most
cases, mainstream cryptocurrencies (Bitcoin or Ether). ICOs are enabled by the
use of blockchain technologies, which facilitate the exchange of value without
the need for a government or a bank, that is, decentralization. This form of
online transaction gains players the benefit of disintermediation. Tokens are
cryptographically secured and benefit from the inherent characteristics of the
distributed ledger technology on which they are built, such as transparency,
security, and immutability of the ledger given its distributed nature. The ICO
ecosystem is a complex environment extending beyond SMEs launching ICOs
and individuals or institutions wishing to participate, whether they are investors
or investees. It comprises digital exchange venues; trading platform operators;
digital wallet providers; increasingly emerging financial and technical advisors;
participants in regulated markets where tokens are underlying or referenced
assets; and investment funds or other collective schemes investing in tokens,
custodians, and regulators (OECD, 2020).
There are few countries in Southeast Asia with developed digital money
exchange markets because the most challenging issue for SME financing is the
lack of fixed assets and networks (ILO, 2019). The emergence of Fintech can
move this business function forward in the 2020–2030 period. Bigger shifts that
taken place include the introduction of digital and AI-backed underwriting
for larger, more complex loans that today are done manually in most coun-
tries; the use of blockchain and smart contracts that drive efficiency in the area
of securitization; the introduction of cryptocurrencies for lending loan reim-
bursement, broadening the financial ecosystem, challenging the exclusiveness
of traditional financial institutions (Sood, 2020).

DIGITAL LENDING

The Malaysia-based Growth Accelerator Exchange (GAX) aims to provide

SMEs within the ASEAN region financing, payments, and logistics solutions
through an all-in-one platform, beginning with operations in Malaysia. It aims
for an initial goal of disbursing between 10,000 and 20,000 loans to SMEs in
Malaysia with a loan size of around USD4,700 to USD11,700. For high-poten-
tial SMEs, GAX will consider a maximum loan amount of around USD23,500.
The interest rate charged on the loans will be between 10 and 16%, lower than
the 10 to 18% charged by local financial institutions for the same loan amount.
Financial services by GAX also serve government agencies and business part-
ners across Southeast Asia to pioneer secure partners and eventually to establish
the GAX ecosystem. Launched in 2017, GAX services include data analysis
for SMEs for their day-to-day operation, which reflects their performance and
growth prospects. So, if a business approaches GAX for financing solutions,
all GAX will ask for is the SME’s ecosystem account. Using the data available,
12 Nhung Nguyen and Vi Dung Ngo
GAX will assess the businesses without paperwork and provide innovative
financing solutions based on their respective needs. The platform will process
applications in minutes and disburse them within days, offering fast, accessible
financing. GAX will also extend its solutions to growth and mature-stage and
medium to large Business-to-Consumer or B2C retailers with payment gate-
ways as well as SMEs offering software-as-a-service (OECD, 2021).
In Indonesia, Go-Jek made joint ventures with three P2P lending firms: Fin-
daya, Dana Cita, and Aktivaku. Findaya specializes in providing lending services
to Go-Jek Partners. Dana Cita and Aktivaku, on the other hand, are lending
platforms specializing in academics/education and housing/property, respec-
tively. The initiatives will be run separately from Go-Jek’s current payment
vertical, Go-Pay. Already, half of Go-Jek’s 100 million monthly transactions are
processed through Go-Pay. As a whole, the value of e-money transactions in
Indonesia has been growing exponentially. E-commerce platforms, like Toko-
pedia and Bukalapak, are also a key part of the innovation taking place. First,
e-commerce allows SMEs to expand their business and attract finance. Toko-
pedia alone serves 2 million merchants, with some 80 million transactions per
month. For instance, Bina Artha conducts pilots by using the platform, plus
others such as Facebook, to identify clients. Other banks, such as Bank Man-
diri, are also working with e-commerce sites. An additional benefit to SMEs is
that, by putting their transactions online, their activities become more transpar-
ent for the banks to understand the business and assess credit risk (ILO, 2019).

DIGITAL INSURANCE

The use of digital financial solutions can lower expenditures for lending and
insurance by between 15 and 30%. However, digital solutions for SME insur-
ance are still nascent in the region. For instance, in Indonesia, the total esti-
mated insurance needs of the target segments, measured by annualized premium
equivalent, are between $500 million and $700 million, of which formal SME
insurance currently amounts to 0.001% (Wyman, 2017). For Malaysia, BigPay,
with 750,000 users by July 2019, is a mobile wallet which offers international
bank transfers in ten Asian countries. Besides debit, credit, and savings accounts,
BigPay offers financial services, namely loans, wealth management, and insur-
ance. The company plans to engage more with other Southeast Asian markets
in early 2021 (Bendana, 2020). As another example of newly established digital
insurance providers, MoMo is Vietnam’s leading mobile digital wallet, which
partners with incumbents. There are promotion campaigns available for join-
ing MoMo’s loans and insurance. As of September 2020, MoMo has signed
up its 20 millionth user. It gradually became a competitor with other popular
financial applications by leveraging more than 20,000 domestic and foreign
partners across lending (with Paylater, VietCredit, etc.), insurance (VBI, AIA,
etc.), e-commerce, and more (Wray et al., 2020). In Vietnam, Savemoney
specializes in building a digital insurance platform for banks, hospitals, and
telco companies based on strategic cooperation to share sustainable economic
 Digital finance and SMEs in Southeast Asia 13
benefits. Launched in 2013, Savemoney’s main business model is to customize
consumer financial services for a company that owns large customer data sets
(Savemoney, 2018). In one of Savemoney’s projects, VnResource Company
partnered for the provision of digital insurance services through the promotion
and marketing of insurance products to improve employee welfare. The solu-
tion highlights flexible insurance products that allow employees to freely buy
insurance for a premium of only a few thousand VND per day.

DIGITAL FINANCIAL ADVICE

The remarkable difference of Fintech compared to banks is the dynamic yet

reliable connection available online. Fintech’s financial advice function can be
described as experiential innovative financial products or services that feature
in the marketplace lending category. In other words, Southeast Asia Fintechs
assist SME financing by opening an ecosystem. They are the platforms where
investors interact with the P2P lending marketplace asset class. It includes firms
(or marketplace lending platform capabilities) that target the creation of sec-
ondary markets. This allows investors to sell their loans to other investors and
the supporting functions that support them. The trusting ecosystem reduces
formality. Regarding one-stop business support centers, Thailand is explor-
ing a blockchain-based database that offers real-time identification verifica-
tion alongside facial recognition technology. Meanwhile, Singapore’s digital ID
program looks to build on existing frameworks such as SingPass and MyInfo
with introduction of its National Digital Identity (NDI) program (Choi, 2020).
The program came in the category of digital ID: a range of national ID frame-
works in operation or testing across Southeast Asia. There are also know your
customer (KYC) procedures, widely used by Fintech. According to Lootsma
(2017), KYC is the process of a business identifying and verifying the identity
of its clients, commonly done in compliance with banking and anti-money
laundering regulations. KYC and communication security represents an area
of the ecosystem that is extremely developed in the consumer space as of today
but insignificant in the direction of SMEs in recent years.
Overall, Fintech in Southeast Asia advances beyond saving and payments
and into several business functions such as lending and insurance for SMEs.
By working with investors and partners on a global scale, some big Fintech is
able to provide financial services for underbanked and unbanked SMEs in the
domestic market, reaching the regional market in the upcoming years. Fin-
tech is a newcomer, so in entering the market, it will have to compete with
leading e-wallet providers for mindshare in payments and potentially other
financial service verticals, alongside digital offerings from existing incumbent
banks (Wray et al., 2020). The share of the financial ecosystem in emerging
economies made up by Fintech remains small. Although many countries in
the region have taken measures to develop the digital financial ecosystem to
increase financial inclusion for the SME sector, most are still in the process of
adopting common global standards and best practices (Hopped et al., 2018).
14 Nhung Nguyen and Vi Dung Ngo
3.3. Digital finance – institutions/industry
For many developing countries with underdeveloped business and financial
credentials, volatile cash flow cycles, and outdated banking infrastructure (espe-
cially in rural areas), Fintech brings more opportunities for SMEs to access
low-cost financing (Shinozaki, 2019). A significant part of a traditional bank’s
cost base is in maintaining a network of bank branches, ATMs, or face-to-face
services (Wray et al., 2020). Hence, it is challenging for banks to leverage a
modern technology stack while covering high operational costs. The existing
system is slow to address the needs of present-day customers. According to
The Asian Banker (2020), more than 90% of banks in Asia are using second-
and third-generation banking technology, which is 20-year-old core banking
technology in Asia as of 2020. As a result, the imposed technology gap for
infrastructure is increasing banks’ cost-to-income (C/I) ratios by 3–5%; limited
ability to automate processes and decisioning adds another 4–7% to the C/I
ratio (Google, Temasek and Bain, 2020).
Fintech innovation enables countries across the region to advance finan-
cial inclusion, and it allows Fintech to constantly increase customer bases and
to compete on lower cost, speed of innovation, and differentiated proposi-
tions designed to meet the identified needs of underbanked SMEs. Low-cost
infrastructure is identified as a key factor for a competitive company model
(Google, Temasek and Bain, 2019). The region is already deeply engaged in the
early stages of a digital economy evolution. Since 2015, the number of digital
finance providers has grown by 190%, and equity funding to start-ups in the
space has reached USD7.7 billion (Choi, 2020). Fintechs have the advantage of
a modern banking technology stack that is unencumbered by legacy or physical
infrastructure (Wray et al., 2020). The key design principles include cloud-
native, API-based, modular architecture with a strong emphasis on automation
and facilitating data analytics. For example, Tonik, a Philippines-based Fintech,
was granted a license to operate digital banks in 2020 after its founding in 2018.
With a total of four financial services start-ups incubated in Asia, Tonik is still
in the race to fill consumer demand for digital banking (TechCrunch, 2020).
Regarding digital financial instruments available to entrepreneurs at different
stages of the firm life cycle and across the entire risk-return spectrum, a census
survey in 2018 studied six representative countries for the future growth trend
of the Fintech industry in Southeast Asia. The region’s Fintech hot spot was
in Singapore, with about 500 firms focusing on wealth management, alterna-
tive lending, and payment, followed by Indonesia (262 firms) and the Philip-
pines (115 firms) in serving the SME sector. Other countries, namely Malaysia,
Thailand, and Vietnam, are currently focused on serving the consumer market
by offering digital payment, mobile payment, consumer finance, and payment
with remittance. Cao (2018) considered most Southeast Asia countries to be
in the pre-early stage of development, and the regulatory burden weighs on
both Fintech and its competitors – traditional banks. While financial institu-
tions adopt technology solutions, it is a challenging task to reach out to SMEs.
 Digital finance and SMEs in Southeast Asia 15
Fintechs offer services with improved user friendliness by leveraging low-cost
technology. It helped them to reach out to unserved and underserved seg-
ments, which financial institutions were not able to cover profitably. It also
helped attract investment and partnership from developed countries with pow-
erful Fintech hubs. Only a few economies in the region have peer-to-peer
lending and robo-advice using data analytics (ADB, 2020). Mobile payment is
the area with the most activity across Southeast Asia in the early days of Fintech
development (Dealroom, 2020).

The missing regulatory dimension of the digital finance cube

From the regulatory perspective, the number of Fintech firms has been increasing
across the region, but most still operate informally (Shinozaki, 2019). In coun-
tries like Vietnam, Malaysia, or Cambodia, many start-ups use cryptocurrency
and blockchain technologies without a regulatory framework for those activities
(Vandenberg 2020). The region’s central banks and financial authorities are at
the stage of building regulatory and policy frameworks that generally manage
P2P lending platforms, equity crowdfunding (ECF), cryptocurrency, and cyber-
security. Most countries address digital finance as smart devices and branchless
banking. According to ADB (2020), Singapore is the country with the most-
developed digital financial ecosystem, with more than 1,100 Fintech firms as of
2019. Its e-payment system is well developed, using several national platforms. By
January 2020, the Monetary Authority of Singapore had received 21 applications
for 5 available digital banking licenses. Vietnam also experienced new develop-
ment in regulating digital finance services for SMEs. The number of Fintech
hubs, support centers, and innovation laboratories reached 42 by 2017, which
is higher than Indonesia (20), Malaysia (10), and Thailand (5) (Cameron et al.,
2019). The number of 48 registered fintech firms in Vietnam is small, but they
are expanding SME services to digital insurance (insurtech) and business solutions
(wealthtech and regtech) (Vandenberg, 2020). On the other hand, in Cambodia,
advanced business functions offered by Fintechs are not officially recognized by
the government (Cambodia Research and Business Consultancy, 2019).

P2P lending platforms and equity crowdfunding

These solutions remain nascent in the region. In Vietnam, the central bank’s
Fintech Working Group is determining how best to promote and supervise
P2P lending, while the securities commission is conducting a feasibility study
on crowdfunding. Brunei Darussalam established a regulatory framework for
the digital finance market in 2017–2019, including regulations on P2P lend-
ing and ECF. The two-year period ended without a feasible outcome (ADB,
2020). For countries with formalized laws, there are mainly guidelines avail-
able for newcomers like Fintechs, especially domestic firms. Indonesia pro-
motes alternative financial instruments and non-cash transactions as part of
policy actions under its national financial inclusion strategy. Regulations on
16 Nhung Nguyen and Vi Dung Ngo
P2P lending and ECF were established in 2016 and 2018, respectively (ILO,
2019). In Malaysia, the 2011 Financial Inclusion Framework referred to digital
finance as a strategic target: Regulations covering ECF were launched in 2015
and those covering P2P lending in 2016. There were 11 P2P lenders and 10
ECFs registered with the Securities Commission Malaysia by the end of 2019
(Bosma et al., 2020). According to Bangkok Post (2020), Thailand’s securi-
ties commission supervises crowdfunding platforms, while the central bank
supervises P2P lenders. Regulations on Fintech and digital finance platforms,
including P2P lending and ECF, were enacted in 2019. As of October 2019,
there were two licensed ECFs (Live and Sinwattana).

Cryptocurrency
The Philippines Central Bank has issued guidelines concerning cryptocurren-
cies, stating that they are not backed by a central bank or a particular com-
modity and are not guaranteed by any country; therefore, they are not legal
tender (The Philippines Central Bank, 2017). However, since they are used as
a conduit to provide certain financial services, such as remittances and payment
transactions, entities that provide such services must register with the Central
Bank. The guidelines also provide penalties applicable to illegal and unauthor-
ized operations. For Vietnam, the delay in adapting blockchain technology
for trading digital currency is due to the high risk of this market. The gov-
ernment is strongly against informal trading and investing of digital currency
using many measurements. In 2017, the State Bank of Vietnam issued a decree
on cryptocurrency, which determined that digital currencies are not valid or
legal means of payment. If one violates the decree, they can face fines of up
to VND200 million (USD9,000). In 2018, the Vietnamese State Securities
Commission (SSC) allowed no cryptocurrency services, including issuance,
transactions, and brokerage (Vietnam Briefing, 2018). As of March 2021, the
HCM City Stock Exchange and Hà Nội Stock Exchange are the organizations
for securities trading in Vietnam, cryptocurrency is not a type of stock, and
there are no regulations for the issuance and trading of cryptocurrency and
virtual assets (Vietnam News, 2021). Similar cases occur in Brunei, Cambodia,
and Malaysia. For instance, Malaysia’s Inland Revenue Board (IRB) froze the
Malaysian bank account of Luno, a UK-based cryptocurrency trading platform,
with the suspension of fraud in tax statements (Star Media Group Berhad,
2018). This example hinders the high risk prospect and the potential regulation
tightening for the purpose of conducting an audit of required tax on income
of any person accruing in or derived from Malaysia. Overall, cryptocurrency
remains at a high level of disruption among digital financial services whether
it is regulated. Digital monetary systems compete with the banking industry
by simplifying money transfer. However, SMEs must bear the high risk that
money raised from the ICO could be used for unanticipated and unintended
purposes. It is because of these risks that it is the policy of certain markets to
refuse to register this type of investment.
Another random document with
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crowd of curious onlookers at the main entrance, and finally
depositing him in the bed in the room which he usually occupied.
The pain from his wounds was intense, but he managed to keep
up his nerve until we reached the hotel. Then he collapsed.
As we tried to help the doctor to bring him around I feared that the
injury and the shock might have proved fatal.
“Pretty serious,” muttered the doctor, in answer to my anxious
inquiry, “but I think he’ll pull through it. Call up Main 21. There’s a
trained nurse summering at the house. Get her down.”
I hastened to do so and had hardly finished when Kennedy came
over to me.
“I think we ought to notify his sister,” he remarked. “See if you can
get Mrs. Walcott on the house ’phone.”
I called, but the voice that answered was not that of Frances
Walcott. It took me a few seconds before I realized that it was
Winifred Walcott, and I covered up the transmitter as I turned to
Kennedy to tell him and ask what he wanted me to do.
“Let me talk to her,” decided Craig. “I think I won’t let events take
their course any longer. She can be the best nurse for Shelby—if she
will.”
Craig had evidently prepared to break the news gently to her, but,
as nearly as I could make out, it was not necessary. She had already
heard what had happened.
“No,” I heard him say, as if in answer to an anxious question from
her. “He is seriously hurt, to be sure, but the doctor says that with
proper nursing he will pull through.”
I did not hear the reply, of course, but I recognized the appeal
hidden in Kennedy’s answer, as he waited.
“Just a moment,” I heard him say next.
His forehead wrinkled as he listened to something, evidently
trying to make it out. Then he said, suddenly: “I think I had better say
no more over the telephone, Miss Walcott. Some one is listening to
us.”
An angry look flashed over his face, but his voice showed no
anger as he said good-by and hung up.
“What was it?” I asked. “What did she do?”
“It wasn’t Miss Walcott,” he replied, scowling. “You heard me say
that some one was listening? Well, just as I said it there came a
laugh over the wire from somewhere, and a voice cut in, ‘Yes, there
is some one listening. You haven’t caught me yet, Kennedy—and
you won’t.’ I said good-by after that. Oh, have no fear about Miss
Walcott.”
Kennedy was right. It seemed an incredibly short time when there
came a light tap on the door and he sprang to open it.
“Can I—be of any assistance?” pleaded a softly tremulous voice.
“Perhaps I—could play at nursing?”
Kennedy glanced at the doctor and the figure lying so quietly on
the bed, then at the girl, and decided. She had hesitated not a
moment, when she had heard how close Shelby was to death, but
had hurried to him. He opened the door and she entered softly,
tiptoeing toward the bed.
It must have been by some telepathic influence that Shelby, who
had a moment before been scarcely conscious, felt her presence.
She had scarcely whispered a word to the doctor, as she bent over
him, but he opened his eyes, caught just a glimpse of her face, and
seemed to drink it in as his eyes rested on the bunch of flowers she
was wearing—his flowers, which he had sent her.
He smiled faintly. Not even by a word or look was any reference
made to their misunderstanding. It was a strange meeting, but it
seemed that the very atmosphere had changed. Even the doctor
noticed it. In spite of his pain, Shelby had brightened visibly.
“I don’t think we need that nurse,” whispered the doctor to
Kennedy, with an understanding glance. “What was that you said
about some one listening over the telephone? Who could it have
been?”
The doctor said it in a low enough tone, but it seemed that
Maddox’s senses must have been suddenly made more acute by the
coming of Winifred.
He had reached out, weakly but unhesitatingly, and had placed
his hand on hers as it rested on his pillows. At the mention of the
telephone he turned toward us with an inquiring look. It seemed to
recall to his mind something that had been on it before the accident.
“Some one—listening,” he repeated, more to himself than to us.
Winifred looked inquiringly at us, too, but said nothing.
Kennedy tried to pass the thing over, but the doctor’s remark
seemed to have started some train of thought in Shelby’s mind,
which could not be so easily stopped.
“Some one—pounding Maddox Munitions,” he murmured,
brokenly, as if feeling his way through a maze. “Now I’m out—they’ll
succeed. What can I do? How can I hold up the market?”
He repeated the last two questions as though turning them over in
his mind and finding no answer.
Evidently he was talking about his operations in the market which
had been so puzzling to Hastings as well as ourselves. I was about
to say something that would prompt him to go on with his revelation,
when Kennedy’s look halted me. Apparently he did not wish to
interfere with the train of thought the doctor’s remark had started,
inasmuch as it had been started now.
“Some one—listening—over the telephone,” strove Shelby again.
“Yes—how can I do it? No more secrecy—laid up here—I’ll have to
use the telephone. Will those Broad Street brokers take orders over
long distance? Everybody will know—what I’m doing. They’ll delay—
play me for a sucker. What am I to do?”
It was evident now what Shelby had been doing, at least in part.
The tragedy to his brother had quite naturally depressed the stock of
the company. Indeed, with Marshall Maddox, its moving spirit, gone,
it was no wonder that many holders had begun to feel shaky. Once
that feeling began to become general, the stock, which had had a
meteoric rise lately along with other war stocks, would begin to sag
and slump sadly. There was no telling where it would stop if once the
downward trend began.
As I looked at the young man I felt a new respect for him. Even
though I had not a much clearer idea than at the start of how or by
whom Marshall Maddox had been killed, still I do not think any of us
had believed that Shelby was capable of seeing such a crisis so
clearly and acting upon what he saw. Evidently it was in his blood,
bred in the Maddox nature. He was a great deal more clever than
any of us had suspected. Not only had he realized the judgment of
outsiders about himself, but had taken advantage of it. In keeping
the stock up, if it had been known that it was he who was doing it, it
would not have counted for half what it did when the impression
prevailed that the public was doing it, or even some hazy financial
interest determined to maintain the price. Both possibilities had been
discussed by the market sharps. It had never seemed to occur to
them that Shelby Maddox might be using his personal fortune to
bolster up what was now in greater measure his own company.
For a moment we looked blankly at Kennedy. Then Shelby began
to talk again.
“Suppose the bear raid continues?” he murmured. “I must meet it
—I must!”
The doctor leaned over to Craig. “He can’t go on that way,” he
whispered. “It will use up his strength in worry.”
Kennedy was thinking about that, too, as he considered the very
difficult situation the telautomaton attack had placed Shelby in. It was
more than a guess that the attack had been carefully calculated.
Some one else, perhaps some hidden group, was engaged in taking
advantage of the death of Marshall Maddox in one way, Shelby in
another.
As for Shelby, here he was, helpless, at the Harbor House.
Surrounded by spies, as he seemed to be, what could he do? Every
message in and out of the hotel was most likely tapped. To use the
telephone was like publishing abroad one’s secrets.
Kennedy moved over quietly to the bedside, as Winifred looked
appealingly at him, as much as to say, “Isn’t there something you
can do to quiet him?”
He bent down and took Shelby’s hand.
“Oh—it’s you, Kennedy—is it?” wandered Shelby, not quite clear
yet where he was, in the fantasy of impressions that crowded his
mind since the accident. “I asked you to work with me once. You said
you would play fair.”
“I will,” repeated Kennedy, “as far as the interests of my client go, I
will give you every assistance. But if you are to do anything at all to-
morrow, you must rest to-night.”
“Have I—have I been talking?” queried Shelby, as though in doubt
whether he had been thinking to himself or aloud.
Kennedy ignored the question. “You need rest,” he said, simply.
“Let the doctor fix you up now. In the morning—well, to-morrow will
be another day.”
Shelby passed his hand wearily over his aching head. He was too
weak to argue.
While the doctor prepared a mild opiate Kennedy and I quietly
withdrew into the next room.
“Professor Kennedy—won’t you help us?” pleaded Miss Walcott,
who had followed. “Surely something can be done.”
I could not help noticing that she said “us,” not “him.” As I watched
her the scene on the float, hours before, flashed over me. There
another woman, under quite different circumstances, had made the
same appeal. Where did Paquita fit into the scheme of things? Two
women had been striving over Shelby’s life. Did one represent his
better nature, the other his worse?
Kennedy looked frankly at Winifred Walcott.
“You will trust me?” he asked in a low tone.
 “Yes,” she said, simply, meeting his eyes in turn.
“Then when the nurse arrives,” he directed, “get some rest. I shall
need you to-morrow.”
 XXIII

THE CURB MARKET

It’s
“ impossible to trace all the telephone lines back,” considered
Kennedy, thinking still of the eavesdropping, as we met Burke again
down-stairs. “Perhaps if we begin at the other end, and follow the
wires from the point where they enter the building to the switchboard,
we may find something. If we don’t, then we shall have to work
harder, that’s all.”
With the aid of Burke, who had ways of getting what he wanted
from the management of anything, from a bank to a hotel, we
succeeded in getting down into the cellar quietly.
Kennedy began by locating the point in the huge cellar of the
Lodge where the wires of the two telephones, 100 and 101 Main,
entered underground, that system having been adopted so as to
avoid unsightly wires outside the hotel.
Carefully Craig began a systematic search as he followed the two
lines to the point underneath the switchboard up-stairs. So far
nothing irregular had been apparent.
Craig looked up perplexed, and I feared that he was about to say
that the search must be continued wherever the wires led through
the house, a gigantic and almost impossible task.
Instead, he was looking at a little dark store-room that was near
the point where we were standing. He walked over to it curiously and
peered in. Then he struck a match. In the flickering light we could
see a telephone receiver and a little switchboard standing beside it.
For a moment his hand hesitated on the receiver, as though he
were afraid that by taking it off the hook it might call or alarm
somebody. Finally he seemed to decide that unless something were
risked nothing would be gained. He took the receiver deliberately
and held it up to his ear.
“Do you hear anything?” I asked.
He shook his head as if to discourage conversation. Then he
changed the plugs and listened again. Several times he repeated it.
At last he kept the plugs in for some time, while we waited in the
darkness, in silence.
“Evidently some one has tapped the regular telephone wires,” he
said to us at length, “and has run extensions to this little switchboard
in the store-room, prepared to overhear almost anything that goes on
over either set of wires that come in. And they have done more.
They must have tampered with the switchboard up-stairs. Just now I
heard the girl call Shelby’s room. The doctor answered. That trained
nurse has arrived and Miss Walcott has gone to her room as she
promised. We can’t take the time to trace out how it is done, and
besides it is too dark at night to do it, anyhow. Shelby was right.”
For a moment Kennedy tried to puzzle the thing out, as though
determining what was the best course to pursue. Then he stooped
down and began picking up even the burnt matches he had dropped.
“Don’t disturb a thing,” he said to Burke. “We must circumvent this
scheme. Has the last train back to the city gone?”
Burke looked at his watch. “Yes, unfortunately,” he nodded.
“Then I’ll have to send some one back to the city to my laboratory
by automobile,” continued Kennedy. “I can’t wait until morning, for we
shall have to go to the city then. There’s that student of mine—but
he’s pretty tired.”
“I can get a car and a fresh driver for him,” remarked Burke.
“Perhaps he could doze off during the ride. How would that do?”
“It will have to do,” decided Kennedy. “Get the car.”
We went back up-stairs by the way of the kitchen to avoid
suspicion, and while Burke hunted up a car and driver Kennedy
found Watkins and gave him detailed instructions about what he
wanted.
 “I calculate that it will take him at least four hours to go and get
back,” remarked Kennedy, a few minutes later. “There isn’t anything
we can do yet. I think we had better get a little rest, for I anticipate a
strenuous time to-morrow.”
We passed through the lobby. There was Sanchez, talking to the
night clerk.
“I was down on the dock in front of the Casino when the explosion
came,” we could hear him telling the clerk. “Yes, sir, it’s a wonder
any of them were saved.”
“What did you think of that?” queried Burke, in the elevator. “A
crude attempt at an alibi?”
Kennedy shrugged non-committally.
“I think I’ll have Riley watch him until he goes to bed,” continued
the Secret Service man. “I can telephone down from the room. No
one is listening now, at least.”
“By all means,” agreed Craig.
Tired though we were, I do not think we slept very much as we
waited for the return of the car from New York. Still, we were at least
resting, although to me the hours seemed to pass as a shifting
phantasmagoria of fire-balls and explosions strangely blended with
the faces of the two beautiful women who had become the chief
actresses in the little drama. From one very realistic dream in which I
saw Winifred, Paquita, Irene Maddox, and Frances Walcott all
fantastically seated as telephone operators and furiously ringing
Shelby’s bell, I woke with a start to find that it was our own bell
ringing and that Kennedy was answering it.
“The car is back from the city,” he said to me. “You needn’t get up.
I can do this job alone.”
There was no sleep for me, however, I knew, and with a final
yawn I pulled myself together and joined Craig and Burke in the hall
as we went down-stairs as quietly as we could.
Riley had left a hastily scribbled report in the letter-box for Burke,
saying that Sanchez had done nothing further suspicious, but had
gone to bed. Paquita was in her room. Winifred, Mr. and Mrs.
Walcott, Irene Maddox, and all the rest were present and accounted
for, and he had decided on resting, too.
Kennedy sent Watkins off to bed, after taking from him the things
he had brought back from the city, and the early morning, just as it
was beginning to lighten a bit, found us three again in the cellar.
Kennedy carefully reconnoitered the store-room where the
telephone outfit had been placed. It was deserted, and he set to
work quickly. First he located the wires that represented the number
100 Main and connected them with what looked very much like a
seamless iron tube, perhaps six inches long and three inches in
diameter. Then he connected in a similar manner the other end of
the tube with the wires of Main 101.
“This is a special repeating coil of high efficiency,” he explained to
Burke, whom he was instructing, as it occurred to him, just what he
wanted done later. “It is absolutely balanced as to resistance,
number of turns, everything. I shall run this third line from the coil
itself outside and up-stairs through Shelby’s window. Before I go to
the city I want you to see that the local telephone company keeps a
couple of wires to the city clear for us. I’ll get them on the wire and
explain the thing, if you’ll use your authority at this end of the line.”
In spite of the risk of disturbing Shelby Maddox, Kennedy finished
leading the wires from the coil up to his room and placed a telephone
set on a table near the bed. Then he carefully concealed the tube in
the cellar so that under ordinary circumstances no one could find it
or even guess that anything had been done with the two trunk lines.
Shelby was resting quietly under an opiate and the nurse was
watching faithfully. I did not hear Kennedy’s instructions entirely, but I
remember he said that Burke was to be allowed into the outer room
and that Shelby Maddox and Winifred were to talk only over the new
line as he would later direct.
Again we retired to our rooms, and I fell asleep listening to
Kennedy instruct Burke minutely in something which I think was just
as much Greek to the Secret Service man as it was to me. Kennedy
saw that it was and wrote down what he had already said, to make
doubly sure.
My sleep was dreamless this time, for I was thoroughly tired.
Whether Kennedy slept I do not know, but I suspect that he did not,
for when he was conducting a case he seemed unable to rest as
long as there was something over which he could work or think.
It seemed almost no time before Kennedy roused me. He was
already dressed—in fact, I don’t think he had taken time for more
than a change of linen.
A hasty bite of breakfast and we were again on the first
accommodation train that went into the city in the cool gray dawn,
leaving Burke with instructions to keep us informed of anything
important that he discovered.
No one for whom we cared saw us leave and we had the
satisfaction of knowing that we should be in the city and at work long
before any one probably knew it. That was a quality of Kennedy’s
vigilance and sleeplessness.
“It’s just as important to guard against prying ears at this end of
the line as the other,” remarked Kennedy, after hurriedly mapping out
a course for ourselves, which included, first of all, calling out of bed
an officer of the telephone company with whom he was intimately
acquainted and whom he could therefore afford to take into his
confidence.
Without a moment’s more delay we hurried down-town from the
railroad station.
Shelby Maddox had given Craig the names of two Curb brokers
with whom he was dealing in confidence, for, although Maddox
Munitions was being traded in largely, it was still a Curb market stock
and not listed on the big exchange.
“They are in the same building on Broad Street,” remarked
Kennedy as we left the Subway at the Wall Street station and took
the shortest cuts through the basements of several tall buildings in
the financial district. “And I don’t trust either one of them any farther
than I can see him.”
 It was very early, and comparatively few people were about.
Craig, however, managed to find the janitor of the building where the
brokers’ offices were—a rather old structure overlooking that point
where Broad Street widens out and has been seized on by that
excited, heterogeneous collection of speculators who gather daily in
a corner roped off from traffic, known as the Curb market. From the
janitor he learned that there was one small office in the front of the
building for rent at a seemingly prohibitive rate. It was no time to
haggle over money, and Kennedy laid down a liberal deposit for the
use of the room.
His tentative arrangements with the janitor had scarcely been
completed when two men from the telephone company arrived. Into
our new and unfurnished office Craig led them, while the janitor, for
another fee, agreed to get us a flat-topped desk and some chairs.
“Whatever we do,” began Craig in a manner that inspired
enthusiasm, “must be done quickly. You have the orders of the
company to go ahead. There’s one line that runs into the office of
Dexter & Co., on the second floor, another to Merrill & Moore on the
fourth. I want you to locate the wires, cut in on them, and run the cut-
in extensions to this office. It’s not a wire-tapping game, so you need
have no fear that there will be any come-back on what you do.”
While the telephone men were busy locating the two sets of wires,
Kennedy laid out on the desk which the janitor brought up on the
freight elevator a tube and coil similar to that which I had already
seen him employ at Westport.
Though the telephone men were as clever as any that the official
of the company could have sent, it was a complicated task to locate
the wires and carry out the instructions that Kennedy had given, and
it took much longer than he had anticipated. At least, it seemed long,
in our excited frame of mind. Every minute counted now, for the
advance guard of office boys, stenographers and clerks had already
begun to arrive at the offices in preparation for the work of the day.
We had fortunately been able to start early enough so that that
part of the work which would have excited comment was already
done before the office workers arrived. As for the rest, on the surface
it appeared only as though some one had rented the vacant office
and had been able to hurry the telephone company along in
installing its service.
There was no difficulty about connecting up our own regular
telephone, and as soon as it was done Kennedy hastened to call
Westport and the Lodge on long distance.
“Shelby has awakened much improved after his night’s rest,” he
announced, after a rapid-fire conversation. “Miss Walcott is with him
now, as well as the nurse. I think we can depend on Burke to handle
things properly out there. It’s an emergency and we’ll have to take
chances. I don’t blame Shelby for feeling impatient and wishing he
could be here. But I told the doctor that as long as things were as
they are he had better humor his patient by giving him an outlet for
his excitement than to keep him fuming and eating his heart out in
bed, helpless. Between Winifred and ourselves we ought to keep
him occupied.”
I do not think that the telephone men had the faintest idea what it
was that Kennedy was planning to do, and I am quite sure that I did
not. For, in addition to the outfit like that at Westport, he now laid on
the table a peculiar arrangement. It seemed to consist of a metal
base, which he placed near the telephone receiver. From the base
three prongs reached up, and there was attached to it on one side
one of those little flat, watch-case receivers such as are used on
office telephones.
It was getting late, and Kennedy and the men from the telephone
company were working as rapidly as possible, testing and adjusting
the connections he had caused to be made.
As I stood by the window, watching the gathering crowd below, I
suddenly realized that the market had opened.
It was as Kennedy had expected. Pandemonium seemed to reign
on the Curb. Buyers and sellers crowded and elbowed one another,
wildly shouting and gesticulating. From the thick of what looked like a
huge free-for-all fight orders and sales were relayed by word of
mouth to clerks standing on the sidewalk, who in turn shouted them
to other clerks in the windows of our own building or others about, or
despatched messengers to offices farther away. It was a curious
sight, and one never to be forgotten.
Passers-by stopped on both sides of the street to look and listen
to the struggling mob, and I soon saw that even the usually
electrified atmosphere of the Curb was this morning more than
ordinarily surcharged with excitement. Far above all the noise and
bustle I made out that there had been overnight a veritable flood of
orders from weak holders, as well as others, to sell Maddox
Munitions. It was not the weak holders we feared so much as the
hidden “others” who were seeking to manipulate the stock.
Our telephone rang and Craig answered it, while the men still
worked on the new line. It was Shelby. He had called up his brokers
and had heard of the market opening.
“Not quite ready yet,” hastened Kennedy. “Go ahead and place
your orders over the regular wire with the brokers. I’ll let you know
when we’re ready and what to do. Don’t worry.”
Kennedy had stationed me now permanently at the window to
report what was happening below. From my eery point of vantage I
could now see that the first flood of selling orders was receding, as
Shelby’s brokers wormed their way in and now and then snapped up
a lot of stock offered for sale. The buying momentarily seemed to
stiffen the price which before had threatened to toboggan.
Yet no sooner had the buying begun than it seemed as if other
blocks of stock were brought up for sale. It was, for all the world, like
a gigantic battle in which forces were hurled here and there, with
reinforcements held in reserve to be loosed at just the right moment.
Who was back of it?
Gradually, in spite of the large purchases which Shelby had made,
the price of the stock worked its way down. I began to understand
something of what was going on. Actually it seemed as though every
time there was an order to buy, coming from either Dexter or Merrill
& Moore, there was a corresponding new order to sell by some other
broker. Thousands of shares were thus being dumped on the
market, recklessly, relentlessly.
It looked as though some one was “wise.” Were the brokers with
whom Shelby was dealing straight? I said as much to Kennedy, but
he merely shook his head and plunged into work deeper.
One after another blocks of stock appeared for sale. There could
be no doubt now that there was a carefully planned quick assault
being made at the very opening of trading to take people by surprise
at the suddenness of the bear raid.
More and more frenzied became the selling and buying. I could
imagine the strain that it placed on Shelby, miles away, forced to take
only the reports that his brokers sent him, and to fling back other and
larger orders to buy.
As the trading progressed it became evident that the offerings of
stock were coming with more surprising regularity. The more I
observed the more I was convinced that there was some collusion
here. It was not chance. Some one was informed of each move of
Shelby’s, even before it could be executed, was enabled to prepare
for it, to meet it with a decided advantage. It was a game being
played for high stakes, but as far as Shelby was concerned, the
cards were stacked and marked.
Our telephone rang insistently and Kennedy answered it. It was
from Dexter. They were feeling shaky and worried.
Our door opened and a clerk from the Merrill & Moore firm
entered. He was suave and polite. But back of it all could be
discovered the eagerness to stand from under a possible crash.
“You will readily understand,” the broker hinted, “that under the
circumstances we cannot continue to take Mr. Maddox’s orders over
the telephone indefinitely. Suppose he should repudiate some of
them? Where would we find ourselves?”
Kennedy glanced at the two telephone men, one of whom had
straightened up and was watching the other.
 “I understand,” he said, simply, a grim smile flickering about his
mouth. “Just a moment, sir. Walter—keep Dexter on this wire.”
Below on the street I could hear the babel of voices. I knew what
it meant. At both ends of Shelby’s telephone line were traitors. A
panic in the stock was not only threatened. It was here.
Maddox Munitions was on the verge of collapse!
 XXIV

THE PHANTOM CIRCUIT

I looked at Kennedy in despair. He was not even perturbed. It was
for just this moment that he had hurried to New York and had worked
so intensely.
Over the telephone that I was holding, Dexter himself politely
informed us that he had reached a point where orders from Mr.
Maddox to be filled must have some more binding force than word of
mouth over the telephone.
“Tell him to wait just a moment,” directed Kennedy, turning to the
other broker who had come to us. “Will you, sir, tell Mr. Merrill to step
down to the office of Mr. Dexter? I shall be there in a moment myself.
Walter,” he added, calmly, “ring Dexter off. Get Shelby Maddox and
tell him to use the new wire connections.”
I did as I was told. Even over the telephone I could feel that the
strain was telling on Shelby’s shattered strength. His voice was
shaky as he inquired thickly for news. I shouted something
encouraging back, and urged him to get on the other wire, at which,
at our end, Kennedy was already impatiently waiting.
A moment later I heard Kennedy and Shelby exchange a few
words. Shelby was evidently much alarmed over the sudden turn of
events.
As I waited, I saw Kennedy jam the receiver down on the little
metal base. The three prongs, reaching upward, engaged the
receiver tightly, fitting closely about it. Then he took the small disk
receiver from its hook and placed it to his ear instead of the regular
one.
 I wondered what it all meant. Craig’s face showed that, whatever
it was, it was most important.
“Yes,” I heard him call back, “give whatever orders you want now
to me. I will see that they are delivered. Pay no attention to the other
telephone. Let it ring—until I tell you. Go ahead.”
Evidently Shelby was giving orders for stock up to the limit of his
resources that were available.
For a moment there evidently came a pause in what was being
said over the telephone at the Westport end, and Kennedy gazed
impatiently about the room.
“What good will that do?” I objected, seeing that Kennedy was not
occupied. “Don’t you suppose they’ll hear what is said over this line,
too? We know they’ve cut in on the two trunk lines at the Harbor
House, and there is every reason to suppose that some one taps the
brokers’ wires here—unless the brokers are crooks, too. They’ll
know what Shelby is going to do.”
Kennedy shook his head. “No,” he replied, calmly, “no outsider
knows a thing about this. You see, I’m not using any ordinary means
to prepare against the expert who has brought this situation about.
The messages that I am receiving are coming over what we call the
‘phantom circuit.’”
“‘The phantom circuit?’” I repeated, mystified.
“Yes. It seems fantastic at first, I suppose,” he pursued, “but, after
all, it is in accordance with the laws of electricity. They know nothing
and they cannot cut us off or interfere. You see, I am taking
advantage of the fact that additional telephones or so-called
phantom lines can be superposed on existing physical lines. It is
possible to obtain a third circuit from two similar metallic circuits by
using for each side of this third circuit the two wires of each of the
other circuits in multiple. All three circuits are independent, too.”
He was growing more and more impatient. Apparently there was
some delay at the other end.
 “The third telephone current,” he went on, hurriedly, covering up
his nervousness by talking about his machine, “enters the wires of
the first circuit, as it were, and returns along the wires of the second
circuit. There are several ways of doing it. One is to use retardation
or choke-coils, bridged across the two metallic circuits at both ends,
with taps taken from the middle points of each. But the better
method, I think, is the one you have seen me install. I have
introduced repeating coils into the circuits at both ends. Technically,
the third circuit is then taken off from the mid-points of the
secondaries or line windings of these repeating coils. I don’t know
what’s the matter,” he added, calling vainly for Shelby Maddox. “Oh,
all right. Yes, I’ll wait. But hurry, please.”
I could appreciate Kennedy’s eagerness, for below on the street
the tumult was rising.
“It’s working all right,” he reassured. “I suppose you know that the
current on a long-distance line is alternating in character, and it
passes readily through a repeating coil. The only effect it has on the
transmission is slightly reducing the volume. The current passes into
the repeating coil, then divides and passes through the two line
wires. At the other end, the halves balance, so to speak. Thus
currents passing over a phantom circuit don’t set up currents in the
terminal apparatus of the side circuits. Consequently, a conversation
carried on over the phantom circuit will not be heard on either side
circuit, nor does a conversation on one side circuit affect the
phantom. You get three messages at once on two sets of wires. We
can all talk at once without interfering with one another.”
At any other time I should have been more than interested, but
just now the delay was galling. “What’s the trouble?” I inquired.
Kennedy shook his head. “Shelby is talking to Winifred about
something. I can hear only a word now and then. But he said it was
important and asked me to hold the wire. Evidently she wants to do
something he doesn’t want her to do. Yes—hello—yes, this is
Kennedy. Say, you’ll have to— Oh, good morning, Miss Walcott.
Yes, fine. What? Why—certainly—if he says so, you may. That’s
right. Go right ahead. I am attending to everything at this end now.”
 A moment later when Craig restored the telephone to its normal
condition he looked at me with a smile.
“Winifred Walcott is a trump!” he exclaimed, jumping up.
Just then our other telephone rang, and I answered it. “I’m down
here in Mr. Dexter’s office,” called a voice which I took to be that of
the other broker. “We have been talking the situation over. Of course,
if Mr. Maddox were here himself, you know,” he went on
apologetically, “it might be different. We could have him sign his
name to orders, but—really—well, you understand, under the
circumstances—we feel, both Mr. Dexter and myself, that we have
gone about far enough. It’s not that we question Mr. Maddox’s
intentions in any way, you understand, but—perhaps if he were on
the ground, he might protect us from loss, which he may not be able
to do over the telephone. We’re sorry, but—”
“Tell them I’ll be right down,” interjected Kennedy, sensing from
my look the tenor of what was being said.
I interrupted the broker at the first opportunity, then turned to
Kennedy. He had pulled from a compartment of the metal base a
little wax cylinder and dropped it into his pocket carefully.
“Come on,” he cried, dashing for the door and taking the stairs,
not even waiting for the elevator to come up.
A moment later we burst into the board room of the broker.
Customers were standing about in a high state of excitement, while
the boys at the board scurried about, replacing the figures on little
bits of green cardboard which fitted under the abbreviated names of
the active stocks listed on the board at one end of the room. Others
were gathered about the ticker, reading the words that the printed
tape was pushing forth. All seemed talking at once.
Kennedy did not pause, however, but walked unceremoniously
into the private office of Dexter. There already were several men
representing the two brokerage houses. Evidently they had been
having a hasty conference on what they should do in view of the
situation in Maddox Munitions.