State of Embedded Finance and Credit in Latin America
Latin America’s financial landscape is at a defining moment for the future of business credit. Small and medium enterprises form the backbone of the region’s economy yet remain significantly underserved by traditional financing channels. Embedded finance models are emerging as a transformative force that stands to unlock credit access for millions of SMEs across the region.
Scale of the Opportunity
The market for embedded finance in Latin America reached an estimated US$35.4 billion in 2024, and forecasts project growth to approximately US$50.6 billion by 2030 as digital platforms integrate financial services and small business demand expands. Unlike consumer lending, embedded finance for SMEs is designed to support how businesses actually operate. It provides working capital, growth financing, and payment tools directly within the platforms SMEs use, with credit becoming part of the business workflow rather than a separate financial product.
Small and Medium Enterprises Drive Latin America’s Economy
SMEs represent the vast majority of businesses in Latin America, accounting for more than 99.5 percent of all enterprises and generating roughly 60 percent of formal productive employment. Across emerging markets, there are an estimated 365 million to 445 million micro, small, and medium enterprises, of which approximately 285 million to 345 million, or 78 to 84 percent, operate informally or outside traditional registration systems, including in Latin America.. This means the formal SME sector represents only a fraction of total business activity, leaving a massive opportunity for embedded finance solutions that can serve both formally registered businesses and high-potential informal enterprises.
Estimates suggest that only about 24 million SMEs in Latin America currently use at least one fintech financial solution, which leaves tens of millions of enterprises, many of which are formalizing or scaling, poised for adoption of integrated financial services. For companies like R2, this creates a strategic opening: by targeting SMEs that are underserved by traditional banks and providing data-driven, embedded credit solutions, R2 can unlock growth for businesses while addressing the long-standing credit gap in the region.
This concentration underscores how embedded finance has the potential to influence economic breadth and depth. Where traditional banking systems struggle to underwrite credit due to lack of conventional collateral or formal credit histories, data-driven underwriting and real-time economic signals can identify SME creditworthiness more accurately and broadly than ever before.
Credit Access Remains Severely Limited
Despite their economic role, SMEs in Latin America face a persistent credit gap. According to the World Bank and IFC, 40 percent of formal micro, small, and medium enterprises (MSMEs) are credit constrained, meaning they either cannot obtain credit or only receive a fraction of the financing they need. This constraint exists against the backdrop of structural finance gaps across emerging markets; the MSME finance gap in developing economies is estimated at about US$5.7 trillion, equivalent to roughly 19 percent of GDP and 20 percent of total private sector credit.
Across the specific countries where R2 operates, credit markets illustrate this opportunity and challenge:
Even in cases where aggregate credit appears higher, small and medium enterprises receive a disproportionately small share of total business lending. According to the OECD “Financing SMEs and Entrepreneurs 2024” report, SME loans as a share of total outstanding business credit remain very low in several Latin American markets, with only about 9 percent of total lending allocated to SMEs in Peru and around 1.6 percent in Mexico, illustrating how far formal credit markets still are from serving the full breadth of smaller firms.
Structural Barriers and the New Frontier for SME Financing
Traditional scoring models and legacy banking infrastructure are often ill-equipped to evaluate the complex cash flow patterns, evolving revenue streams, and platform-level behaviors of modern SMEs. These limitations translate into systemic under-crediting of viable businesses and elevated financing costs.
Embedded finance models confront this directly by:
These advances are supported by concrete regulatory changes across Latin America that are reshaping how financial data can be accessed and shared. Several countries in the region have introduced or are actively implementing open finance and open banking regulations that allow businesses, with proper consent, to share their financial and transactional data securely with authorized third parties.
Chile has advanced open finance initiatives as part of its Fintech Law, Mexico established mandatory open banking provisions under its Fintech Law, and Colombia and Peru are rolling out frameworks that standardize data sharing between financial institutions and regulated fintechs. These reforms improve data availability, reduce integration friction, and create clearer rules for how financial information can be used responsibly.
This means the financial system is having more reliable access to high quality data, better visibility into SME financial behavior, and the ability to build credit products that are both more accurate and more transparent. The result is faster innovation without sacrificing security or regulatory compliance.
Embedded Finance as a Strategic Imperative
The combination of persistent SME credit under-penetration and evolving digital finance infrastructure represents a structural opportunity for embedded finance to make measurable impact. For platforms and SMEs, this means financing that is contextual, adaptable, and rooted in data rather than legacy risk assessments.
For a company like R2, this landscape validates the strategic focus on SME lending through platform partnerships, scalable risk engines, and product suites that meet real business needs. By positioning embedded credit where SMEs are already active, supported by advanced data signals and flexible repayment structures, R2 is participating in closing a credit gap that has long constrained productivity and growth in Latin America.
In an environment where SMEs represent the majority of businesses, contribute meaningful employment and GDP, yet remain underserved by credit systems, embedded finance is shifting from experimental to essential. R2’s approach illustrates how technology, data, and thoughtful risk design converge to unlock new levels of financial inclusion and economic dynamism for Latin America’s small businesses.
