There is an urgent need for fintechs backing up SMEs

Many things are perceived as ‘broken’ in the traditional financial services sector, and new opportunities are made possible by access to new technologies and data.

These fintech innovations take many forms tackling some core pillars in different value chains. From buy now, pay later schemes, remittances, customer to business payments, and business to customer payments, cash flow, liquidity easing, stock financing, open banking, to micro-lending, among others.

Small and medium-sized enterprises (SMEs) are the backbone of any economy providing incomes and supporting the families of millions of workers in a complementary and cyclic flow of value that must be appreciated, as it often remains invisible.

Traditional banks in Kenya continue to source funds from international partners and development organisations earmarked for SME finance interventions.

In my opinion, a large number of fintech propositions targeted to businesses are a band-aid when SME pain points are analysed from first principles thinking. SMEs die of starvation and not from lack of a working business with positive unit economics.

The interventions fronted that carry an interest component, exacerbate matters accelerating the speed at which they shut down, margins decimated.

Invoice-rich, but cash-poor is a familiar situation to many SME operators. If they were paid in full and on time, most operations would hum along nicely meeting all obligations, including taxes.

Instead, we find a hodgepodge of poor business practices that cut across all industries where delays in payments, gatekeeping, and a myriad of other mannerisms dominate the business engagement cycle. The different manifestations of this, are what many fintech solutions targeting SMEs are bridging.

It, therefore, begs the question, why are we not addressing the core issue directly. Businesses operate a bank account or mobile money, with bank accounts a default for the enterprise-class and government publics.

Banks and mobile money platform operators with cash-in cash-out functions can see the money flow. If matters settlement are not honoured even in the face of clear contractual obligations, why haven’t we bridged this trust gap?

Oblige me for a minute. Imagine that SME business X is subcontracted by Enterprise Y, working on a project for an FMCG concern. X then approaches the bank for a facility to enable the supply to Y on the strength of the well-documented FMCG project.

They all patronise the same financial services provider. X delivers but collections with Y, even when settled, are problematic despite purchase orders and all other document trails. The bank goes after X, and we know how that story often goes.

The opportunity is in plain sight with the potential of strong moats and bases to build out additional high-value services for thousands of SMEs.

Njihia is the head of business and partnerships at Sure Corporation | www.mbuguanjihia.com | @mbuguanjihia