Personal Finance

Digitising supply chain to unlock credit lines



The sustainability of Africa's economies depends on the growth and resiliency of its micro, small, and medium-sized enterprises (MSMEs).

To restore the standing of this key constituent in the economy, policymakers and the private sector must find a way to get beyond systemic obstacles and reevaluate the standardised approach to their issues.

In essence, prioritising MSMEs will expedite the shared interests and goals of governments and the private sector aligned to the 2030 Agenda for Sustainable Development to create more resilient and prosperous societies and businesses.

The business case is remarkable. According to the Africa Development Bank (AfDB) Group, MSMEs account for at least 95 percent of all businesses and create more than 80 percent of all new jobs on the continent each year.

The continent’s population is predicted to reach three billion people by 2050, and its labour force anticipated to increase by one billion by 2063. Every month, the continent needs to add over 1.7 million new employments.

MSMEs will be the driving force behind satisfying unmet market demands, generating meaningful employment opportunities, and lowering inequality and poverty.

This utopian future is fraught with obstacles, though. First off, if the status quo persists, many of Africa's mid-sized enterprises will remain too small and under-resourced to scale up and have a transformative impact, if they do not disappear off the radar.

Access to credit has predominantly been a barrier to the expansion and sustainability of these small businesses. World Bank and International Finance Corporation puts the financing deficit at $331 billion.

Financial institutions base this issue on a lack of good credit rating, which impedes small businesses from obtaining the necessary funding to expand.

While the paramountcy of financial support cannot be overstated, MSMEs require additional resources to grow over the long- term to meet constraints like compliance, market access, marketing, logistics, digitalisation, talent, and networks. Integrating financial and non-financial support—in this case, going above and beyond the finance equation by complementing it with advisory services—is the most appropriate solution to equip MSMEs for next-horizon growth.

Beyond reforming the business environment for small businesses, National Champion Programmes have been proposed by policymakers across the world, to grow MSMEs potential.

Among the turnaround suggestions included in Kenya's Industrial Transformation Programme by the Ministry of Trade and Industry was to choose 50 of the highest potential SMEs annually in key sectors and support them with credit, training, and networking assistance.

Additionally, model factories would be created to give SMEs access to best-in-class manufacturing expertise, and subcontracting policies strengthened to enhance ties between big and small players.

The private sector has its job cut out for them as well. Enter Solv, a full-stack business-to-business (B2B) e-commerce marketplace for MSMEs created by SC Ventures, the Standard Chartered Bank subsidiary dedicated to innovation, fintech investment, and ventures.

The digital platform was introduced this year in Africa, to close a significant creditworthiness and operations gap among the continent's 44 million MSME businesses, starting with Kenya and subsequently Ghana.

The platform largely digitises the traditional supply chains of MSMEs. To join the Solv platform, an MSME must get the endorsement from manufacturing and trading businesses that they supply. Utilising information from their transaction history, the platform determines their credit score.

From that point on, MSMEs can take advantage of opportunities like a Buy Now Pay Later (BNPL) programme, credit lines from a variety of lenders, goods from trusted suppliers at the best prices, inventory optimisation, digital payment processing, the creation of Goods and Services Tax-compliant invoices, account reconciliation, and reliable local logistics support and insurance.

After four months of service piloting in Kenya, Solv is having success. An appropriate example is its co-created invoice financing programme in collaboration with over 700 MSMEs, eight international manufacturing and trading enterprises, and three financial partners – where over Sh70 million has been disbursed.

The long-term goal is to re-imagine a vibrant and effective small business ecosystem that will simplify MSMEs' operations, enable their development into high performers, and boost their competitiveness.

Ms Omukuba is the Solv Kenya CEO