The New African MSME Banking ERA
The Detailed Entailment of How MSMEs Can Flourish With the Right Digital Tools
Africa is moving forward in a spirit of hope and it is sharing the light with the entire world. The hope is called MSMEs, which stands for Micro, Small, & Medium-sized enterprises. Africa has a rising youth population, and it is vital to retain the youth to encourage growth and development across the continent. It will only be possible by creating more job opportunities and providing financial support to emerging entrepreneurs.
One of the few challenges of Africa is the significant portion of its unemployed population. Even well-educated candidates struggle to find jobs as they move towards beginning their careers. Therefore, MSME enhancement and development is the key to growth that shines hope upon the economies in sub-Saharan Africa.
According to Kenya’s Micro and Small Enterprises Act 2012, micro-enterprises are defined as a service, firm, trade, industry, or business activity whose annual turnover is KSh 500,000 with employees less than 10 people. For small enterprises, the structure is defined as an enterprise that has an annual turnover of KSh 500,000- KSh 5M and employees in the range of 10-49 people.
Medium enterprises are not counted under this act, but their structure is known to be defined as an enterprise with an annual turnover of KSh 5M- KSh 8M and having employees in the range of 50-99 people.
What are the challenges faced by MSMEs in Africa?
Even after being one of the major pillars of the continent’s economic growth, MSMEs in Africa are struggling to find the support they need to eliminate challenges such as solvency and mismanagement. Micro, small, and medium-sized enterprises led by women are specifically affected as only 10% of them have access to financial support to grow their business.
These challenges have reached the peak since the outbreak of Covid-19. MSMEs established in both formal and informal sectors are critically affected due to various measures for controlling the pandemic such as the lockdown. Currently, many informal MSMEs are at the risk of closure due to limited access to credit and government support.
If these MSMEs can be supported and backed up financially, it is possible to generate more job opportunities across the formal sector output in Mauritius, South Africa, Namibia, Benin, Tanzania, and Nigeria. Most of these enterprises are not able to operate to their optimum level due to financial challenges. The prime approach to empower MSMEs is providing them access to premium financial services. This is where MSME Banking comes into the frame.
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What is MSME Banking?
MSME banking in concept revolves around tailored solutions addressing the very specific financial needs of MSMEs from opening accounts, to payroll services, provision of various credit products, facilitation of payments, all towards the financial support MSMEs require to grow their businesses and flourish. There have been recent attempts to develop and present different solutions into the market tailoring to their requirements but none serious enough and mature to fill in the immense gap that exists in addressing this crucial sector’s needs.
MSMEs are one of the fastest-growing sectors, thus need funds for the initial investment to meet with employee wages, cost of raw material, investment in new machinery, and other facilities. Financial service providers in Africa have extended the branch of MSME banking by providing them with customized financial credit facilities.
Continue Reading: The New African MSME Banking ERA
The emerging opportunities for MSMEs in sub-Saharan Africa
With emerging entrepreneur hubs and credit facilities, many financial service providers are supporting the growth of MSMEs as they believe micro, small and medium-sized enterprise owners have a keen understanding of the needs of the people, and they are aware of what makes business work. Governments, worldwide, are now realizing how it is becoming an essential component of any economy’s serious plans into growing by adopting and providing all required support to this key sector. With now the release of dozens of initiatives across Africa, there is never a better opportunity to cater to this sector with all its variant services.
CIT Vericash, amongst others, a leading SW digital financial platform, has taken a serious path towards addressing this gap and has recently released a sub-product solution from its digital platform mainly targeting financial institutions, Fintechs in general and banks with a full-fledged MSME banking product to help better serve their MSME customers. The whole approach is based on capitalizing its already mature and advanced digital banking and payments solutions to something more catered towards the specific needs and financial services MSMEs are interested in a completely digital setup from opening new bank accounts to digitizing their payroll services and digital disbursement to employees, to digitally applying for loans or other financial products from the use of various digital channels such as a mobile or web application. The idea extends to simply just serving the direct needs of the MSMEs but with the additional purpose of serving their employees and other business stakeholders whether it be suppliers, vendors, distributors, etc. It is all built around establishing a mature and collaborative ecosystem based on that MSME platform that considers the entire business environment of MSMEs.
This whole concept provides the digital tools that empower various financial institutions to better serve their MSME customers further empowering them too and financially including all their employees, customers, and other stakeholders which perfectly fits towards a step closer to achieving true financial inclusion and a cashless approach. With this in mind, when full digital platforms are able to serve and deliver all kinds of financial services to MSMEs you inevitably dramatically reduce the overall cost of acquiring each customer account that has historically been a major factor in ignoring their needs in the first place. By additionally enabling a series of added value services, Fintechs are empowered in diversifying the different revenue streams and making a more profitable model to a sector that was far from lucrative to most other financial institutions.
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The untapped ecosystem of MSME
MSMEs contribute 80% of Africa’s enterprises, further motivating the emerging entrepreneurs in the continent and strengthening the business network for upcoming MSMEs. In Ghana, more than 85% of enterprises are MSMEs contributing approximately 70% of the country’s GDP. Whereas in South Africa, MSMEs reportedly account for about 91% of the business sector— generating 60% employment and contributing 52% of the total GDP. In Nigeria, the SME sector accounts for about 96% of the business sector, which contributes 48% of the national GDP and generates 84% of the employment rate.
The untapped ecosystem of MSMEs in Africa has faced several challenges that hindered the growth and development of the sector such as multiplicity of taxes, lack of skilled manpower and high capital requirement and others. Despite the challenges faced, Nigeria accounts for approximately 50% of the industrial jobs, and about 90% of the manufacturing sector— thus, growing with a total number of 17.4 Millions in terms of number of enterprises. Further, improving per capita income, export earnings, GDP growth and increasing the value addition of raw material supply and capacity utilization in key industries, leading to economic expansion of sub-Saharan Africa.
As per a report, MSMEs contribute about 70% of Africa’s total employment. The results depict that MSMEs hold the power to eliminate development challenges such as poverty, unemployment, lack of innovation and advancement, etc. By acquiring more MSMEs, the rising population of the continent will be expected to enter the MSME sector with the upcoming employment opportunities generated in the next 10 years. The rise in MSMEs not only contributes to the overall GDP of the continent but also to the identification and growth of their respective local communities. Every MSME has a strong back community and network of vendors, such as suppliers, distributors, etc. Acquiring a single MSME grants access to thousands of MSMEs and the population working under the sector, especially people working in a small scale enterprise with no bank account or access to any traditional financial service. By motivating MSMEs, it is possible to spread awareness among such a population and help the local communities by donating to local nonprofits, participating in local events and seminars and sponsoring minor and local events. Further, encouraging financial independence, innovation, importing new technology and creating employment opportunities.
Conclusion
MSMEs have become the centric focus of most emerging economies and most Governments, central banks and other international organizations are enrolling a variety of serious initiatives that ensure all kinds of support to this critical economic member that ignoring their financial needs is no longer an option. In an age of going all-digital, a critical constituent in coming to a step closer to serving their needs is for providing the technology solutions that can simplify the whole onboarding process, streamlining the operational digital delivery of different financial services, thus bringing down the costs and profitability of serving such a sector yet able to financially include them along with their surrounding stakeholders.
CIT VERICASH is a division of CIT GLOBAL, an international leading provider of innovative eCommerce and mCommerce software solutions and services with solid expertise spanning 25 years, since its establishment in Toronto, Canada in 1993. By applying CIT Global’s dedicated centers of excellence and its specialized leading products, in cooperation with its strategic partners, the company has delivered innovative and award-winning solutions to its clients in more than 48 countries, serving leading brands from North America, Europe, Asia Pacific, the Middle East, and Africa.