To scale up growth and expand, micro and small medium enterprises (MSMEs) in Nigeria and other developing markets have been urged to explore technological advancements, platform-based alternative models, and reverse factoring solutions.
This is according to the study conducted by Stears in partnership with the digital supply chain finance platform, Fiducia.
According to the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), there are about 40 million SMEs in Nigeria.
The Stears study pointed out that by leveraging disruptive financing options, MSMEs in developing countries could overcome the current finance gap estimated by the International Finance Corporation (IFC) at $5.2 trillion as funding barriers constitute a key challenge that inhibits MSMEs’ growth and capacity to scale.
The special report, titled: ‘Platform-Enabled Alternative Supply-Chain Finance: The Case for Factoring and Reverse Factoring’, highlighted the challenges faced by MSMEs in accessing financing in Nigeria, and the limitations of traditional supply chain financing solutions.
Stears’ Co-founder and head of Intelligence, Michael Famoroti, and Stears’ Senior Associate, Digital Regulations, Adaobi Oni-Egboma, said the study pointed out that, despite their significance to the global economy, MSMEs globally face significant challenges in accessing the financing that they need, constraining their survival and growth prospects.
According to the International Finance Corporation, the finance gap in developing economies is $5.2 trillion.
“MSMEs constitute about 90 percent of businesses and more than 50 per cent of employment worldwide; formal MSMEs contribute to 40 per cent of GDP in emerging economies. Even in more advanced economies, MSMEs are significant employers, with businesses employing fewer than 50 individuals contributing 66 per cent of total employment in G-20 economies.
“To bridge the supply chain funding gap, disruptive financing options have emerged, driven by technology and offering benefits such as eliminating credit barriers and leveraging alternative data to expand MSME access to finance.
“Platform-enabled factoring and reverse factoring offer a lifeline here, providing efficient methods of managing accounts receivables and payables, ensuring financial stability, and enabling businesses to focus on service delivery. These solutions foster seamless and low-cost transactions, strengthening relationships in the supply chain finance ecosystem,” the report stated.
It further stated that technology-based alternative platforms and reverse factoring solutions offer access to a wider pool of financiers at a time for MSMEs, foster business resilience, boost competitiveness, and unlock their growth and expansion potential.
Chief Executive Officer of Fiducia, Imohimi Aig-Imoukhuede, said the study affirmed the potential of the digital supply chain marketplace as an enabler of the MSMEs sector and as a new frontier of economic diversification for Nigeria while noting that the segment is well-harnessed, would play a key role by contributing significantly to Nigeria’s GDP growth in the long-term.
“There are nearly 40 million MSMEs in Nigeria accounting for 62 million jobs and approximately 46 per cent of the nation’s GDP. Despite their economic impact, MSMEs encounter difficulties in accessing credit, with an unmet finance gap of over $158 billion, nearly half of the Sub-Saharan region’s total. Stringent requirements, limited collateral, high interest rates, and macroeconomic regulations hinder their access to finance.
“The evolution of newer supply chain finance models –platform-enabled factoring and reverse factoring solutions are certainly game-changers that will rapidly revolutionise the ecosystem, as more MSMEs, buyers, suppliers, and financiers can now initiate and conclude transactions through a seamless marketplace ecosystem that is convenient, faster and cost-effective.”
