LAGOS – A study conducted by Stears, a macro insights and analytics provider has estimated financial gap in Micro and Small Medium Enterprises (MSMEs) in Nigeria and other developing markets at $5.2 trillion.
The report also said that funding barriers constituted a key challenge that inhibits MSMEs growth and capacity to scale in developing nations.
The study, however, said that by leveraging on disruptive financing options, MSMEs in developing countries can overcome the current gap.
The special report titled: ‘Platform-Enabled Alternative Supply-Chain Finance: The Case for Factoring and Reverse Factoring,’ highlighted the pressing challenges faced by MSMEs in accessing financing in Nigeria, and the limitations of traditional supply chain financing solutions, was presented in Lagos recently.
The report, which was jointly presented by Michael Famoroti and Adaobi Oni-Egboma, the Co-founder & Head of Intelligence and Senior Associate, Digital Regulations, respectively, said that despite their significance to the global economy, MSMEs globally faced significant challenges in accessing the financing that they needed, constraining their survival and growth prospects.
The report submitted that MSMEs constitute about 90 per cent of businesses and more than 50 per cent of employment worldwide; formal MSMEs contribute to 40 per cent of Gross Domestic Product (GDP) in emerging economies.
The report reiterated that 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, the duo said that 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.
The report 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.
The report said: “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 platform gives MSMEs access to a wider pool of financiers including, factoring firms, traditional banks and non-bank FIs, lenders, investors and other types of financiers. It boosts competitiveness among the supply chain financiers, which provides businesses a wider selection of financing options with possibly more favourable rates and financing terms.
“For platforms enabling reverse factoring, buyers have access to a wide array of financiers who can offer better financing terms rates for their dedicated and trusted suppliers.”
They submitted that the advent of platform-based factoring and reverse factoring solutions presented a promising opportunity for businesses to secure timely and flexible funding, unlocking their potential for growth and resilience in Nigeria’s dynamic economy.
By leveraging the power of technology and innovation, they said that these platform-based solutions had the potential to revolutionise the supply chain financing landscape.
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The report was optimistic that despite the pressing challenges faced by Nigeria’s MSMEs in accessing financing, coupled with the limitations of traditional supply chain financing solutions, technological advancements and the emergence of platform-based alternative models were unlocking new possibilities for MSMEs to close financial gaps.
The report further recommended, among others, the need for stakeholders, including policymakers, regulators and industry players to collaborate and create an enabling environment for the sustainable growth of platform-based supply chain financing in Nigeria.
Also commenting on the report, Imohimi Aig- Imoukhuede, Chief Executive Officer of Fiducia, said the study affirmed the potential of digital supply chain marketplace as an enabler of the MSMEs sector and as a new frontier of economic diversification for Nigeria.
He also noted that the segment if well-harnessed, would play a key role by contributing significantly to Nigeria’s Gross Domestic Product (GDP) growth in the long-term.
He said: “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, and significantly too 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.”
source: independent
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