Platform-Based Alternative Models, Reverse Factoring Hold Ace for Nigeria’s MSMEs Growth – Study
A business growth stimulants research has revealed that technological advancements, platform-based alternative models and reverse factoring solutions hold new possibilities for micro and small medium enterprises (MSMEs) in Nigeria and other developing markets to bridge finance gap, as well as scale up growth and expansion.
According to the study conducted by Stears – a macro insights and analytics provider that enables quick, accurate decisions for both financial and operational opportunities in partnership with digital supply chain finance platform, Fiducia, by leveraging disruptive financing options, MSMEs in developing countries can overcome current finance gap estimated by the International Finance Corporation (IFC) at $5.2trn 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 pressing challenges faced by MSMEs in accessing financing in Nigeria, and the limitations of traditional supply chain financing solutions, was presented on Monday, September 25, 2023, in Lagos.
In the report presented by Stears’ duo, Michael Famoroti, Co-founder & Head of Intelligence and Adaobi Oni-Egboma, Senior Associate, Digital Regulations. 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.
Micro Small and Medium Enterprises (MSMEs) constitute about 90% of businesses and more than 50% of employment worldwide; formal MSMEs contribute to 40% of GDP in emerging economies. Even in more advanced economies, MSMEs are significant employers, with businesses employing fewer than 50 individuals contributing 66% 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.
“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.
The advent of platform-based factoring and reverse factoring solutions presents 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, these platform-based solutions have the potential to revolutionise the supply chain financing landscape,” the study affirmed.
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.
It stated: “The advent of platform-based factoring and reverse factoring solutions presents 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, these platform-based solutions have the potential to revolutionise the supply chain financing landscape, facilitating seamless transactions, reducing risks, generating alternative forms of data essential for credit risk assessments and promoting financial inclusion for MSMEs. The integration of data-driven assessments and efficient matching processes can considerably improve the financing experience for suppliers, buyers and financiers, hence driving greater engagement in the supply chain financing ecosystem.”
The report 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. “By fostering a supportive ecosystem and embracing these transformative
models, Nigeria can unlock the full potential of its MSMEs, fortify its supply chains, and advance the nation towards a more resilient and prosperous economic future,” it stated.
Commenting on the report, Chief Executive Officer of Fiducia, Imohimi Aig- Imoukhuede, 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, while noting that the segment if well-harnessed, would play a key role by contributing significantly to Nigeria’s GDP growth in the long-term. He said:
“There are nearly 40 million MSMEs in Nigeria accounting for 62 million jobs and approximately 46% 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.
“With enhanced collaboration among stakeholders and enablers like platform providers and regulators, the new space being opened up certainly offers MSMEs the potential for growth and impact. Through risk mitigation and increased access to financing, MSMEs can play a more significant role in Nigeria’s dynamic business landscape and contribute further to economic growth and development.”