Micro and small-medium enterprises (MSMEs) in Nigeria and other emerging markets are being encouraged to explore innovative financing solutions to address funding gaps, accelerate growth, and expand their operations. A recent study conducted by Stears in collaboration with the digital supply chain finance platform, Fiducia, sheds light on the potential of technological advancements, platform-based models, and reverse factoring solutions as key enablers.
According to the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), Nigeria is home to approximately 40 million SMEs. However, these businesses often face significant hurdles when seeking financing. The International Finance Corporation (IFC) estimates a substantial finance gap of $5.2 trillion that impedes the growth and scalability of MSMEs in developing countries.
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The study, titled ‘Platform-Enabled Alternative Supply-Chain Finance: The Case for Factoring and Reverse Factoring,’ underscores the challenges faced by Nigerian MSMEs in accessing traditional supply chain financing and highlights the limitations of these conventional solutions. Michael Famoroti, Co-founder & Head of Intelligence at Stears, and Adaobi Oni-Egboma, Senior Associate, Digital Regulations at Stears, emphasize the global significance of MSMEs and the pivotal role they play in economies.
The IFC reports that the finance gap in emerging economies amounts to $5.2 trillion. MSMEs make up approximately 90 percent of businesses worldwide, with formal MSMEs contributing to 40 percent of GDP in emerging economies. In G-20 nations, businesses employing fewer than 50 individuals account for 66 percent of total employment.
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The report highlights the emergence of disruptive financing options driven by technology, which aim to eliminate credit barriers and utilize alternative data to facilitate access to finance for MSMEs. Platform-enabled factoring and reverse factoring are presented as lifelines, offering efficient methods for managing accounts receivables and payables, ensuring financial stability, and enabling businesses to focus on service delivery. These solutions facilitate seamless and cost-effective transactions, strengthening relationships within the supply chain finance ecosystem.
Technology-based alternative platforms and reverse factoring solutions provide MSMEs with access to a broader pool of financiers, fostering business resilience, enhancing competitiveness, and unlocking their growth potential.
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Imohimi Aig-Imoukhuede, CEO of Fiducia, underscores the potential of the digital supply chain marketplace as a catalyst for the MSME sector’s growth. He believes that if harnessed effectively, it can contribute significantly to Nigeria’s long-term GDP growth. With nearly 40 million MSMEs in Nigeria, accounting for 62 million jobs and around 46 percent of the nation’s GDP, the impact of these businesses on the economy is substantial. However, stringent requirements, limited collateral, high-interest rates, and macroeconomic regulations have historically hindered their access to finance.
The evolving supply chain finance models, such as platform-enabled factoring and reverse factoring solutions, have the potential to revolutionize the ecosystem. This will enable more MSMEs, buyers, suppliers, and financiers to initiate and conclude transactions through a seamless and cost-effective marketplace ecosystem, thus driving economic growth in the long run.
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SOURCE: GuardianNG
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