This report describes how several supply chain finance (SCF) solutions were deployed with the intent of benefiting micro-, small and medium-sized enterprises (MSMEs) in Ethiopia, Ghana and Nigeria. The authors deem these countries particularly “promising markets for MSME-led digital financial inclusion,” and they argue that SCF can provide “high-quality, low(er)-risk financing” to various actors in supply chains by leveraging the data flows among them.
During the study period, COVID-19 lockdowns forced many MSMEs to embrace digital technology to maintain operations. This coincided with the emergence of SCF solutions that addressed various obstacles commonly faced by African MSMEs. In particular, multiple “merchant-centric, platform-led fintechs [financial technology firms] and other players” that complement or – or in some cases compete with – conventional MSME suppliers offered access to finance as well as other services such as market analyses, logistical assistance and inventory management.
In Ethiopia, regulatory constraints and insufficient infrastructure have hindered the growth of digital finance, although recent government action – alongside the recent entry of several relevant actors – create a fitting climate for the emergence of new SCF services. Due to the novelty of SCF in Ethiopia, the authors recommend that potential providers carefully observe emerging pilot programmes and look to onboard manufacturers and suppliers of locally produced fast-moving consumer goods (FMCG) and other popular commodities that generate the majority of MSMEs’ profits.
In Ghana, the SCF sector is also young, with just a few actors beginning to test their web platforms. Thus, developing meaningful partnerships remains complicated. Another challenge is the government recently having introduced a digital payment levy of 1.5 percent, disincentivizing merchants from switching to digital payments. In response, SCF providers are seeking collaboration with mobile network operators to cut transaction costs.
In Nigeria, the SCF market has multiple players of different sizes using various business models to serve several thousand merchants. Rather than working with traditional financial services providers, several SCF actors are collaborating with independent distributors, FMCG companies and their partners. Another opportunity for SCF providers to boost value for MSMEs is to partner with logistics providers to address infrastructure challenges. To boost adoption of digital payments, many also are working with mobile money providers.
Common aspects of the successful and sustainable SCF business models covered in this study were: multi-channel merchant recruitment, engagement and support; incentives for the use of digital transactions instead of cash payments; partnerships with banks that were open to lending to MSMEs on the basis of supply chain data; and value-added solutions such as insurance, capacity development and loyalty programmes.
To improve the provision of SCF, the authors recommend: leveraging the international expertise of advisory firms to help SCF firms improve the ways they address MSMEs’ needs; promoting collaboration and capacity building among various actors and supply chains to foster the development of SCF models; adopting international payment services to boost the usage of digital payments; and increasing access to funding such as subsidised “loans, credit guarantee schemes and grants from DFIs [development finance institutions] or governments.”
This is a summary of a paper by Adebiyi Fajemisin, Anifat Ibrahim and Raliat Sunmonu; published by Accion; July 2022; 34 pages; available at https://www.findevgateway.org/paper/2022/07/strategies-optimize-msme-centered-supply-chain-finance-solutions-study-ghana-ethiopia.
By Saulius Simonas Ramanauskas, Research Associate
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