Despite the important contribution small-to-medium enterprises (SMEs) make to the economic growth of South Africa, the sector battles to access funding using traditional means.
And even though there are about 2.5 million SMEs in the country, the biggest stumbling blocks they encounter still revolve around the risk barriers and red tape associated with traditional funding products. The underwriting systems and financials required by institutions to finance small business simply do not provide a true reflection of operating conditions.
This has seen the emergence of fintech solutions and alternative funding products that have been steadily gaining momentum.
Yet most local SMEs are unaware of how and where to gain access to funding. For many, the only apparent path is to obtain funding via banks. By the time the business receives the funding (if ever), it is often too late and beyond the point where it can help the company turn things around.
However, funding entails so many different nuances beyond the traditional, and SME owners need to make themselves aware of what is available, and what will suit their specific requirements.
For their part, investors must adapt their digital strategies to engage differently with SMEs. For example, by using mobile as a platform for funding, the investor not only differentiates itself in the market, but the SME gains access to a real-time solution capable of addressing its unique needs.
This cannot happen on its own.
By partnering with a range of fintech organizations, the mobile-driven funding model provides SMEs with real-time, pre-approved offers based on turnover. And thanks to the availability of machine learning and artificial intelligence, these solutions will become more common. However, investors need to be viewed as more than just funders.
They can be true partners in working with SMEs and assisting them in positioning themselves in the market. Of course, the benefit of this is that they become part of a growing enterprise that has a direct impact on the economy of the country.
By incorporating electro-neural networks that enable the use of a sophisticated decision-making methodology requiring no human intervention, funders can more effectively identify where to invest their money. Invariably, the technology has built-in affordability metrics providing the SME with the peace of mind that funding received will not leave them over-indebted.
Behind-the-scenes, machine-learning algorithms have a deep understanding of business trading patterns and seasonality. This ensures the SME is unable to access more funding than what the business can afford. Such an affordability measurement is a great way to drive financial inclusion, irrespective of physical location, without leaving the SME over-indebted.
Using this sophisticated technology also enables funding to be done faster and more conveniently than before. Eliminating reams of paperwork and manual-intensive application process enable the owner to keep their focus on driving business growth.
And thanks to the ubiquity of mobile, SMEs can apply for funding irrespective of the time of day, using an environment that they are comfortable in. Funding requires no collateral, or security, and is completely unrestricted.
Depending on the funder, it is possible for SMEs to access funding with same-day pay-outs. However, for it to be truly inclusive, such a solution must be available to formal and informal businesses.
For our part, Retail Capital is driving this mobile focus very strongly to be the first to market with a platform that does exactly all of this. It is about delivering SMEs with an enabling environment to get funding using more innovative methods as quickly and effectively as possible. In fact, this smarter funding approach has resulted in mobile now representing more than 20% of the funding taken up at the organization.
Irrespective of the platform used, funding is the lifeblood of an SME. In these challenging market conditions, a multi-product approach that highlights how digital is changing access to working capital is necessary.
This creates a powerful platform for growth and the betterment of the economy, entrepreneurs and the country’s SME sector.
Miguel Da Silva is the Managing Director of Funding at Retail Capital.
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organizations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution, and data analytics both in Nigeria and across the world.