Alternative financing models to bridge MSMEs funding concerns – study

Business growth stimulants research has revealed that technological advancements, platform-based alternative financing models and reverse factoring solutions hold new possibilities for micro and small medium enterprises (MSMEs) in Nigeria and other emerging markets to bridge finance gap, as well as scale up growth and expansion.

The recent study, which was conducted by Stears, a macro insights and analytics provider in partnership with Fiducia, a digital marketplace, indicated that 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 challenges faced by MSMEs in accessing financing in Nigeria, and the limitations of traditional supply chain financing solutions.

“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,” Michael Famoroti, co-founder and head of intelligence, and Adaobi Oni-Egboma, senior associate, Stears, stated in their joint presentation of the report.

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The report recommended, among others, the need for stakeholders, including policymakers, regulators and industry players to collaborate and create an enabling environment for 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”.

Imohimi Aig- Imoukhuede, CEO, Fiducia, stated that the study affirmed the potential of the digital supply chain marketplace as an enabler of the MSMEs sector and as a new frontier of economic diversification for Nigeria.

“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,” he stated.

According to him, stringent requirements, limited collateral, high interest rates, and macroeconomic regulations hinder MSMEs’ access to finance. He stated that the evolution of newer supply chain finance models –platform-enabled factoring and reverse factoring solutions – are game-changers that will rapidly revolutionise the ecosystem.

“There are nearly 40 million MSMEs in Nigeria accounting for 62 million jobs and approximately 46 percent 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,” Aig- Imoukhuede stated.