Enabling Access to Supply-chain-finance to SMEs in East Africa
2019 - 2021
MEDA and Financial Access (FACM) with its subsidiaries Financial Access Commerce & Trade Services (FACTS) Kenya and (FACTS) Uganda are collaborating to improve access to supply chain finance for SMEs in Kenya, Uganda and Tanzania.
SMEs in East Africa are starved of the working capital needed to fuel their growth and the growth of their suppliers and buyer enterprises. Debt financing based on the collateralizable value of accounts receivables is a common and rapid short-term finance solution alternative widely practiced around the world but almost non-existent in Africa. EASE aims to test a technology driven, cost efficient model to this challenge that is replicable and expandable to other markets.
SME finance is systematically underfunded. Small and growing businesses create around 80% of the region's employment, establishing a new middle class and fueling demand for new goods and services. These businesses face challenges due to lack of access to credit, which remains a hurdle for many SMEs in Africa.
It is estimated that 80% of SMEs cannot fulfill their growth potential due to lack of working capital. Financial institutions base their credit decisions on the availability of hard collateral (land and/or buildings), which business owners might not have access to.
Delayed payment (of sales invoices) is a universal problem for SMEs. In Africa, many companies and businesses are forced to close every year to due to delayed payment issues. Yet financial institutions limit credit exposure to 3-6% of their loan portfolios. This is economically unwarranted and social unsustainable.
The project (valued at NOK 29,174,797) will provide technical and financial assistance to MEDA’s implementing partner – Financial Access (FACM), and at least three financial institutions in Uganda, Tanzania and Kenya. These institutions will facilitate a collateral-free working capital loan to at least 100 SMEs with a total portfolio of at least USD 10 Million through reverse factor and supply finance solutions. Development of appropriate technology to digitize the exchange and commercialization of invoices is expected to make the process efficient, effective and convenient to parties involved. Subsidised credit insurance to participating financial institution is expected to incentivize financial institutions to experiment with the model while not taking any extra risk on their front