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African businesses need more than credit to thrive


November 29, 2021

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Micro, small and medium enterprises (MSMEs) represent up to 90% of businesses on the continent, providing around 80% of jobs and functioning as major engines of economic growth. Sub-Saharan Africa alone has 44 million such companies. They are offline and often strapped for cash. For these businesses to survive, grow, create more jobs and strengthen their economic growth, they must have access to capital.

This problem is so huge that sixty-five million enterprises, representing 40% of such enterprises in developing countries, need capital, a need that rises to $ 5.2 trillion each year, according to the report. estimates from the International Finance Corporation (IFC).

Boluwatife Sanwo – TechCabal Insights

Many of these businesses are reluctant to take loans from traditional banks because the process is tedious or sometimes impossible, mainly because most of these businesses are informal and do not have adequate records of their income to adjust to the situation. paperwork required by these banks. Other times the problem is the high interest rates charged by traditional banks, sometimes up to 20% in some countries. But even when these businesses turn to microfinance banks and digital lending platforms, which are supposed to provide financial and credit access to small businesses, they are sometimes charged higher interest rates, making it difficult for them to repay these term loans.

Ultimately, they are discouraged from seeking more credit.

Mobolaji Adebayo – TechCabal Insights

Credit, but with other facilities

In Africa, when bikers cannot afford a bicycle for their ridesharing business, they rent one and pay owners high daily or weekly rates; then spend years paying installments if they want to own the bikes. Likewise, truck drivers acquire trucks in any way they can: by borrowing them, leasing them or owning them. But before they can embark on a trip, they need some cash up front to finance the long and arduous journey – buy diesel, insurance and breakfast for the police officers they will meet on their way. After overcoming these obstacles, they still have to wait weeks and months before receiving payment from these cargo owners.

Motorcycle-based MAX and truck-based Kobo360 started out as logistics providers to deliver packages to consumers. But they soon found out that their model wouldn’t work if their carriers didn’t own motorcycles or couldn’t finance their trip.

To solve this problem for drivers and riders, MAX and Kobo360 not only offered them credit, but also installed a Buy Now, Pay Later model in their product offerings. MAX buys bikes for its riders and allows them to pay for them over a period of time. Bikers would end up owning the bikes once they paid the cost and some interest. Kobo360 is also doing something similar: it finances the trips of its drivers. Using the data they have collected from their drivers, they lend their drivers the best performance, at a lower interest rate compared to traditional banking institutions. All of this, coupled with the use of its platform to connect freight owners to drivers, allows more drivers to get into this business and take more trips than they normally would have taken.

Although the main solution offered by these two companies is credit, they are also using technology to digitize these offline activities, providing a platform with a constant supply of customers for their drivers, which allows their drivers to perform more trips in a day.

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A recipe for progress

Last week, in one of dozens of mega-deals struck across Africa this year, TradeDepot, a company that connects consumer goods to retailers, raised $ 110 million in Series B funding, to bring more stores retail to its digital platform, and digitize and expand its Buy Now, Pay Later (BNPL) Service across the continent.

Last year, before TradeDepot lifted this biggest B Series through any B2B e-commerce platform in Africa, it raised $ 10 million in funding to expand credit offerings to retailers. But instead of the huge interest rates we saw earlier in this article, he offered a nearly 5% monthly interest rate to companies that use his platform.

When he launched his credit offer, he had more than 40,000 merchants on his platform; now it has more than 100,000, TradeDepot CEO Onyekachi Izukanne said earlier this month.

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He was able to do this because he spent his first five years building the supply chain with technology; and integrate retailers, one at a time, with digital portfolios. After joining these retailers last year, he started offering them credit, which helped them in their growth. Unsurprisingly, the combination of its credit facilities with this supply network also led to a 200% increase in transaction volumes for retail store owners.

TradeDepot’s credit offering works hand in hand with a network that creates supply and demand for products that help small businesses make more profit. It connects small stores, kiosks and retailers with wholesalers of global consumer brands that have access to food, drink and personal care products. It then provides warehouses and a fleet of drivers to facilitate the transfer of goods from manufacturers to retailers in its network.

So instead of digitizing those businesses that survive without access to finance or a supply network; or offer access to credit without a supply network; or just helping them digitize their businesses, TradeDepot does all three to achieve maximum impact. And with a low interest rate, of course.

The progress of TradeDepot this year is perhaps the perfect example of what happens when you offer credit and other facilities to businesses. Digitization, low interest rates, and setting up a system where customers can pay for their purchase at a future date are important in creating a system where businesses can thrive in Africa.

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Sultan Quadri, Editor-in-Chief, TechCabal.

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