Platform-based alternative models, reverse factoring hold ace for  Nigeria’s MSMEs growth – study  

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

According to the study conducted by Stears – a macro insights and analytics provider that enables quick, accurate decisions for both financial and operational opportunities in  partnership with digital supply chain finance platform, Fiducia, 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 pressing challenges faced by  MSMEs in accessing financing in Nigeria, and the limitations of traditional supply chain  financing solutions, was presented on Monday, September 25, 2023, in Lagos. 

In the report presented by Stears’ duo, Michael Famoroti, Co-founder & Head of  Intelligence and Adaobi Oni-Egboma, Senior Associate, Digital Regulations. The study  pointed out that, “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. 

Micro Small and Medium Enterprises (MSMEs) constitute about 90% of businesses and  more than 50% of employment worldwide; formal MSMEs contribute to 40% of GDP in  emerging economies. Even in more advanced economies, MSMEs are significant  employers, with businesses employing fewer than 50 individuals contributing 66% of total  employment in G-20 economies. 

To bridge the supply chain funding gap, disruptive financing options have emerged, driven  by technology and offering benefits such as eliminating credit barriers and leveraging  alternative data to expand MSME access to finance. 

Platform-enabled factoring and reverse factoring offer a lifeline here, providing efficient  methods of managing accounts receivables and payables, ensuring financial stability and  enabling businesses to focus on service delivery. These solutions foster seamless and 

low-cost transactions, strengthening relationships in the supply chain finance ecosystem,”  the report stated. 

It further stated that technology-based alternative platforms and reverse factoring  solutions offer access to a wider pool of financiers at a time for MSMEs, foster business  resilience, boost competitiveness and unlock their growth and expansion potential. 

“The platform gives MSMEs access to a wider pool of financiers including, factoring firms,  traditional banks and non-bank FIs, lenders, investors and other types of financiers. It  boosts competitiveness among the supply chain financiers, which provides businesses a  wider selection of financing options with possibly more favourable rates and financing  terms. For platforms enabling reverse factoring, buyers have access to a wide array of  financiers who can offer better financing terms rates for their dedicated and trusted  suppliers. 

The advent of platform-based factoring and reverse factoring solutions presents a  promising opportunity for businesses to secure timely and flexible funding, unlocking their  potential for growth and resilience in Nigeria’s dynamic economy. By leveraging the  power of technology and innovation, these platform-based solutions have the potential to  revolutionise the supply chain financing landscape,” the study affirmed.  

The report was optimistic that despite the pressing challenges faced by Nigeria’s MSMEs  in accessing financing, coupled with the limitations of traditional supply chain financing  solutions, technological advancements and the emergence of platform-based alternative  models were unlocking new possibilities for MSMEs to close financial gaps. 

It stated: “The advent of platform-based factoring and reverse factoring solutions presents  a promising opportunity for businesses to secure timely and flexible funding, unlocking  their potential for growth and resilience in Nigeria’s dynamic economy. 

“By leveraging the power of technology and innovation, these platform-based solutions  have the potential to revolutionise the supply chain financing landscape, facilitating  seamless transactions, reducing risks, generating alternative forms of data essential for  credit risk assessments and promoting financial inclusion for MSMEs. The integration of  data-driven assessments and efficient matching processes can considerably improve the  financing experience for suppliers, buyers and financiers, hence driving greater  engagement in the supply chain financing ecosystem.” 

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

Commenting on the report, Chief Executive Officer of Fiducia, Imohimi Aig- Imoukhuede,  said the study affirmed the potential of digital supply chain marketplace as an enabler of  the MSMEs sector and as a new frontier of economic diversification for Nigeria, while  noting that the segment if well-harnessed, would play a key role by contributing  significantly to Nigeria’s GDP growth in the long-term. He said: 

“There are nearly 40 million MSMEs in Nigeria accounting for 62 million jobs and  approximately 46% 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. Stringent requirements,  limited collateral, high-interest rates, and macroeconomic regulations hinder their  access to finance. The evolution of newer supply chain finance models –platform enabled factoring and reverse factoring solutions – are certainly game-changers  that will rapidly revolutionise the ecosystem, and significantly too as more MSMEs,  buyers, suppliers and financiers can now initiate and conclude transactions  through a seamless marketplace ecosystem that is convenient, faster and cost effective. 

“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.”

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