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An influx of new technology-driven financial services businesses will materially improve access to finance for African entrepreneurs. With an annual trade finance gap of $80bn-$120bn, Africa has a well of untapped potential in the small & medium enterprise (SME) sector, and closing the gap will be transformational for the continent.

As a banking group the narrative to us is often simplified down to: “Just lend more to SMEs.” However, the mechanics of executing this are slightly more complicated. While much is being done to improve access to finance for SMEs, a major challenge remains the lack of visibility of financial data — for consumers and businesses — to help inform decision-making and lending models.

In the past, a traditional lender like a bank would be looking for information like your company registration details, the credit record of your directors and three months of bank statements. While this is useful, none of these is necessarily a fair reflection of the state of your small business or its ability to repay loans.

This traditional model of banking is not fit for purpose in 2022, and these old-school documents will not show in real time how many transactions are going through your business or the hard slog you have put in to secure a contract supplying a major blue-chip client as an enterprise development beneficiary.

While data on the cash economy is hard to pin down, cash usage is big and much of this consumer insight remains out of any kind of digital net to improve decision-making. Research suggests as much as 90% of retail transactions are still cash-based. In SA data suggests there are 1.8-million informal traders and eight out of 10 have no bank account — this in what is arguably Africa’s most advanced financial services sector.

We have focused a big amount of our energy on digital solutions, and instead of seeing new nonbanking entrants as threats we see them as natural partners that can improve our banking offering to our clients. One of the areas we are specifically targeting is using technology to improve access to finance in the working capital and supply chain finance arena. In principle this should be an easier part of the market to unlock — with large corporates and multinationals standing behind purchase orders and contracts, this should derisk transactions.

As a bank we are seeking out strategic relationships with multinationals as well as development finance institutions (DFIs) to try to close this gap here, and agriculture is one of the areas where we believe we have made progress in the last few years. We are now expanding our focus to more specialist businesses, including those operating in the manufacturing and technology sectors. The African Continental Free Trade Area will drive regional trade and this is where data will be particularly important.

The more we can bring digital finance solutions into the net, the easier it will be to deploy funding to qualifying entrepreneurs. The signs are promising: 2021 was a record year for venture capital into African businesses and this trend is expected to continue into 2022. Notable inbound investments included Jumo, MFS Africa and Zepz.

Many of these new investments going into technology-driven financial services businesses, which will feed the ecosystem and ultimately free up much-needed finance for entrepreneurs. In SA there are a number of fintechs involved in providing unsecured working capital solutions.

Kenya and Nigeria look particularly exciting, with a variety of new technologies and players coming to the fore. Ghana is another country we are excited about. The banking system and payments infrastructure have evolved significantly in the past 10 years, and it now also has fintech businesses like Float, which helps provide short-term liquidity and cash flow. Float raised $17m from international investors, while payment platform Dash raised $32.8m in March 2022. These are big investments, and they will drive the shift to digitisation.

The growth in noncash payments has also been accelerated by Covid-19. This has meant there are many different payment acceptance methods available. Absa is the largest acquirer of payments on the continent, enabling many businesses across the continent to accept payments digitally, online or by means of a card. In addition, there are many service providers in this market, such as Wizzit, Zapper, Yoko and iKhokha in SA; as well as Mpesa in Kenya. Digitisation is changing this accumulation of data and building up important insights that will help improve lending to small businesses.

The increase in noncash payments, together with the advantage of being the largest acquirer of payments on the continent, created the ideal window of opportunity for Absa to incentivise customers to support SMEs by implementing Small Business Fridays. This campaign provides additional marketing to the SMEs as well as boosting their cash flows by encouraging sales and providing incentives when they reach their targets. The consequential digital tracking of transactions on the back of this campaign aims to increase the credibility of the SME to potential credit providers.

With this shift to digital platforms, the many tools available are making it much easier for a business to be understood by credit providers. We have a unique opportunity to reimagine the SME ecosystem for the continent. We look forward to playing our part as the bank that drives multichannel digital technology solutions to make it easier for entrepreneurial businesses to ride the wave of economic growth in the coming years.

• Molanda is head of transactional banking, and Mathebula managing executive for product, sales and service enablement, at Absa CIB.

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