SMEs drive the Engine of growth across various economic sectors as they employ a majority of the youth population and contribute significantly to economic growth. According to the KNCCI SME competitiveness Survey, SMEs employ more than 80% of the working population in Kenya. However, these SMEs are severely underserved. They face numerous obstacles in accessing credit as they are small, less diversified, and have weaker financial structures especially now more than ever driven by the current pandemic.
The financing gap for SMEs in Sub-Saharan Africa is approximately $328 billion, according to reports by International Finance Corporation (IFC) partnered with McKinsey & Company.
This is where a capital connector and enabler platform like Pezesha comes in to reduce this financing gap by connecting underserved small and medium-sized businesses to working capital among other financial services and also provides financial education through a collaborative approach where banks, MFIs and other financial institutions or networks can connect on its platform to be matched with quality SMEs credit-scored using our proprietary credit scoring technology, Patascore. In Pezesha, we believe our position as a capital enabler provides efficiencies for the African ecosystem, ensuring productivity through access to working capital for SMEs and providing optimal capital utilization for Banks, MFIs and other financial institutions.
One aspect that is sure to play a larger role in the new trends driven by the current pandemic is enabler platforms that have continued to accelerate access to working capital for SMEs and keeping them alive during these tough times. An Enabler is a digital platform of products and services that brings together groups of users in two-sided networks or platforms. These platforms are developing innovative,tech-driven ways that are transforming ways in which individuals and SMEs operating in the informal sector are to participate in the formal economy. Platforms like Pezesha have been at the centre of driving access to capital to underserved and unbanked SMEs.
Pezesha as an enabler is manifested from these key components;
- Access to working capital. Most SMEs don’t have access to formal credit due to lack of formal credit documentation meaning they are less likely to obtain bank loans. To meet this financing gap, Pezesha enables access to affordable working capital to SMEs to boost their cash flows and growth even during these unprecedented times. Financing and nurturing these SMEs have proved to have a transformative potential driven by the impact Pezesha has created so far in driving productivity and growth for the SMEs we have supported. An example is the story of John, which you can watch from this video.
- Access to quality SMEs: Pezesha connects lenders who seek purposeful returns from productive lending. Pezesha marketplace, driven by an automated matching engine, is able to analyze the SME’s financials and derive a risk profile that matches them with an investor on Pezesha’s marketplace. This, in turn, saves time and reduces the stress of investors being able to choose the kind of SMEs they want to support based on their risk appetite. To ensure more predictable returns for investors, Pezesha ensures diversification of SME debt notes by reconstruction into smaller ticket sizes allowing them to have more predictable returns.
It’s important to note that Pezesha is not a lender but only provides connections of lenders capital in the case the investors on the platform who include banks, asset managers, MFIs, High Net Worth Individuals, investment clubs, cooperatives, Chamas etc by connecting them to creditworthy SMEs through our matching automated algorithms.
- Credit Scoring. Through access to unified data, Pezesha is able to accurately predict SME’s financial creditworthiness in real-time through its automated credit scoring technology Patascore, which drives better, uniform, and faster decisions. This helps reduce bad debt leading to better-credit worthy SMEs, hence developing a healthy credit score that aids in unlocking a higher credit limit. Also, with Pezesha’s credit scoring technology, information asymmetries are reduced between borrowers and lenders, thereby opening the expansion of credit availability to small businesses.
- Access to financial Education. Pezesha offers financial literacy modules as a value add. The modules are programmed in a manner that provides the knowledge and cognitive capabilities required to manage SMEs’ finances and make effective decisions on financial matters that are sustainable. Financial education plays a pivotal role in preparing SMEs to face economic challenges in tandem, increasing their confidence to manage money during a crisis, and how it can lead to recovery as quickly as possible. Pezesha’s has made accessible its modules via its product Patascore that offers tips on debt management, the importance of recording transactions, cash flow management tips, and many more.
We have also seen that there are more working capital needs through the supply chain of different verticals, with retailers needing affordable credit to fund inventory from wholesalers and distributors around Africa. This is why we have also partnered with merchants and wholesalers to enable working capital from lenders to this supply chain, and we believe this is a trend that will continue in the future, as more value chains are being aggregated and formalized in Africa.
We welcome collaborations in helping us grow our enabler ecosystem as through strategic collaborations we can accelerate and unlock value that drives financial inclusion as we look to bridge the SMEs’ financial gap across Africa and ultimately achieve our financial inclusion vision that is ambitious enough to drive job creation, prosperity, and essence.