For the longest time, small and medium sized businesses (SME’s) scattered across the African continent have been battered by every economic, political and literal storm that happens to blow through. Female-owned enterprises are especially fighting this battle. According to the World Bank, data collected in ten African countries indicate that on average, male-owned enterprises have six times more capital than female-owned enterprises. Yet, these businesses continue to form the backbone of each and every African country. But is resilience and grit enough to sustain and grow this vital sector of the market?
“There are two critical fundamentals lacking in many African SME’s - adequate tools and training and access to distribution,” explains Senior Vice President and Group Country Manager for Visa Sub Saharan Africa, Aida Diarra.
Diarra believes that the quickest and most effective way to unlock the digital opportunities available to assist these businesses is to enable them through digital payments.
“Electronic payments have an important role to play for entrepreneurs by improving the speed and reducing the costs associated with transacting with employees, suppliers and customers,” says Diarra.
She describes the three most important benefits that digital payments offer to businesses as they weather the sometimes inclement conditions prevailing in the modern marketplace:
1. Increased access to consumers – especially those who may want to trade with them online. Africa is set to add 1.3 billion people to its population by 2050 , due to the region’s growing consumer base, many global leaders agree that Africa is increasingly important to a wide range of economic, security, and political goals
2. Enablement of lenders to gain visibility into how businesses are doing and give lenders insights into how they might finance small businesses from a working capital perspective
3. Provision of a similar capability to that provided to larger organisations by ERP systems to help them better understand and manage their supply chain.
African States Embrace Electronic Payments
Although the ‘cash is king’ mentality still reigns in many parts of the continent, more and more African nations are making steady progress towards creating cashless societies.
Ivory Coast is a case in point. Global payment services company, Visa, has entered into a formal agreement with the government of the Ivory Coast to digitise government services and extend financial services in the country.
According to information in a joint statement released to the media in 2018, Visa was the first global payments provider to open an office in the region. The deal sees the Ivorian government working with Visa to review financial services programs in the country and create informed action plans to aid adoption of electronic payments.
Visa is said to have made six commitments, including to roll out Visa Mobile push payments for over 1.1 million cocoa, coffee and cashew nuts farmers whose work amounts to 20% of Ivory Coast’s GDP.
“The signing of this MOU represents an important milestone in Visa’s efforts to bring more African entrepreneurs into the formal financial system, with all the associated benefits. The use of electronic payments brings greater payment security and convenience while lowering costs and bringing increased transparency to the financial system,” says Diarra.
Another African country turning to digital solutions is Egypt. Egypt Ministry of Planning, Follow-Up and Administrative Reform has signed a cooperation agreement with Visa for electronic payments to help spread the culture of digital payments and its positive impact on the country’s economic growth.
The agreement aims to encourage entrepreneurship, supports the implementation of Egypt's Vision 2030 and comes in light of the ministry's efforts to proceed with mechanising services, including their e-payment system.
A number of aspects relating to the rapid rise of financial technology are also worth highlighting. The growing underbanked rural population and a burgeoning middle class across Africa have increased the desire for new solutions to old financial problems and this means that Fintech has arrived in the nick of time.
When we consider traditional models, they generally assume that many of the Fintech companies would be large, well-funded participants. However, the reality is that Fintechs that have great user experiences and low cost solutions that solve payment/saving/lending problems, especially those that pertain to small businesses, need the same accessibility to big platforms, and to working capital and policies that enable their businesses to grow.
This has resulted in governments around the globe becoming more accommodating towards Fintechs.
“Companies, such as Visa, have begun to embrace Fintechs because they are essential to helping us extend our footprint and our product offering. We are also seeing many more Fintechs coming into the ecosystem with really creative solutions. Solutions that are essentially ‘in-a-box’, that help make it simple for entrepreneurs to start, fund and run their businesses,” says Diarra.
World Bank Research
A report by the World Bank Development Research Group reveals that integrating digital payments into the economies of emerging and developing nations addresses crucial issues of broad economic growth and individual financial empowerment.
“The benefits of digital payments go well beyond the convenience many people in developed economies associate with the technology,” says Dr Leora Klapper, Lead Economist at the World Bank Development Research Group. “Digital financial services lower the cost and increase the security of sending, paying and receiving money.”
Financial inclusion, which includes having access to savings accounts, money transfers, loans and related services, is key to boosting African economies by empowering individuals to improve their financial well-being.
“The diversity, energy and dynamism of the African continent, coupled with solid financial technology will play a critical role in bringing sustainable and inclusive economic growth. At Visa we want to continue to inspire, invest and empower SMEs across Africa,” concludes Diarra.