Innovating Financial Inclusion: Empowering Africa's Traders and MSMEs

“All I ever wanted to do is feed my family, feed my business and feed myself.”

In the heart of local and rural African communities, a transformation is underway. This transformation carries the promise of inclusive economic growth, driven not by lofty ideals but by the sheer determination of innovators at the vanguard of change. One such visionary is Prince Nwadeyi, co-founder of Setana Capital , a pioneering financial platform that's redefining access to capital for the often-overlooked traders and small and medium-sized enterprises (SMEs). In a recent dialogue with me, Mr Nwadeyi illuminated the journey, challenges, and aspirations that shape Setana's trajectory.

This conversation offers an example of the kinds of innovative thinking that transcends technology and delves into the realm of business model innovation – a line of conversation that may offer insights for Africa’s mostly informal sector operators.

Identifying a Need for Change

Prince Nwadeyi, drawing from his experiences, spoke about the genesis of Setana's mission. The realization came during a visit to Kenya, where he and a colleague encountered a company providing working capital finance to informal traders within Nairobi's informal sector. It was a spark of inspiration, an awakening to the critical void in financial infrastructure for these traders. This revelation resonated when, back in South Africa, they met a store owner who, despite running a viable business, struggled to access working capital due to the limitations of the existing financial infrastructure for his store in Philippi.

"The gentleman needed financing. The nature of the existing financial infrastructure in the country didn't enable businesses like these to access working capital," explained Nwadeyi. This encounter underscored the yawning gap between existing financial systems and the latent potential of small traders across the formal and informal sectors. Setana was conceived at this nexus, as a disruptive force in finance, bridging the chasm with innovation, and driving tangible impact.

Understanding the Informal Sector

Nwadeyi emphasized the lack of engagement with the informal sector, attributing it to a lack of understanding. "More often than not, things you don't understand, you're scared of," he noted. This lack of understanding trickles into the corporate world, where many executives struggle to grasp the motivations behind consumer choices within the informal sector. This disconnect hampers effective market engagement and development.

Moreover, Nwadeyi pointed out the misconception of correlating distribution with uptake. In reality, the focus should be on the quality of engagement and customer retention. To address these issues, innovation needs to go beyond technology—it requires reimagining business models that cater to the unique dynamics of the informal sector.

Setana's Approach to Bridging the Gap

Setana's innovative approach centres on providing working capital finance to traders and SMEs, a demographic traditionally excluded from mainstream financial services, especially those in the informal sector.

Setana provides working capital by enabling wholesalers or FMCG manufacturers to provide stock on credit to their customers by financing inventory purchases.

Instead of providing cash loans, Setana embraces a symbiotic partnership with wholesalers to provide stock-based credit. By analyzing transactional data, Setana can allocate credit to wholesalers, enabling traders to draw stock and repay within a 14-day cycle, typically.

Nwadeyi highlighted Setana's success, boasting a remarkable 99.5% repayment rate and, more importantly, evidence of business growth and scaling among entrepreneurs who benefit from their model. This underscores the importance of tailoring financial solutions to match the unique realities of the informal sector, demonstrating that innovation in business models is as critical as technological advancements.

The Journey and Challenges

Nwadeyi didn't shy away from discussing the challenges Setana faced. Attracting capital was a hurdle, as the risk perception associated with lending to the informal sector deterred investors. However, catalytic capital and soft money from investors who recognized the potential allowed Setana to test their assumptions and refine their model.

He underscored the imperative for legislation that transcends superficial compliance. Nwadeyi urged a shift from a focus on maintaining the status quo to embracing a mindset that prioritizes long-term impact and transformation.

On the role of governments, Nwadeyi emphasized the need for responsive policies that incentivize both large corporations and small entrepreneurs to engage in the informal sector rather than begrudging compliance. He advocated for policies that align with corporate value creation, ensuring that empowering informal traders and SMEs isn't just a tick-box exercise.

The Road Ahead

Setana's journey embodies the power of innovation, empathy, and purpose. By addressing the specific needs of Africa's informal traders and SMEs, Setana's model, and others like it, provides a blueprint for how financial services can be reshaped to create lasting impact and value for both businesses and society. It also proves that real progress comes not just from technology, but from the innovation of business models that truly serve the needs of the people they aim to empower.

In a landscape marred by untapped potential, organizations like Setana Capital offer promise into (re)shaping Africa's economic landscape, especially as it pertains to empowering informal traders and MSMEs. For many development enthusiasts, the potential opportunities to understand and grow the small operators, especially in the informal sector is appealing and worthy of further exploration. It would help, too, to understand how solutions like this can be sustainably scaled up across the continent.

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The full podcast is here.

Thank you to Prince Nwadeyi for sharing these insights with me!