Providing an Enabling Environment for Fintechs in Transforming MSMEs
Trade Lenda
Empowering Small Businesses with Inclusive Financing | Currently raising an Active Seed Round
By Migasuto
The fintech environment has thrived in 2023 globally, marked by a $550b market capitalisation among public fintech giants. However, the true spectacle unfolds in the private sector where 272 unicorns have emerged, collectively valued at $936b. Still, in the euphoria of fresh beginnings, we are thrilled to present another collaborative episode, where we unravel the transformative impact of Trade Lenda, exploring how the company provides an environment that reshapes Micro, Small, and Medium Enterprises (MSMEs).
Approximately 32% of Africa's population has access to a formal bank account, in contrast to the global financial inclusion rate of 68%, even though the latter is relatively low. However, recent advancements in financial technologies have contributed to a gradual improvement in financial inclusion and a reduction in the trade finance gap in the region. Around 90% of businesses in Africa belong to the MSME category, constituting a significant portion of total employment, with at least half of the workforce involved.
The trade finance report visualised below from the African Development Bank covering 2013 to 2019 reveals a persistent inadequacy in bank-mediated trade financing throughout Africa. The yearly unmet demand for trade financing averages $91 billion, and while the overall trade finance gap is decreasing, the situation for SMEs is worsening.
The rejection rate for trade finance applications from African MSMEs has doubled to 40% in the last six years. The World Bank Enterprise Survey attributes this to MSMEs needing help to meet high collateral requirements, exceeding twice the loan amount. Compared to other regions, this demand is notably higher. The survey highlights the low usage of financial services by MSMEs, even with existing bank accounts, due to these constraints. Furthermore, the survey indicates that African MSMEs are less familiar with alternative financing options like venture capital, mainly due to low financial literacy. Consequently, MSMEs often resort to costly and insufficient sources, such as short-term bank loans and high-yield debt.
Trade Lenda operates primarily on the financing and trade side of the Nigerian fintech ecosystem, facilitating access to credit for Micro, Small, and Medium-sized Enterprises (MSMEs), particularly retailers and suppliers. Nigeria presents a fertile ground for innovative trade finance solutions with its vast unbanked population, increasing small businesses, and focus on economic diversification.
Key Drivers for Fintechs in Nigeria
Nigeria, Africa’s most populous nation,? is home to approximately 39.6 million micro, small, and medium enterprises (MSMEs), constituting 96.7% of all businesses and contributing 46.31% to the country’s Gross Domestic Product (GDP). Traditional banks often struggle to meet the financing needs of Micro, Small, and Medium-sized Enterprises (MSMEs), especially in the areas of trade finance. This is where Trade Lenda plays a crucial role. Trade and financing go beyond just providing loans. Imagine a world where a retailer's shelves brimming with goods are not just stock or inventory, but a source of readily available credit. Here comes the promise of inventory financing unlocking valuable cash flow to invest in growth, purchase new supplies, or meet operational needs. Trade does not happen in isolation. It's a complex dance within a supply chain where smooth flow and access to credit are important to reduce risks and improve overall efficiency within the supply chain.
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Buzz Summary ??
Trade Lenda's focus on a niche market differentiates it from traditional banks and most Non-Financial Institutions(NFIs). However, they may face competition from Specialised trade finance institutions and Fintech startups that provide trade finance solutions like Payhippo. The thriving fintech environment which is epitomised by substantial market capitalisation and numerous unicorns, signifies a transformative era. Trade Lenda's impact on reshaping MSMEs, particularly in Nigeria's dynamic fintech ecosystem, highlights the potential for innovative solutions in addressing trade finance gaps. As fintech evolves, bridging the divide for MSMEs and unlocking new credit avenues bodes well for economic growth, especially in untapped regions like Africa.
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