Yabx is transforming digital lending for SMEs in MENA

Major economies in the Middle East are focused on diversifying their non-oil-based GDP, through creation of a world-class destination for trading, tourism, manufacturing and services that is open for the world to participate in. A key contributing factor to drive this growth is the participation of small and medium businesses (referred to as SMBs or SMEs) with a majority of them owned by local citizens and by migrant working population in some cases.

In the UAE for example, SMEs are key contributors to the economy and a driving force for job creation. Studies show that in Dubai alone, SMEs contribute up to 42% of the workforce and 63% of the non-oil-based GDP of the UAE.

One of the key growth drivers for successful small businesses is timely credit. Without it, businesses struggle to survive in difficult times. The present banking infrastructure has mainly catered to large SMEs through their robust business banking frameworks. Unfortunately, most lending products only cater to the top 20% of businesses, leaving many smaller SMEs underserved.

Digging deeper for answers:

The $240 billion credit gap in the region often forces businesses to close and increases unemployment, especially among migrant workers. To help lenders close this gap, the ecosystem must support small and medium-sized businesses by addressing the following key factors:

1. Strong Financial Infrastructure: Audits and accounting of loan disbursements needs to be accurate and a strong credit bureau can make this possible for SME growth. A comprehensive credit scoring system allows banks to better assess borrowers, strengthening financial institutions and making lending easier.
2. Reliable Data Sources for SMEs: At the moment, the traditional architecture doesn’t have a clear picture of the informal market. Thus, alternate sources need to be leveraged to ensure systematic registration and data collection (such as number of employees, turnover, and asset size) that will help aid lending decisions.
3. Digitization of data: Digitizing data throughout the supply chain means tracking things like sales, payments, and inventory electronically, which gives a clearer picture of how businesses are performing. This data can then be used to create new ways to measure creditworthiness, rather than relying only on traditional methods like past loans or financial history. By using these alternative credit scoring systems, banks and financial institutions can get a better understanding of a small business’s financial health, even if they don’t have a credit history with long vintages. Integrating this approach into flexible loan management systems makes it easier for banks to offer loans to more SMEs, increasing access to credit and helping businesses grow.
4. Contextual products: SMEs often have different needs compared to larger businesses, so offering loans that are smaller in size and tailored to their specific requirements can really help. For example, instead of large, long-term loans, many small businesses might just need a short-term loan to buy inventory, cover daily expenses, or handle seasonal demand. By creating loan products that fit these specific needs, banks can better support SMEs. These contextual products make it easier for small businesses to get the right kind of funding when they need it, which can make a big difference in helping them grow and succeed.
5. Simple Application Process: Small business owners are busy and may not be adept at completing lengthy banking formalities. For such segments, a loan application process needs to be simple and quick. Instead of making borrowers fill out long, complicated forms, the process should be built into the digital tools they are already using, such as accounting software or payment applications. This way, a borrower can apply for a loan without interacting with multiple systems. A loan management system that is easy to access and integrate makes the process smoother for SMEs to apply, get approved, and manage their loans.

Other crucial factors include appropriate regulations, government support, improved SME management skills, and financial transparency. These factors allow banks to lend to more businesses without increasing risk.

The most important goal is to enable financial institutions to offer sustainable and profitable SME lending products.

How is Yabx working to build and scale SME products in the Middle East effectively?

Partnerships:

No single entity can manage all aspects of digital lending alone. This is where complementary skill sets and partnerships come in. Partners can hail from entrepreneurial organizations creating accounting and bookkeeping softwares, invoice digitization, payment processors, alternative data sources, open banking solutions and even building government services. Such collaborations help localize solutions and ensure seamless integration with existing software, even if they belong to legacy systems.

Other behavioral aspects of executing a partnership program include:

1. Precision and Agility in digital lending: Platforms like Yabx must deliver accurate, fast and highly configurable lending infrastructure trained towards managing credit for thin profiles. Building and rolling out a minimum viable product (MVP) that has been trained thoroughly for credit risk management through scoring, collections and effective digitization is key.
2. Cost-Efficient Experimentation: Developing an MVP should be cost-effective, allowing financial institutions and partners to focus most of their time and money towards refining and improving the product. This keeps initial costs low and focuses resources on continuous improvement.
3. Redefining Traditional Norms through Design Thinking: Lending solutions should be designed with the user experience in mind, offering intuitive and personalized processes. Embedding loans in ways that simplify access for SMEs can lead to greater financial inclusion without overwhelming customers.

Partner ecosystem at Yabx:

Yabx has been instrumental in fostering key partnerships with innovative technologies that strengthens digital lending offerings in the Middle East focused specifically on the SME ecosystem:

1. Open Banking: Open Banking helps by securely sharing financial data, giving lenders better insights into data existing with third party ecosystems that can be proxy for a business’s cash flow and creditworthiness.
2. Payment enablers: Payment enablers streamline transactions, ensuring businesses to easily receive and manage money, which supports smooth loan disbursement and repayment.
3. Card and Payment processors: Card and payment processors generate merchant transaction insights and data that are often overlooked in the credit scoring process.
4. Onboarding and KYC services: These services make it quick and easy for businesses to verify their identity and get onboarded, speeding up loan approval.
5. Fraud check services: Fraud check services protect lenders by ensuring that only legitimate businesses can access loans, reducing risks.
6. Invoice digitization services: Digitizing invoices helps businesses keep accurate financial records, making it easier to qualify for loans based on real-time data.
7. Alternate data providers: These providers offer non-traditional data to assess creditworthiness for SMEs that lack conventional financial history.
8. Customer acquisition channels: Specialized acquirers working with focused business types help reach more SME networks, connecting them with lending opportunities that match their needs.
9. Automated collections: Automated collections simplify loan repayments by setting up automatic payments, reducing the chances of default.

In conclusion, digital lending and strategic partnerships are set to shape the next phase of innovation in MENA. By bringing together the right partners—such as banks, fintechs, and data providers—these collaborations can create solutions that meet the needs of small entrepreneurs and vendors. This approach ensures that lending products are designed for real-world challenges, like limited access to credit and complex supply chains. By focusing on user-friendly, adaptive solutions, digital lending will unlock new opportunities for businesses, driving growth and financial inclusion across the region for all the right people and the right reasons.

Interested to learn more?

Reach out to Anirban heading our growth for MENA or Email us at: [email protected] to get started