An online platform which is easing SMEs’ access to payments

By The Inspirer

An ICT-based platform under “Supply Chain Finance” concept is helping Small and Medium Etreprises (SMEs) get payments easily, hence being able to carry on their businesses instead of waiting for months to get paid, which has been a hindrance to their financial activities.

If Rwanda’s bank industry embrace such a technology SMEs will be able to get paid within two to three days after supplying their commodities to big buyers or companie, while it has been taking up to 90 days under existing terms.

The technology was introduced in Kenya about a year ago by Ennovative Capital (ECap) – a Kenya-based Financial Technology (Fintech) company that leverages financial innovation to solve working challenges for businesses in Africa.

The online platform brings together buyers, their suppliers, and funders (banks).

The Chief Executive of Ennovative Capital (ECap), Kefa Nyakundi, presented the technology on Thursday, June 14, 2018, during the third session of KCB Bank’s Experts Talks in Kigal. The function intended to find innovative ways to finance trade and commodity.

On one hand, Nyakundi said, a buyer is looking at cash flow, explaining that he/she wants to delay payment because they are interested i getting a supplier’s commodity, add value to it, sell it, and hopefully pay them from the proceeds they made from sales.

On the other hand, he said, the supplier wants cash once they give a commodity to a buyer, pointing out that cash is key for the success of any business.

“You can be a very profitable business, but if you don’t have cash, you will wind up, you will close. So, everyone is struggling for cash,” he said.

Supply chain finance, he said,consists in looking for ways by whichto help the buyer, and the supplier narrow their differences, as one wants to delay payments, while the other wants to collect payment quickly.

Currently, he said, the challenges banks are having is that they l have an SME client which is supplying very many buyers; and the bank wants to deal with the SME.

The risk the SME is running is that the people it supplied the commodities may not pay it the money they owe. And, if they don’t, it cannot pay the bank.

How the platform expedites payment to SMEs

Steps for facilitating SME payment (illustration from Ennovative Capital)

The technology, he said, is an inverted logic, whereby the bank deals with one big buyer who has many suppliers, as opposed to dealing with one supplier who has many buyers, which he described as a better conversation because the buyer is normally a bigger party and they have a better risk for the bank, and the bank is comfortable financing.

“So, what we have done is to invert that conversation. And, what we help the bank to do is to say, let’s go to the big buyers, anyone who has many suppliers’ talk to the buyer and then by using technology and ensure that anyone who supply these buyer is able to access their money very quickly,” he said.

What happens then with that technology is that once the supplier has supplied goods to the buyer, the buyer uploads the supplier’s invoice onto the platform, and a notification is made showing whether it has been approved, and when the payment will be made.

That invoice is offered to the bank. Then, the bank pays the supplier money, and on maturity, the buyer pays the bank. Maturity refers to a finite time period at the end of which the monetary contracts will cease to exist and the principal is repaid with interest.

“We have removed the risk for the bank by ensuring that instead of having to go and deal with very many suppliers, they are only dealing with one buyer, who is a strong party. And if this buyer has forty or a hundred suppliers, the bank only deals with one credit risk for the buyer,” Nyakundi said.

The Country Director of Africa Improved Food (AIF), Prosper Ndayiragije said that as a company and buyer, it needs enough time to process payment, and therefore needs a supplier which can give relatively distant payment terms yet, some suppliers need cash so that they can keep running their businesses.
“So, banks should look for innovative solutions to address such challenge,” he said.

However, there is a ‘small’ financing fee or discount which is made to the beneficiary SME.

Frank Kadugara, a grain commodity trader from Kayonza District said that it is a good initiative, but, said that banks should give an SME about 90% of the monetary value of the goods it has supplied to bid buyer so that the SME can be able to carry on their business.

In addition, he said, banks should reduce interest rates on the loans they give to small and medium businesses for them to make a profit.

KCB Rwanda’s corporate banking senior manager Johnny Matabishi, said that they are going to consider the Ennovative Capital’s Supplier Chain Finance Technology to see whether it can use it.

 

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Elias Hakizimana

Elias Hakizimana, CEO&Founder of The Inspirer Ltd,(www.rwandainspirer.com) is a professional Rwandan Journalist with Bachelor’s Degree in Journalism and Communication, received from University of Rwanda’s College of Arts and Social Sciences (CASS) in 2014. He served various media houses in Rwanda including Rwanda Broadcasting Agency (RBA) in 2013 and became passionate with English Online and Print Media Publications where he exercised his talent as a Freelance News Reporter for The New Times, The Independent, The Rwanda Focus, Panorama and more before he became a Self-Entrepreneur as the CEO and Founder of The Inspirer Limited in early 2017.

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