The issue of access to finance in the Small and Medium Enterprises (SMEs) in Africa may soon become a thing of the past going by efforts being made by Absa, a pan-Africa financial institution, to tackle the issue.
The lender disclosed that it was accelerating the creation of trade finance solutions aimed to allow small business owners to compete favourably well in the new trading system called the African Continental Free Trade Area (AfCFTA).
Recall, the AfCFTA agreement became effective on January 1, 2021, and allows businesses on the continent to operate in a single market, giving room for organisations to reach more than one billion people.
But to operate on such a large scale, SMEs must have access to funds and this is where Absa intends to provide assistance through digital solutions.
In its digitisation projection, the financial institution identified trade financing as a critical financial issue, which it said has the capacity to deliver higher impact in Africa in particular.
The bank advocates for an increased value proposition around trade financing and likened it to the oil that greases supply chains and ensures that buyers are sellers fulfil their obligations.
However, the bank further opined that digitisation is a key enabler in democratising trade finance and the pandemic has accelerated the need for wider adoption of digital trade finance solutions by SMEs and corporates.
According to the Head, Trade Finance and Financial Institutions Trade Sales, Absa, Mr Oladapo Adeigbe, while technology-driven solutions are becoming more and more relevant, much of the trade finance sector is still very paper-driven with manual processes slowing down access to finance.
“Financial inclusion across Africa is yet to peak as most SMEs operate in the informal sector and are largely unbanked. Hence, their viability cannot be ascertained or assessed directly by financial institutions,” he stated.
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“The hurdles that impede growth in the informal market have not been effectively tackled. For example, an average transaction that involves, for instance, customs clearance in the local ports requires tons of paper documents which slows down trade activities by forcing unnecessary supply chain bottlenecks,” he added.
The bank posited that to digitize trade finance, the entire ecosystem needs to support and participate in re-imagining how it unlocks value. This includes integrating activities of all role players; the regulators, the logistic companies, banks and other non-bank financial institutions (e.g., fintechs) Fintech innovators, which will eventually drive the Digital Trade Ecosystem.
It also said facilitating the secure exchange of data between the partners within the ecosystem will catalyse the sector.
However, salient issues such as interoperability of systems to facilitate coherent industry-wide solutions that can operate at scale, standardisation through digital innovation and agility in the regulatory space will impact positively on the digitisation projects being pursued across the continent with the propensity to open up the continent for wider cross-border trade.
The bank thereafter reiterates its commitment to accelerating trade finance solutions on the continent and to be an enabler of the AfCFTA agreement which is a critical step to building a healthy SME ecosystem for Africa.