By Providence Ayanfeoluwa

A study has shown that technological advancements, such as platform-based alternative models and reverse factoring solutions are new possibilities for micro and small medium enterprises (MSMEs) in Nigeria and other developing markets to bridge finance gap, as well as scale up growth and expansion.

The study titled: “Platform-Enabled Alternative Supply-Chain Finance: The Case for Factoring and Reverse Factoring”, was conducted by Stears – a macro insights and analytics provider in partnership with digital supply chain finance platform, Fiducia.

The study showed that by leveraging disruptive financing options, MSMEs in developing countries can overcome current finance gap estimated by the International Finance Corporation, IFC at $5.2 trillion where funding barriers constitute a key challenge that inhibits MSMEs growth and capacity to scale.

The study presented by Co-founder & Head of Intelligence, Michael Famoroti, and Senior Associate, Digital Regulations, all Stears, Adaobi Oni-Egboma, said that platform-enabled factoring and reverse factoring are disruptive financing option driven by technology and offering benefits such as eliminating credit barriers and leveraging alternative data to expand MSME access to finance.

The study showed that the solution provides efficient methods of managing accounts receivables and payables, ensuring financial stability and enabling businesses to focus on service delivery, foster seamless and low-cost transactions, strengthening relationships in the supply chain finance ecosystem.

According to the report: “The platform gives MSMEs access to a wider pool of financiers including, factoring firms, traditional banks and non-bank FIs, lenders, investors and other types of financiers. It boosts competitiveness among the supply chain financiers, which provides businesses a wider selection of financing options with possibly more favourable rates and financing terms. For platforms enabling reverse factoring, buyers have access to a wide array of financiers who can offer better financing terms rates for their dedicated and trusted suppliers.

“The advent of platform-based factoring and reverse factoring solutions presents a promising opportunity for businesses to secure timely and flexible funding, unlocking their potential for growth and resilience in Nigeria’s dynamic economy.

“By leveraging the power of technology and innovation, these platform-based solutions have the potential to revolutionise the supply chain financing landscape, facilitating seamless transactions, reducing risks, generating alternative forms of data essential for credit risk assessments and promoting financial inclusion for MSMEs. The integration of data-driven assessments and efficient matching processes can considerably improve the financing experience for suppliers, buyers and financiers, hence driving greater engagement in the supply chain financing ecosystem.

“The advent of platform-based factoring and reverse factoring solutions presents a promising opportunity for businesses to secure timely and flexible funding, unlocking their potential for growth and resilience in Nigeria’s dynamic economy.

Speaking on the report, Chief Executive Officer of Fiducia, Imohimi Aig- Imoukhuede, said the study affirmed the potential of digital supply chain marketplace as an enabler of the MSMEs sector and as a new frontier of economic diversification for Nigeria.

He said if well-harnessed, the segment would play a key role by contributing significantly to Nigeria’s GDP growth in the long-term.

Aig- Imoukhuede said: “There are nearly 40 million MSMEs in Nigeria accounting for 62 million jobs and approximately 46 percent of the nation’s GDP. Despite their economic impact, MSMEs encounter difficulties in accessing credit, with an unmet finance gap of over $158 billion, nearly half of the Sub-Saharan region’s total. Stringent requirements, limited collateral, high-interest rates, and macroeconomic regulations hinder their access to finance.

“The evolution of newer supply chain finance models –platform enabled factoring and reverse factoring solutions – are certainly game-changers that will rapidly revolutionise the ecosystem, and significantly too as more MSMEs, buyers, suppliers and financiers can now initiate and conclude transactions through a seamless marketplace ecosystem that is convenient, faster and cost effective” he said.