According to new data, small and medium-sized enterprises (SMEs) in East and Southern Africa still find it hard to get cheap loans. Only 78% of all loan applications submitted to banks were approved.
Start-ups and other small businesses find it hard to get money because they have limited capital and most banks require collateral before giving out loans. Consequently, thousands of entrepreneurs have been cut off from the formal credit system, which in turn has suppressed business growth and innovation in the entire region.
Susan Mang’eni, Secretary at the State Department for MSMEs Development said digital financial data could be the solution to the problem. Using mobile money transactions, tax records, and online payment histories, SMEs would be able to compile and verify their financial profiles to prove their creditworthiness without depending on the old way of handing over the collateral.
“Small businesses through the use of digital credit information can be able to show their financial credibility and get loans with much ease. It will wipe out the unnecessary bureaucratic boundaries that have excluded many enterprises with high potential,” said Mang’eni.
The call has been made by the stakeholders for governments and fintech firms to collaborate in gathering and integrating the data to provide support for SME lending. Once implemented, the digital credit system would give financial institutions the opportunity to make quicker and fairer decisions for the borrowers while the entrepreneurs would be able to acquire the necessary working capital to expand their businesses.
Currently, the 24th COMESA Summit held in Nairobi is expected to put the spotlight on access to affordable loans for SMEs across COMESA member states through digital platforms, cross-border trade agreements, and online payment systems.
The region is adopting digital credit systems as a strategy to open the untapped potential of SMEs, encourage intra-African trade, and promote the inclusive economic growth of the continent.