“Getting access to funds is usually difficult for SMEs but it is not impossible with different alternative to MSME Lending”.
By Tunde Kehinde
SMEs are the lifeblood of any economy. However, given the diversity of small businesses and lack of credit scoring in frontier markets, it has been historically tough to get capital to small businesses consistently.
Fortunately, companies like Lidya fixes that problem by using a data-first approach to evaluate small businesses and using risk-adjusted credit scoring to deliver tailored offers and pricing that are unique to each SME we finance. This approach has been used to give Billions of Naira in credit to small businesses across multiple sectors; everything from financing to mobile money agents to exporters of commodities.
The major problem, of course, with lending is the risk involved, on both the part of the lender and the SMEs. The risk we evaluate is typically around, can this business afford to take on credit and if so, how much? And also is this a sustainable business that will repay. So far, we have had great success backing great businesses owners who have taken credit to grow their businesses, and Lidya has had less than 0.5% in defaults.
We are also big on a partnership to get credit to small businesses; we work with over 100 partners in Nigeria including three commercial banks, multiple payment gateways, consumers goods companies and more. We use our credit to get capital into their value-chains to help them, and the small businesses in their ecosystem grow in a responsible, sustainable way.
The lending system for SMEs is unfavorable at the moment. Our estimate is the credit gap for small business in Nigeria is $75 Billion+ USD. This is a particularly big challenge for the country as SMEs typically contribute up to 80% of jobs in a country and represent ~50%+ of GDP in economic activity. The challenge for lenders worldwide is how to lend to SMEs in markets which lack credit scoring. Lidya solves this problem through our digital platform, where we analyze over 100 data points to help great business owners’ access financing in 1 day and build a credit score through a secure and inspiring lending process.
Having multiple sources of funding for small businesses is great. What we focus on is being the best source of funding for small businesses and getting them credit in 1 day and also supporting them with great products to help them digitize their businesses. We give free invoicing tools so our customers can invoice their customers and get insights on their businesses. Through our partners, our borrowers can get point-of-sales machines to help them take digital payments. We are also launching a credit card, that will give businesses an option to pay for goods and services digitally as well.
There are a number of institutions that make access to funding easier; non-profit organizations like TEF, government funds such as the BOI fund, and the financial institutions that are SMEs-friendly. Lidya also helps small business access credit in one day. Visit www.lidya.co to learn more.
Editor’s Note: This article was originally published in The Spark Magazine. Find the magazine here to read other articles.