Robert Lane, CIO, Veneka

Robert Lane, CIO of Veneka, says while SMMEs are generally reluctant to release financial and business information, it’s now to their benefit to have business tools to enable this so that financial services partners can understand their business and provide them with financial products now that the COVID-19 recovery commences in earnest.

SMMEs have always been positioned as job creators and drivers of economic growth and innovation, particularly in developing countries, but this is even more the case during the current pandemic, which has seen many bigger businesses struggle to stay relevant. According to World Bank data, SMEs contribute up to 60% of all employment and as much as 40% of all GDP in emerging economies, and four out of five new jobs are expected to be generated by SMEs. The importance of SMEs and their contribution to the economy cannot be overstated, says Lane, particularly as the formal sector continues to shed jobs.

However, SMMEs face myriad challenges, not least of which are issues around finance and access to government funding. Monetary concerns are always at the top of the list for small businesses, especially those in the informal sector. Lane says: “SMMEs are great potential customers for banks, who want to be able to lend money to them – and loans to SMMEs will drive GDP. However, banks often struggle to do business with SMMEs because small businesses find themselves unable to comply with some of their more stringent requirements around proof of income, for instance.”

The ability to manage and track their financial affairs properly is key for entrepreneurs if they want to attract bank financing to start, run or expand their business – or qualify for government COVID-19 funding. Typically, SMMEs have been reluctant to go digital because they don’t want to share business information, but this has changed as they need to access funding and financing. SMMEs enjoy less access to external finance and face higher transaction costs and higher risk premiums. Access to finance is one of the leading constraints of SMME growth. They have neither the credit history nor the assets that larger firms have – and that financial institutions insist on.

Moreover, banks and financial services providers are important to SMEs to facilitate financial transactions. Obviously, not all of an SMME’s customers use cash to pay for transactions. Some use cheques, others use payment apps, others want to use online payment systems, while there are also those that pay with credit cards or even electronic fund transfers. Generally, none of these is possible without banks and financial services providers. However, most governments are driving cashless payments, considered safer during the pandemic particularly, so QR codes and tap and go payments are becoming increasingly relevant.

“As the payment landscape is going to rapidly evolve – driven to some extent by COVID-19 – SMMEs need to find ways to accept these different forms of payment or lose out on sales. Today, it’s not always necessary for an SMME to use a bank to accept certain forms of payment; there are applications available that facilitate new and evolving payment methods. These tools can be more affordable for the SMME by reducing their interchange and transaction fees.

“The problem that SMMEs face when dealing with financial institutions is that it’s notoriously difficult for a small business to meet the banks’ stringent criteria, but there are ways in which they can improve their financial affairs to make their business more appealing to a financial institution,” says Lane.

“SMMEs can help themselves by implementing the above-mentioned tools to run their business, especially where there are multiple stores or restaurants, for example, where an owner needs a view over the whole business, including stock, inventory and sales, as well as the ability to produce accounting and financials. In doing so, the business owner is able to build up a lending profile that can be used to raise trade finance from the banks.”

Access to big data and analytics provides the business owner with customer insights and analytics that support credit scoring and cross-selling, while generating insights that help them buy better and sell more.

This appeals to financial institutions because they, in turn, can better understand their customers; they can also validate what their customers are telling them with hard facts around sales. This is particularly important in Africa, where sales are often cash-based while banks will generally only recognise credit or debit card-based sales. “This is why businesses need a tool that enables and records sales by all payment methods, including cash, card, mobile money, bank transfer or QR code.”