The global COVID-19 pandemic completely changed the way the world approached doing business. As global lockdowns disrupted supply chains and restricted access to customers and suppliers, business owners, especially micro, small, and medium business (MSME) owners, found themselves in an especially difficult situation.

In Africa, where MSMEs make up 90 percent of businesses and generate 80 percent of jobs on the continent, the pandemic completely altered the way in which MSMEs could operate. For starters, not only did lockdowns disrupt their ability to conduct business as normal, but many soon realized the extent to which they were excluded from the digital economy. To ensure their survival, African MSMEs began adopting digitally enabled business solutions in order to buy, sell, and operate better.

The pandemic also accelerated the growth of platform-enabled, customized supply chain solutions in Africa. The emergence of these digital-first players has allowed for greater focus on helping MSMEs digitize their businesses and access critical financing, market insights, and business support services that will enable them to become more resilient to future shocks and to grow.

To better understand market-specific factors and macro systemic influences, Accion selected three countries in Africa that have embarked on similar digital financial inclusion journeys but are at different stages of maturity on the digital transformation continuum: Ghana, Ethiopia, and Nigeria. Players in these markets are building supply chain solutions centered around small merchants, incorporating solutions that go beyond access to credit to include various other services such as inventory management, market intelligence, and logistics support. While these models will continue to coexist and even play complementary roles in any one market, Accion’s work in this space highlights the most important considerations for any inclusive and sustainable MSME-focused supply chain finance model:

  1. An integrated, one-channel approach to merchant recruitment, engagement, and support: Ecosystem actors deploy multiple channels and personnel to onboard and support merchants. This approach could provide an opportunity to engage merchants, but can also cause confusion. A well-designed merchant engagement and support strategy that is explicit about the responsibilities of each ecosystem partner and provides a smooth customer experience is critical but also one of the more challenging things to get right.
  2. A multi-faceted approach to converting cash transactions to digital payment mechanisms: Though digital payment solutions are on the rise, particularly in Ghana and Nigeria, cash transactions still account for 90 percent of all transactions. Switching to digital payments requires helping merchants not only use but also accept digital payment instruments from their own customers.
  3. The willingness to offer credit: Credit is the key to a successful supply chain finance solution, but many financial services providers (FSPs) are not yet willing to offer credit to MSMEs based on supply chain data. To mitigate this risk moving forward, FSPs can work with credit guarantee providers, with such an arrangement allowing them to plan for the increased demand for liquidity that will come from the SCF products.
  4. The promotion of value-added services to encourage merchant “stickiness”: While supply chain solutions have accelerated in the target markets, the actual ratio of active merchants compared to their customer base is more modest. Promoting value-added services with demonstrable benefits and improving the ease of doing business for business owners will enable merchants to adopt and utilize the solution over the long term.

To learn more about our findings on optimizing MSME-focused supply chain finance in Africa, download our latest report, “Strategies to optimize MSME- centered supply chain finance solutions: A Study of Ghana, Ethiopia, and Nigeria.”

Accion developed this report through our partnership with the Mastercard Center for Inclusive Growth and with support from the Mastercard Impact Fund.

Bryce Feibel contributed to this article.

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