The lessons we have learned in Ghana, Ethiopia, and Nigeria are invaluable, as each of these countries represents varying levels of development of the ecosystem. The recommendations below therefore provide a good foundation and a blueprint for other actors across the continent looking to build new or optimize existing supply chain finance solutions, allowing them to further glean from the specifics around any of the three countries closely related to the nuances and individual issues they currently face. To ensure consistency, our recommendations have been structured around the building blocks stated earlier in this report.
Onboarding and integration into existing data sources: Building stronger partnerships with FMCG companies is key, as this can create more efficient options to onboard, handhold, and support merchants who will be interacting with the platform, many for the first time. This partnership allows platform providers to access and onboard quality merchants through referrals, provide wider product options, and mitigate against product unavailability or quality issues — key requirements from merchants. Partnerships may need to be elevated to the FMCG company level rather than with distributors or wholesalers, which is the current status quo and unfortunately usually transactional in nature. Moving from such transactional arrangements allows the FMCG company to be fully engaged in the SCF ecosystem and derive maximum benefits from it. FMCG companies can then onboard their key distributors who will work closely with the platform to fulfill and supply goods ordered through it and ensure integration is done between the platform and their existing sales fulfillment and other relevant operational systems. Furthermore, platform providers need to consider an omni-channel approach for onboarding. In doing so, they should assess the most efficient channels to onboard and provide handholding and change management to merchants, while effectively managing their costs and minimizing inefficiencies. This includes options such as on-the-ground agents (who could also serve as relationship managers), call centers, unstructured supplementary service data (USSD), and the use of social media channels that merchants are familiar with and can easily adapt to, such as WhatsApp.
Stock order management: Once onboarded, merchants should be encouraged to order via the platform so that transactions and data generated give a true representation of the merchant’s business. This is critical, as it allows the platform and other partners to utilize such information for credit scoring, analytics, and better decisionmaking. Additional provisions could be made to receive orders via a call center; however, this will be limited and only targeted at merchants who are interested but slow to adopt the digital channel. The order data can then be forwarded to key distributors of FMCGs or multi-FMCG distributors, who integrate their operational systems into the platform, for fulfillment. To ensure delivery times are maintained, the platform provider could explore delivery of stock directly to the merchant or extend their partnerships to third party logistics providers who can provide last-mile deliveries.
Relationship management: Ongoing relationship management is critical as this ensures the platform provider can receive feedback from merchants and promptly address issues relating to stock ordering and credit repayments. Riding on their omni-channel approach, platform providers need to have a good balance of self-service versus assisted-service, depending on the digital maturity of the merchants and the technology environment. As much as possible, platform providers should strive to develop and migrate merchants onto their digital channels and position assisted-service as an alternative option for merchants who are slow to adopt, using on-the-ground sales agents or call centers.
Payment services (conversion of cash to digital payments): Nudging and tactically moving merchants from cash to digital payments is important. The platform, working with FMCG companies and their distributors, needs to better leverage the growth in digital payments in their respective countries. This will require integrations of the platform and distributors into alternative but widely used digital payment infrastructures such as mobile money, bank-led wallets, and cash-in/cash-out agents. Partners could explore options, working with digital payment operators, to minimize impact of transaction fees so merchants are incentivized to start and continue with digital payments.
Credit management: Building strong partnerships with multiple FSPs is critical as this improves availability of funding and allows the platform provider to extend additional financial services. While there is a mixed approach of how supply chain finance is currently funded by platform providers, there has also been an increase in the number of FSPs that have embarked on their own digital lending journeys, developing and providing unsecured digital loans directly to merchants for their working capital needs. While this is a positive development, many FSPs would want to partner with platform providers who have demonstrated good loan portfolios within acceptable loss limits. It is incumbent on the platform to demonstrate this ability and showcase it as an effective credit management and monitoring process, supported by an effective relationship management approach. With the data available to it, the platform provider can then work with potential FSPs to utilize data analytics and algorithms to assess merchants’ creditworthiness and offer lending directly to the merchant for stock purchase. Integrations into these FSPs would be needed and the FSPs would need to adapt existing credit models, technology infrastructure, and processes to consume the data it receives from the platform. Upon successful disbursement, monitoring, repayments, and collections would be the joint responsibility of the FSP and the platform provider.
Liquidity for FSPs: For many FSPs, this may be a new journey as it deviates from their existing working capital products for MSMEs; for example, use of alternative data instead of the usual bank account transaction history as well as requests for collateral and guarantees. FSPs will need access to affordable funding to provide additional liquidity and manage the risk of unsecured lending to this segment. This funding could be a combination of low-interest loans, credit guarantee schemes, and grants provided by the government or development finance institutions (DFIs).
Value-added services: To improve adoption and usage, the platform provider will need to go beyond providing only lending and goods. It is important that they work with merchants in building their capacity to build their business and the resilience required to sustain it. While various solutions may be available, it is important that the platform provider properly assesses and identifies which solutions best resonate with the merchants it serves. From our research, value-added services such as loyalty schemes, capacity building, and insurance resonate strongly with many merchants. Based on this, the platform provider will need to form partnerships to validate, design, test, and evaluate the viability of those value-added solutions considered important by the target market. Partner FMCG companies can also extend their level of involvement by providing incentives directly to merchants, such as formalized discounts.
Joy Ajaekwe, a micro retailer in Lagos, Nigeria
Implementing a complex, multi-partnership ecosystem in Ghana would be challenging given that the SCF ecosystem is still in its development stage, with few platform-enabled players trying to prove their concept and gain traction. This provides an important opportunity to deepen the market and improve current offerings, but existing actors will need to be flexible and ready to modify certain elements of their business model to make the SCF ecosystem work effectively as envisaged.
While many platform providers have integrated their platforms to multiple digital payment infrastructures such as mobile money and cash-in/cash-out agents, the new 1.5 percent e-levy introduced in Ghana may require that partnerships with mobile network operators (MNOs) are key as they could provide a low-cost approach to digital transactions or provide various ways to incentivize merchants to start or continue with digital payment.
Regulatory constraints and infrastructure underdevelopment has created a slow growth in the development of digital financial services. From a platform-enabled supply chain finance perspective, Ethiopia remains a greenfield with no SCF concepts in play. However, recent policy changes by the government, new initiatives such as the National ID, and the introduction of new players into several key sectors (e.g., Safaricom and M-PESA beginning operations in the country), as well as the increasing number of partnerships piloting digital solutions, provide an exciting opportunity to work with existing players to develop, pilot, and eventually scale MSME-centered SCF solutions.
The lack of actual SCF use-cases in Ethiopia means that many actors, specifically FSPs and FMCG companies, have no experience in fully implementing such platform-enabled solutions. A viable path could be to leverage nascent pilot programs — for example, digital unsecured lending pilots — and work with the proponents of these pilots to customize them for supply chain finance requirements. This ensures that the SCF framework takes advantage of several learnings from these pilots, shortens the time to market, and can meet the pain points of merchants.
These SCF solutions will need to find ways to address Ethiopia-specific constraints including a rudimentary National Identity scheme, sparse credit bureau data, and regulatory requirements that may inhibit fully digital loan contracts. For Ethiopia, recruiting and onboarding suppliers/manufacturers of locally made FMCGs and popular local other items such as spices is key for scale, as these form the bulk of the basket share for many MSMEs.
FSPs in Ethiopia will see this as a new and necessary journey, one taken with great caution, and it may require additional technical assistance and other support to update existing credit policies, processes, and operational systems to support SCF products. For example, FSPs will need to learn how to integrate sales order history and supplementary data on the merchant into their credit assessment models.
Supply chain finance in Nigeria is in the growth phase with several players in the market, ranging from larger platform providers, serving several thousand merchants, that have built workable models but require additional funding to provide credit to their growing merchants, to smaller platform providers that are looking to prove their concept and upgrade their business model and/or technology infrastructure.
This places Nigeria in a unique position, as some of the actors are familiar with platform-enabled supply chain finance models, with partnerships built with FMCG companies, their distributors, and independent multi-product distributors and wholesalers, but less so with FSPs. Though mobile money is not as well-developed in Nigeria as it is in Ghana, the emergence of payment service banks (PSBs) and MNO-led mobile money schemes is an opportunity to create partnerships with these entities to drive digitization of payments at scale, as well as leveraging ubiquitous agency banking operators as cash-in/cash-out agents.
The long-term viability of many of these models is still in question and systemic challenges including weak distribution infrastructure make serving MSMEs outside of major urban centers prohibitively expensive. Partnerships with logistics providers will be key to driving growth of platform-enabled SCF solutions.