<a href="https://www.cdcgroup.com/en/" target="_blank" rel="noopener noreferrer">CDC Group</a>, the UK’s development finance institution, is one of the largest DFIs in the world. With nearly $6 billion invested in companies located mostly in Africa and South Asia, CDC is an impact investor that aims to drive development through commercial means.

CDC invests across a wide range of sectors but focuses on seven priority sectors that it has identified as having the greatest potential for development impact. Among these, the financial services sector currently represents a <a href="https://www.cdcgroup.com/our-impact/key-data#how-we-invest-in-sectors!" target="_blank" rel="noopener noreferrer">greater share of CDC’s portfolio</a> than any other sector.

As part of its exploration into how DFIs are responding to COVID-19, in particular with respect to the role of the financial sector, CFI connected with Machal Karim, an executive on CDC’s Development Impact team who focuses on financial services in developing countries.
<h2>For its COVID-19 response, CDC has laid out three areas of focus: ‘Preserve,’ ‘Strengthen’ and ‘Rebuild.’ Can you tell us more about those?</h2>
We prepared a briefing document with complete details that is available on our <a href="https://www.cdcgroup.com/en/covid-19-response/" target="_blank" rel="noopener noreferrer">COVID-19 response page</a>.
<blockquote>Our immediate priority has been to preserve the viability of our current portfolio of over 1,200 businesses that employ more than 800,000 people combined.</blockquote>
Our immediate priority has been to preserve the viability of our current portfolio of over 1,200 businesses that employ more than 800,000 people combined. This is particularly the case in those sectors most affected by COVID-19, where it’s been crucial to act to protect the positive environmental, economic, and social impact of these businesses. Our support has included providing working capital, technical assistance, and guidance to improve their resilience and protect jobs.

Our second area of focus is to strengthen the resilience of businesses by scaling up our response to the economic and health challenges of the crisis. On the economic side, we’re channeling much-needed liquidity to local banks to enable them to support their business customers. And to support those that have a direct role in combating the COVID-19 pandemic, we are assessing opportunities to invest in businesses providing healthcare or access to basic goods and services.

We’re now at a point where, alongside these more immediate actions, we’re thinking more about our third area of focus – to support economies to rebuild and recover once the worst effects of the pandemic have passed. As a DFI, our role to address the long-term challenges a crisis will bring – continuing to invest patient capital at a time when commercial investors pull back – is vital.
<h2>In terms of ‘Strengthen,’ CDC is looking to provide liquidity for local financial service providers. Have you identified opportunities for this type of support yet?</h2>
We’re giving priority to those who are in most urgent need of liquidity support. Over the last few months, we’ve committed just over $400 million to our program of systemic liquidity.

As an example, we’ve recently made an <a href="https://www.cdcgroup.com/en/news-insight/news/cdc-announces-additional-us75-million-trade-finance-deal-with-absa-as-part-of-covid-19-response/" target="_blank" rel="noopener noreferrer">additional $75 million commitment</a> to our existing trade finance facility with Absa Bank, an African financial services group. The pandemic has put significant pressure on African banks as international banks continue to withdraw from the continent.
<blockquote>What makes this facility particularly innovative is that it is aimed at boosting trade finance funding to some of Africa’s most vulnerable countries.</blockquote>
The investment will enable local banks to sustain the availability of trade finance, supporting supply chains during the crisis. And what makes this facility particularly innovative is that it is aimed at boosting trade finance funding to some of Africa’s most vulnerable countries and in sectors that are critical to serving people’s basic needs during the crisis – food and agriculture and health.
<h2>What about timeframes? What do you see as the medium-term needs beyond liquidity?</h2>
<blockquote>What we do know is that the crisis is shifting from an acute challenge to a chronic one, and this means that our role will be as a partner for the long-term.</blockquote>
CDC has identified various <a href="https://www.cdcgroup.com/en/news-insight/news/guidance-on-protecting-customers-during-covid-19/" target="_blank" rel="noopener noreferrer">short-term to longer-term risks and provided corresponding suggestions</a>, but we’re at a stage where it’s still very difficult to talk about timeframes. We still cannot predict what the ultimate impact will be. What we do know is that the crisis is shifting from an acute challenge to a chronic one, and this means that our role will be as a partner for the long-term, supporting businesses through the course of the pandemic and to rebuild sustainably.

In terms of needs beyond liquidity, our approach throughout has been to provide guidance for employers, investors, and financial institutions on issues ranging from <a href="https://www.cdcgroup.com/en/news-insight/insight/articles/how-can-investors-help-companies-protect-jobs-during-covid-19/?fl=true" target="_blank" rel="noopener noreferrer">job protection</a>, to <a href="https://www.cdcgroup.com/wp-content/uploads/2020/04/CDC-Group-Guidance-on-protecting-customers.pdf" target="_blank" rel="noopener noreferrer">customer protection</a>, to <a href="https://www.cdcgroup.com/en/news-insight/insight/articles/guidance-on-managing-a-remote-workforce-during-the-covid-19-pandemic/?fl=true" target="_blank" rel="noopener noreferrer">remote working</a>. As time has moved on, the nature of this guidance has evolved to include advice on <a href="https://www.cdcgroup.com/en/news-insight/insight/articles/returning-to-the-workplace-during-covid-19-labour-and-workforce-considerations/" target="_blank" rel="noopener noreferrer">returning to the workplace</a> and how to support women working from home with limited access to technology.

Another part of our approach has been to provide support to investee businesses through <a href="https://www.cdcgroup.com/en/covid-19-response-facilities/" target="_blank" rel="noopener noreferrer">our technical assistance facility, CDC Plus</a>. This has included one facility providing grants to businesses, so they can adapt or scale-up to form part of the response to the pandemic, and a second facility to support the development of guidance for companies on how to respond to the crisis.
<h2>Throughout the short and medium terms, CDC suggests businesses maximize their “digital footprint and channels” as much as possible. How are your investees working to accelerate digitization for consumers?</h2>
We’ve been supporting our investee businesses, including financial institutions, to proactively explore how they may want to pivot their current products or operations to better meet customer needs. Much of this has revolved around learning more about digital opportunities and maximizing their digital offerings so they can continue to operate under the changing environments and new types of customer interaction and behavior that the pandemic has brought about.

We continue to support our investees through various channels, including our technical assistance facility, to explore these opportunities and step up their activities as economies open up.
<h2>Consumer protection remains an important topic for CDC. How have consumer protection challenges shifted in the COVID era?</h2>
<blockquote>Consumer protection risks have become particularly heightened due to the pandemic.</blockquote>
We recognized that financial institutions and their customers would come under particular stress as a result of COVID-19. Consumer protection risks have become particularly heightened due to the pandemic, as financial institutions have had to balance the immediate stress on liquidity with the need to sustain support to their customers and abide by regulatory requirements.

Early on, we ensured that the financial institutions we’re invested in had the support they needed to make decisions and manage risks while protecting customers, such as by issuing this <a href="https://assets.cdcgroup.com/wp-content/uploads/2020/04/09165635/CDC-Group-Guidance-on-protecting-customers_9-April-2020.pdf" target="_blank" rel="noopener noreferrer">guidance document</a>. Mindful of the many stresses on employment, liquidity and cashflows, we urged our financial institution partners to continue to consider the needs of, and risks to, customers through the crisis.
<h2>How has this crisis shifted the perception of inclusive finance, if at all?</h2>
<blockquote>Now more than ever, support to financial systems is critical for economic recovery, particularly for the most vulnerable.</blockquote>
Now more than ever, support to financial systems is critical for economic recovery, particularly for the most vulnerable. Our work to provide systemic liquidity has been a concrete channel of support to the market, with an explicit focus on supporting the most vulnerable first and ensuring their liquidity needs are managed.

When we start to recover, it will be vital to remember all segments of the market to ensure that the most vulnerable and excluded groups are not left behind. It will also be important to continue to support financial institutions in reaching those customers that have historically been perceived as higher risk and harder to reach, as they are also the most vulnerable.
<h2>CDC’s head of Africa has argued that the banking sector is where DFI support is most crucial, but that private capital will be required in the longer term. Does CDC structure any direct support to MSMEs or does everything flow via the banking sector?</h2>
<blockquote>We know that our most effective way for getting capital to SMEs is through partners, rather than investing directly.</blockquote>
A key part of our <a href="https://www.cdcgroup.com/wp-content/uploads/2020/05/Financial-Institutions_11.pdf" target="_blank" rel="noopener noreferrer">Financial Institutions' Strategy</a> is to help intermediaries serve SMEs because SMEs are the growth engines of the economy in our geographies. We know that our most effective way of getting capital to this size of business is through partners, rather than investing directly.

This includes investing in non-bank financial companies so that alternatives to traditional bank financing become available to SMEs, as well as supporting microfinance institutions looking to extend their lending to SMEs. It also includes working with our bank investees to increase the finance they provide to SMEs. This can mean funding work to develop products and operations better suited to SME clients. And it can mean entering into risk-sharing agreements, which reduce banks’ capital cost of lending to SMEs, or trade finance agreements to bridge the ‘trade finance gap’ and support trade undertaken by local businesses. Finally, it includes investing through funds to reach SMEs with different types of capital.

That’s why an important part of our response has been focused on working with our investee financial institutions, so that we can quickly help them to increase the credit available in our markets. For example, by expanding our pre-existing trade finance programs, we can inject liquidity quickly and accurately, and ensure that domestic supply chains keep operating, which in turn supports SMEs within those markets.
<h2>Has CDC coordinated with other DFIs on its COVID-19 response? What’s been the nature of this inter-DFI coordination, and what more can be done?</h2>
DFIs came together very early on to find ways to collaborate in response to the pandemic. The <a href="https://www.cdcgroup.com/en/news-insight/news/development-finance-institutions-join-forces-to-respond-to-covid-19-in-developing-countries/" target="_blank" rel="noopener noreferrer">DFI Alliance</a>, involving organizations from 16 OECD countries, has been working together to bring liquidity to the market, support companies impacted by the virus, and promote new investment.

CDC has been working with both bilateral and multilateral DFIs. There are various working groups underway coordinating on areas ranging from technical assistance funding, to our approach to certain sectors, to supporting the liquidity of investment funds.

We’ve also been collaborating on how to support the rebuilding of businesses and economies in a way that is more inclusive. For example, alongside our peers, we <a href="https://www.cdcgroup.com/en/news-insight/news/2x-challenge-and-gender-finance-collaborative-response-to-the-covid-19-pandemic/" target="_blank" rel="noopener noreferrer">called for a gender-sensitive approach</a> among investors in both immediate responses and longer-term recovery solutions.
<blockquote>We will continue to stand firm to play our role at a time when commercial investors are pulling back.</blockquote>
We feel proud of what we’ve been able to achieve so far and recognize there is a lot more to do as the pandemic shifts from an acute to a chronic challenge. Our approach of providing much-needed liquidity through financial intermediaries is very likely to continue to be needed in the coming years. We will continue to stand firm to play our role at a time when commercial investors are pulling back, so that in the long-term, businesses and economies are able to successfully rebuild.

DFIs, Financial Inclusion and the COVID-19 Response: A Q&A with Machal Karim of CDC

South Asia

Sub-Saharan Africa

Test of a Lifetime: COVID-19 and Financial Inclusion

Banks

Financial Service Providers

Challenges and Crises

Enabling Environment

Consumer Protection

Digital Credit

Credit

Digital Financial Services

Delivery Channels

Microfinance

Microfinance Institutions

MSME/SME Finance

Resilience

Financial Health

Responsible Investing

Impact Investing

Supply Chain Finance

Women

Underserved Groups

Blog Post

Many have compared the steps required to overcome COVID-19 with those taken in previous economic crises or <a href="https://centerforfinancialinclusion.org/pandemics-and-natural-disasters-what-can-we-learn-from-past-disasters-to-help-with-todays-pandemic/" target="_blank" rel="noopener noreferrer">natural disasters</a>, whereby the situation follows a similar pattern consisting of three stages: triage, stabilize, recover. While there is some applicability to the current COVID-19 pandemic, it implies a sequence and limited duration that may not truly characterize the nature of the challenges we now face. The reality is that COVID-19 is a more persistent phenomenon that may continue to ebb and flow for some time before it is fully under control.

Given the more entrenched and global nature of this crisis, it is likely that the consequences will be more varied and run deeper than what we have seen in past crises. To help get a sense of what these consequences may be for those who are most vulnerable, we asked a few members of CFI’s <a href="https://www.centerforfinancialinclusion.org/people/advisory-council" target="_blank" rel="noopener noreferrer">Advisory Council</a> to share some brief thoughts on what they see as the biggest implications of COVID-19 and the ways in which the inclusive finance sector can address them.
<h2>Camilla Nestor, Adjunct Professor at Columbia University</h2>
From my perspective, one of the biggest implications of COVID-19 is on food security for countries and populations that were already vulnerable. Before COVID-19, the world’s estimated 500 million smallholder farmers were one of the most financially underserved segments, with an estimated <a href="https://www.raflearning.org/post/covid-19-emergency-briefing-agri-smes-operating-uncertain-financial-operational-and-supply" target="_blank" rel="noopener noreferrer">$100 billion lending gap</a> in Africa alone.

As a result of COVID-19, smallholder farmers are dealing with significant volatility in demand for both cash crops and food crops, challenges securing the necessary inputs, and limits on accessing markets. On top of this, they are also facing reductions in access to already-scarce capital. If unaddressed, this lack of capital will directly impact their ability to produce food. We see that commercial lenders are pulling back on lending to agriculture; <a href="https://csaf.org/wp-content/uploads/2020/07/CSAF_State_of_Sector_2020_Summary_FINAL.pdf" target="_blank" rel="noopener noreferrer">cross-border social lending</a> is flat; and supply chain financing is at risk – for example, in a recent <a href="https://www.afap-partnership.org/covid-19-impact-assessment-on-the-agrismes-and-farming-communities-of-ghana-malawi-mozambique-tanzania-and-uganda/" target="_blank" rel="noopener noreferrer">survey</a> of 5 markets in Africa, farmers noted reduced access to both supplier credit and trade credit since the onset of the pandemic.
<blockquote>With smallholder farming contributing up to 80% of the food supplies in some regions, there is significant risk to food security at both a household level and a national level.</blockquote>
With smallholder farming contributing <a href="https://www.ifad.org/documents/38714170/40706188/Smallholders+can+feed+the+world_e.pdf/460ca6c2-7621-40d8-9f79-a56f6f8fa75e" target="_blank" rel="noopener noreferrer">up to 80%</a> of the food supplies in some regions, there is significant risk to food security at both a household level and a national level. This is an opportunity for the financial inclusion community and agricultural finance experts to come together to develop short-term and longer-term mechanisms to ensure that financing flows to this critical segment.
<h2>Mark Pickens, Senior Director of Social Impact at Visa</h2>
We need to step up for small and micro businesses as they are the backbone of the global economy. Unless they remain resilient and grow, most economies are going to suffer because small businesses typically account for half of all jobs and GDP. The challenge is even greater with women-owned small businesses, which face many challenges, including lack of access to capital.
<blockquote>Key factors to building resiliency will include how small and micro businesses digitize payments, access other financial services, and skill-up to operate in an increasingly digital economy.</blockquote>
Key factors to building resiliency will include how small and micro businesses digitize payments, access other financial services, and skill-up to operate in an increasingly digital economy. Earlier this year the Visa Foundation announced $210 million to help small businesses. Visa also launched online toolkits via Small Business Hubs in 20 countries, expanded our Practical Business Skills portal for a greater geographic reach, and committed to digitally enable 50 million small businesses as we collectively recover from the COVID-19 pandemic.
<h2>Joanna Ledgerwood, Independent Consultant</h2>
It has been well-documented that the COVID-19 crisis has disproportionately affected women and girls. In most countries, social norms dictate that women bear primary responsibility for feeding and caring for their families and managing the household. With children not able to attend school and sick family members needing care, women have increased responsibilities, exacerbating an already heavy workload. The result is women have less time for paid work, and because of the pandemic, less access to informal financial services such as savings groups or local shop credit to help them through.
<blockquote>This pandemic provides an opportunity to proactively promote women’s empowerment.</blockquote>
However, this pandemic provides an opportunity to proactively promote women’s empowerment and advance household food security. Understanding how women and men are impacted differently by the pandemic, as well as the risks, constraints and hardships women face and their specific needs, requires the collection and analysis of sex-disaggregated data. This data can help to design appropriate programs and policies and inform financial products and delivery channels to effectively reach women.

For example, providing digital cash transfers directly to women increases their chances of receiving and controlling money to meet household needs, which in turn is likely to lead to greater bargaining power at home. The use of sex-disaggregated data can help to design programs that mitigate unintended consequences of cash transfers such as increased domestic violence. In addition, G2P programs that take gender biases into account can enhance women’s resilience to future economic shocks and can influence change to social norms over the long-term. Now is the time to ensure that women’s increased responsibilities and reduced ability to earn income will not further widen the gender gap in financial inclusion that existed long before this pandemic.
<h2>David Ferrand, Independent Consultant</h2>
Much depends, I think, on factors beyond financial inclusion. The indications remain rather positive that the health impact on Africa will be relatively bearable, notwithstanding the tragic loss of life. But we still don’t know yet the eventual economic cost to Africa, either in absolute terms or in how it will be distributed. There is a very real concern that the recovery from the crisis could see the micro and smaller scale business sectors re-emerging significantly disadvantaged relative to larger scale. And many people who have lost their livelihoods in the crisis may end up in long-term poverty traps.
<blockquote>Only governments have the balance sheets necessary to bear the risks involved.</blockquote>
There are financial sector providers positioned to play a pivotal role in restoring liquidity to communities and investing in rebuilding. But it would be unrealistic to expect that financial sector players can do this alone. There needs to be a new partnership between the financial sector, communities, and governments. Only governments have the balance sheets necessary to bear the risks involved – but they need help from across the financial system in providing the support where it is needed.

Over the longer term, there is also a need for genuine innovation in developing solutions to deal with the human and economic losses. Digital transformation has extraordinary potential, both now and in the future, to change our societies and ultimately lead to ever greater economic, social and cultural integration of countries and the world. The best-case scenario is that the COVID-19 crisis could lead to our harnessing digital finance to empower the rebuilding and development of local communities. But this is going to require bold, swift and pragmatic action.

Implications of COVID-19 for the Most Vulnerable: A Snapshot of Views from CFI’s Advisory Council

Advisory Council

Our People

Agricultural and Rural Finance

Policy, Regulation and Government Initiatives

Smallholder Farmers

Santanu Mukherjee

Regional Program Manager, Asia

Federico  Gomez Romero

Raliat Sunmonu

Ashley Lewis

Victoria White

Amy Stewart

Scott Stefanski

Prateek Shrivastava

Priya Punatar

Kathleen Yaworsky

Jason Loughnane

Iain Brougham

Andrea Horak

Latin America and The Caribbean

Peru

Mexico

Nigeria

Kenya

Ecuador

China

East Asia and Pacific

Access Usage Gap

Appropriate Product Design and Delivery

Behavioral Insights

Entrepreneurs of MSMEs

Financial Capability

Financial Technology

Fintechs

Human Centered Design

Human Touch

Mobile Banking

Payments

Responsible Digital Finance

Agent Banking

Digital Transformation

Partnerships

Financial Inclusion Strategy

Aging and Older Adults

Customer Centricity

Data Analytics

Equity Investing

Governance

Product Pricing

Risk Management

PayGo

Advisory Services

Alternative Data

Credit Provision

Risk and Credit Analysis

Rural Populations

Transparency

Article

Video

Podcast

Report

Toolkits and Guides

Most of fintech startup Tienda Pago’s staff are very experienced with technology. Call center coordinator Rafael Urday Zea studied information technology in school; project coordinator Jose Luis Aldave worked on implementing technology in his previous job. But the clients they serve are not always as comfortable using tech. <a href="https://www.tiendapago.com/" target="_blank" rel="noopener noreferrer">Tienda Pago</a>, an Accion Venture Lab portfolio company working in Peru and Mexico, offers short-term financing to small store owners. They work through various product distributors so the shopkeepers can take deliveries — even when they don’t have cash on hand — and pay for the merchandise later in the week once they’ve had a chance to sell some of their products. During times when sales are slow, which many businesses have experienced during the COVID-19 pandemic, Tienda Pago’s platform has <a href="/what-it-takes-for-one-family-business-to-stay-open" target="_blank" rel="noopener noreferrer">enabled mom-and-pop shops to stay open</a>.

Like many fintechs operating in emerging markets, Tienda Pago does their best to <a href="/in-a-no-touch-world-tech-cant-leave-low-income-people-behind" target="_blank" rel="noopener noreferrer">keep their less-tech-savvy clients in mind</a>, including offering customer support through a call center. When the COVID-19 pandemic spread to Lima, the call center became an essential communication tool for Tienda Pago staff to connect with their clients. The company expanded their call center and proactively reached out to clients to ensure that everyone felt comfortable using their digital platform. In his role overseeing the call center, Rafael takes pride in making tech accessible to all clients. “I like to be able to teach people who don’t have as much skill," he says. "We have a lot of clients who are older, and they don’t have much experience in the financial system. At the same time, the distributors are often older themselves, and technology isn’t easy for them, so helping them over the phone and showing them that they can do this is satisfying.”

<img class="alignright wp-image-24726" src="https://content.accion.org/wp-content/uploads/2021/09/maria-ramos-tienda-pago.jpg" alt="Maria Ramos at her store in Peru" width="500" height="500" />Maria Ramos Zamudio is a typical client. She’s raised five children and lived in different parts of Peru. She's now located in Lima where she sells snacks and beverages from a tiny, rented space. She doesn’t have a bank account and hates to take out loans. But she’s managing well with her Tienda Pago account. “It’s easy,” she explains. “I have my code in my phone, they send me what I owe, get my code, and I go to the bank and pay.” Many Tienda Pago clients find it much more convenient and safer to use Tienda Pago’s phone-based tokens to manage payments. This way, they don’t have to take cash out in the street and risk robberies or loss. The ability to pay by phone has become even more critical during the pandemic as people avoid in-person interactions when possible.

Tienda Pago’s staff use more advanced technology themselves to communicate with colleagues in other cities across Peru and stay in touch while offices remain closed during the pandemic. They’re also relying on tech to manage client information and product offerings through the company’s propriety app. The app allows staff to quickly see where their clients are located, their lines of credit, how they’re paying, and which clients are in arrears. Staff can also see what kind of contact that their clients have received already — like training, relationship-building, and collection visits — so they’re better equipped to support their clients.

Tienda Pago was already prioritizing new technologies that are user-friendly for the clients and helpful for staff to gather more information before the pandemic. For example, says Rafael, “We’ve introduced a chatbot, which doesn’t require human interaction, and can give clients a solution automatically. Most people have a smartphone and an internet connection, so they can use it at any hour of the day." As Rafael continues to discuss Tienda Pago's technology, he gets at the heart of why social innovation is so important for serving low-income communities around the world — especially as these communities continue to face major challenges: "Without this technology, we wouldn’t be able to help them.”

User-friendly tech helps shop owners stay in business

Most of Mexico’s people lack access to a formal bank account. Accion has worked in Mexico for decades to create a thriving and competitive financial sector that embraces innovation and protects its clients.

Cecilia Polanco Tueros is a picture of resilience.

Even before the pandemic, she was no stranger to overcoming adversity. After a bad robbery, her family lost everything and went bankrupt. Her husband had to seek out a new job where he could bring in more income, and Cecilia took over the corner store that had previously been run by her mother-in-law.

Running her store keeps her busy every day, but she’s always working to balance the needs of her business and her family. While her three sons are now in their teens and twenties, Cecilia still makes time to be in their lives as much as she can — stepping away from the store to make breakfast for everyone and reconvening the family for lunch each day. She takes particular care to be there for her oldest son, who has Autism Spectrum Disorder. Before the pandemic, she arranged for him to get the therapy and support he needed over the years, and she is proud of the independent young man that he’s growing into. Being able to work close to home and tend to her family’s needs is important for Cecilia since she has to work such long hours, from before sunrise until late into the evening.

Cecilia and her family quickly felt the effects of the pandemic when it reached them in Lima, Peru. “COVID-19 was and still is very hard on us, as a family and as a business. Thank God neither me, nor my immediate family got infected. Sales are down, people are not coming as much, and they do not have money to spend,” she says. Though her store sells food and everyday essentials, many people in her community are struggling and buying less.

One thing that’s helping her manage while her sales have dropped is working with Tienda Pago. Accion partner Tienda Pago provides working capital for small merchants in Peru and Mexico so they can manage their inventory needs without being at the mercy of cash flows. This allows them to buy what they need and take advantage of busy times to sell more merchandise and grow.

“Tienda Pago is a solution,” says Cecilia, a smile breaking over her face. “It’s like a salvation, you might say!” She wasn’t so sure about trying it at first — “I hate taking a bank loan. I never do it,” she explains. But with Tienda Pago, the credit is so short-term she repays within a week and doesn’t lose a sense of control over her finances. Even though the loans are small, she’s still able to come out ahead.

Cecilia hasn’t been able to stock as many items in her store in the past year because of her decreased sales. The support she receives from Tienda Pago has helped her to stay afloat. “Tienda Pago helped a lot and keeps helping us. Tienda Pago did not charge me interest or late fees for the period we were in quarantine and not buying products.” Their team is staying in touch with Cecilia through phone calls and their digital app while they’re unable to visit in-person during the pandemic. <a href="https://www.accion.org/what-it-takes-for-one-family-business-to-stay-open" target="_blank" rel="noopener noreferrer">Tienda Pago is focused on helping small shop owners</a> like Cecilia through this crisis so they can stay in business long-term.

While Cecilia is still fighting to get through the challenge of COVID-19, she’s holding onto her dreams for the future. Access to working capital opens opportunities for small business owners to endure challenges and grow when sales rebound. Since she began using Tienda Pago’s services, Cecilia has found she can stay afloat during difficult times, and when things are good, she can order more merchandise for the shop and have money to spend on the things her sons need. Her oldest son has taken workshops to help him gain more skills and independence, her middle son has begun working as a dental technician, and her youngest is doing well in high school. “I want to grow, I want to expand,” she says, looking ahead to the future. Her dreams are growing bigger, too, as she envisions college degrees and professional careers for her sons, and hopes they’ll be able to support and take care of each other. Cecilia’s store is more than a job; it’s a pathway to a better future for her entire family.

A family business offers renewed hope and resilience

Though Nigeria’s government has set ambitious goals for financial inclusion, the majority of its people lack a formal bank account. Accion has worked in the country since 2007 to expand access to financial services.

Small businesses play a vital role in communities around the globe, not only by providing goods and services, but by creating jobs. In fact, <a href="https://www.worldbank.org/en/topic/smefinance" target="_blank" rel="noopener noreferrer">half of the world’s jobs</a> come from micro, small, and medium enterprises (MSMEs). Small businesses alone account for <a href="https://www.worldbank.org/en/topic/smefinance" target="_blank" rel="noopener noreferrer">half of the global GDP</a>. For many of these businesses, accessing finance is a struggle. We’re constantly working to find and invest in financial service providers that empower the world’s MSMEs, especially in the poorest regions. As access to mobile phones and the internet grows, digital financial services have the power to bring much-needed support to the most vulnerable communities and ultimately open opportunities for new jobs.

Digital financial tools that are accessible via mobile phone have been a game-changer for financial inclusion. In sub-Saharan Africa, the percentage of adults with bank accounts increased from <a href="https://globalfindex.worldbank.org/sites/globalfindex/files/referpdf/IFC088%20-%20FINDEX%20Note%201_DRAFT%202.pdf" target="_blank" rel="noopener noreferrer">34 percent to 43 percent between 2014 and 2017</a>, and the majority of these gains can be attributed to mobile money accounts.

<a href="https://www.gsma.com/newsroom/press-release/gsma-5g-moves-from-hype-to-reality-but-4g-still-king/" target="_blank" rel="noopener noreferrer">GSMA estimates</a> that, by 2025, over 70 percent of the world’s population will have mobile phones. This growth will be driven by developing countries with the most underbanked populations, creating vast potential to bolster MSMEs and ultimately boost job creation.
<h2>Helping microentrepreneurs embrace digital tools</h2>
Still, barriers stand in the way of some MSMEs’ ability to embrace technology. Young microentrepreneurs tend to be tech-savvy but older ones tend to be less confident transitioning to new, unfamiliar tools. We’re investing in financial service providers (FSPs) with innovative strategies to train microentrepreneurs to confidently use digital tools that will help their business survive and grow.

Helping microentrepreneurs is especially urgent as COVID-19 has wreaked havoc on traditional, in-person businesses. MSMEs that have at least partially digitized their business and can accept digital payments have proven to be more resilient. Our FSP partners are on the frontline of the pandemic supporting the most underserved essential businesses — including mom-and-pop shops that sell food and medicine. , These institutions are accelerating their own digital transformations and helping their customers to embrace digitalization as well. They are rapidly designing new digital products and training clients to use digital tools so that these vital businesses can stay open and keep providing jobs in their community.

In Nigeria, our partner <a href="https://www.accionmfb.com/" target="_blank" rel="noopener noreferrer">Accion Microfinance Bank</a> has helped ensure that MSMEs can continue to sustain local economies and create jobs. Their digital products and services include a mobile app that allows customers to access financial services remotely, which has seen broader use after a recent marketing boost. Interbank transfers and mobile airtime purchases made through the app have increased far beyond pre-pandemic levels. Accion Microfinance Bank sends agents to support customers who can’t access digital channels or safely visit a branch, and hosted a series of well-attended free webinars to support their customers. They're now working to expand their agent network even further to bring financial services to customers in hard-to-reach locations.
<h2>Leaning on fintech innovation to close credit gaps</h2>
As established financial institutions are driving financial inclusion by creating useful digital financial tools, fintech startups are also helping to close gaps in underserved communities through innovative products and services. In Mexico, there are over 5 million MSMEs, but commercial banks often refuse to serve them because they are small, informal, and not seen as profitable, or because their owners lack credit history. Informal lenders exist but often charge exorbitant interest fees. Our fintech partners in the region, however, have developed innovative digital lending services that can close the credit gap.

<a href="https://konfio.mx/" target="_blank" rel="noopener noreferrer">Konfio</a> is an online lending platform that uses innovative credit algorithms and alternative data analysis to help MSMEs in Mexico obtain affordable working capital loans. Along with investing in them, Accion Venture Lab sent a team to help them define priority geographic areas and customer segments so that they could identify where to focus their marketing efforts and expand their product offering. By creating products that respond to customer needs, Konfio has grown from serving a few hundred businesses in 2014 to being the leading online lending platform for small businesses in Mexico and a global model for how inclusive fintech can be successful.

<a href="https://www.tiendapago.com/" target="_blank" rel="noopener noreferrer">Tienda Pago</a> is another fintech partner that currently operates in Peru and Mexico. They use a digital platform to provide digital supply chain finance services to underserved small businesses. They’re supporting mom-and-pop stores to help finance the upfront purchase of the goods they sell. Tienda Pago’s agents work with existing supply chains and provide one-on-one guidance through onboarding before their algorithm analyzes data collected by the agent to produce a credit score and loan amount. While the management of the loan payouts and the payments for consumer goods deliveries is through their digital app, the Tienda Pago staff is only a call or text away if needed.

When small businesses have access to high-quality and fair financial services, they are better able to survive the shocks of crises like the COVID-19 pandemic, keep the employees they’ve hired, and eventually create more jobs. Digital technology, along with proper training and customer support, has proven to be an indispensable facilitator when it comes to supporting underserved microentrepreneurs in the world’s poorest regions. As mobile phone and internet access spreads, we’ll continue working to open opportunities to underserved small businesses so that they can thrive and help their communities prosper.

Opening opportunities for job creation in developing countries

[embed]https://vimeo.com/489465321[/embed]

In uncertain times, access to fintech tools lets small business owners plan and prepare to meet their customers’ needs. We open opportunity for these entrepreneurs so they can keep serving their communities. <a href="https://www.accion.org/opening-opportunities-for-job-creation-in-developing-countries" target="_blank" rel="noopener noreferrer">See how we make a difference.</a>
<h2>En español:</h2>
[embed]https://vimeo.com/503307795[/embed]

Empowering small businesses to serve their communities

Rosa Tipula Quispe’s shop in Lima, Peru, is a family business in more ways than one. It brings her family together as her daughter and son take turns pitching in, and it’s even become like a member of the family itself. Rosa smiles with pride as her daughter Emily explains: “It’s beautiful to have something of your own that you can see growing every day with your support. It’s like a little tiny baby, and you invest and invest, and then you watch that kid grow up. That’s what motivates us!”

Rosa opened the shop four years ago because it seemed like the kind of business that would work well for her as she grew older. She gets to work inside, and she has time to care for her family. Her daughter Emily, a school teacher, comes into the store every day to help her mother keep things organized. Rosa laughs, pointing to the high shelves around the store that are much easier for a younger woman to climb up and stock. On a normal day, Rosa and Emily arrive at 5:30 a.m. to get ready for the neighborhood customers who arrive early for their morning bread. Before sunrise, the two go over the plan for the day, including what orders they expect to arrive, and whether they have the money on hand to pay for the deliveries.

Rosa and Emily’s community and their business had to make a major shift when Lima went into lockdown from the coronavirus pandemic. Their shop has been crucial for their neighbors, who rely more on the shop around the corner for their essentials. “I was able to stay open during the quarantine since I sell food in my neighborhood,” said Emily. But their sales were still slower than usual, and the supply chain disruptions from the pandemic made it difficult to stock their typical inventory.
<h2>A digital solution to plan ahead</h2>
<a href="https://www.tiendapago.com/" target="_blank" rel="noopener noreferrer">Tienda Pago</a>, an Accion Venture Lab portfolio company, is a digital supply chain finance solution that helps mom-and-pop shops in Peru and Mexico finance their inventory so they can stock what they need when they need it and grow their revenue. Rosa started working with Tienda Pago a couple of years ago to help her purchase stock for her customers using their digital credit options instead of cash.

Her supplier told her about the platform, and she was interested in an option that would allow her to be less dependent on cash flows. When Rosa relied on the cash she had on hand, she could only get the merchandise she could afford at the time and would miss opportunities to stock up ahead of busier times and sell more. Rosa also wanted to move away from cash because of the security risk. Bills can be lost or stolen, and she appreciates that with Tienda Pago, she doesn’t have to deal exclusively in cash. When she needs to pay her suppliers, she gets an SMS code on her cell phone she can give to the delivery person, and the cash box stays safely behind the counter.

“When we first opened the shop, we were very traditional in the way we handled payments and merchandise,” says Emily. “With Tienda Pago, technology isn’t something that’s just ‘out there,’ but it’s something for us, too. First I, and then my mom, got accustomed to using it to manage things.” Now, she says, their finances are so organized that she’s able to spend more time working on other aspects of the shop.

Now that COVID-19 has turned things upside down, Tienda Pago’s services became even more valuable to Rosa and her family. “Tienda Pago financed me during the worst period of quarantine even though my sales were low, but now I am back, and I am asking for an increase in my credit line,” says Emily. Tienda Pago worked with their clients to adjust their loans and repayment terms when the pandemic shut down normal operations. They’ve also moved their customer service function to a call center and used WhatsApp, SMS messages, and their mobile app for communications with their customers.

Small shops like Rosa’s are essential to their communities and the main source of employment for so many families in Peru and Mexico. Tienda Pago remains committed to helping these small mom-and-pop shops weather this difficult time and continue to grow and thrive in the future.

What it takes for one family business to stay open

The majority of Kenyans have mobile money accounts; their activity demonstrates digital financial services’ potential. Accion helps Kenyan innovators harness emerging technologies to create new financial services.

[embed]https://soundcloud.com/accioninternational/the-pandemic-provides-lots-of-new-problems-for-entrepreneurs-to-solve-fields-michael-moreland[/embed]

“<strong>T</strong><strong>he COVID pandemic has exposed risks embedded throughout the health system</strong>,” reflects Michael Moreland, co-founder and CEO of Field Intelligence, a tech-focused pharmaceutical supply chain company operating in Nigeria and Kenya. As the COVID-19 pandemic caused an increase in essential drug prices across Africa, Michael and his team took fast action, doing “everything [he] could to help [customers] keep [their] business open and working safely.” In an uplifting seventh episode of <a href="https://www.accion.org/series/venturekast-rebuild" target="_blank" rel="noopener noreferrer">VentureKast: Rebuild</a>, Michael explains how critically important Field Intelligence’s data-driven Shelf Life product has been to mitigate volatility in the price and supply of essential drugs, and how the COVID-19 pandemic poses a massive opportunity for entrepreneurs to solve challenges within public health systems. In the wake of the pandemic, “health-seeking behavior [has changed] broadly as more and more patients avoid the clinical setting… and instead go to that pharmacy on the corner.” As people turn to community-based health care solutions for their basic care, Field has leveraged their reach with local pharmacies and distributed hundreds of hand washing stations and educational posters to protect against the spread of the virus at a local level.

“The urgency of [improving the lives of vulnerable populations] has never been more clear” as drug price volatility, coupled with lockdown measures and a collapse of household income, leaves many in a desperate situation. Michael reckons that investors and entrepreneurs alike will respond with solutions to problems that have become apparent. While “[Investors] will naturally turn to those essential critical services like community-based health care as the kinds of place where there is a tremendous opportunity to improve, create value, [and] participate in that value chain,” the pandemic “provides new problems for entrepreneurs to think about solving” — an opportunity which Michael believes will change the future of the health care supply industry.

Please join our host and co-managing director of <a href="https://www.accion.org/how-we-work/invest/accion-venture-lab" target="_blank" rel="noopener noreferrer"><strong>Venture Lab</strong></a> <a href="https://www.accion.org/bio/vikas-raj" target="_blank" rel="noopener noreferrer"><strong>Vikas Raj</strong></a> as he interviews industry leaders every Thursday about how COVID-19 is impacting their work.

“The pandemic provides lots of new problems for entrepreneurs to solve” – Field Intelligence’s Michael Moreland

When people have access to the healthcare they need, their quality of life improves, they are better equipped to tackle challenges, and they are more prepared to seize opportunities to build a better future for themselves and their families. Pharmacies play a critical role in their communities by providing people with the medicine, vitamins, and other essentials that improve their well-being. But community pharmacies can be overwhelmed by the same problems that other small businesses face: unpredictable demand, difficulty tracking inventory, and cash flow constraints when stocking their shelves. The COVID-19 pandemic has exacerbated all of these problems. Field Intelligence, <a href="https://www.accion.org/this-company-is-making-healthcare-more-accessible-in-emerging-markets" target="_blank" rel="noopener noreferrer">a startup operating in Nigeria and Kenya and a part of Accion Venture Lab’s portfolio</a>, is addressing these challenges for pharmacists so that they can concentrate on treating their patients.
<h2>Getting vital prescriptions onto pharmacy shelves</h2>
Field uses a combination of data-driven supply chain management software and delivery services to supply community pharmacies in Kenya and Nigeria with the right products at the right time. These pharmacies use <a href="https://shelflife.co/" target="_blank" rel="noopener noreferrer">Shelf Life</a>, Field’s pay-as-you-go subscription service, to order medicine and other products for their shelves. Because Field doesn’t require Shelf Life users to pay for goods until after they’ve sold them, pharmacists don’t have to worry about securing cash upfront to order what their patients need. Ijeoma Cynthia Uzor of Arrow Aid Pharmacy in Lagos describes her experience with Shelf Life, saying, “A lot has changed with Shelf Life compared to my other suppliers. Like the cost of procurement has actually reduced because I do not stress myself trying to raise money to buy the products before I sell.”

Shelf Life also helps pharmacies cut costs by tracking the expiration dates of the prescriptions that they already have in stock. Rather than take a loss from these drugs if they expire before they can be sold, Field Intelligence takes them back without charging pharmacies. “Once you notice that drugs are approaching expiration date, you notify them, and they come and take them away. That’s another beautiful benefit you are getting from Shelf Life,” explains Ikechukwu Okwor, owner of Peak Choice Pharmacy in Mararaba, Nigeria. Ikechukwu saved 6.7 million naira in working capital in the first nine months of using Shelf Life to manage his inventory and avoided losses from expired medications.

Being able to pay as inventory is sold and avoid lost revenue from expired goods is especially helpful during the pandemic, when shifting customer demand has created a cash crunch for local businesses around the world. Pharmacies can keep up with the fluctuations in demand for what community members need without having to pay upfront to do so. ‘’The pandemic has added an urgency to the need for a rethink of operational tools and business capabilities available to community pharmacies, and we are at the fore of providing services to achieve this,” says Suleman Sule, Country General Manager and Pharmacy Director of Shelf Life Nigeria.

[caption id="attachment_21611" align="alignnone" width="750"]<img class="wp-image-21611" src="https://content.accion.org/wp-content/uploads/2020/06/Portrait-Peak-Choice-Pharmacist-4.jpg" alt="" width="750" height="500" /> <em>Ikechukwu Okwor stands in his pharmacy in Mararaba, Nigeria. He has saved over 6.7 million naira in working capital thanks to Field Intelligence’s Shelf Life service.</em>[/caption]
<h2>Keeping pharmacies open during the pandemic</h2>
Pharmacies are playing a critical role on the frontlines of the pandemic. Not only do they give communities access to the medicines and health products they need, but they also reduce the number of unnecessary doctor and hospital visits which lessens the burden on overwhelmed healthcare systems. Making sure pharmacies can provide for communities is essential, but they're facing many challenges during this time.

On top of changing customer demands, the pandemic has created new disruptions in global supply chains, especially those related to medical supplies. Field Intelligence is actively recommending product substitutions when available so that their clients can stock alternatives for supplies that have become scarce. “This has been especially useful as we see an increase in demand for products these community pharmacies do not usually serve, like rapid diagnostics test kits, simple medical devices for homecare, personal protective equipments, personal hygiene products that are of great need during this period,” says Ajiffa Labor, Country Manager and Pharmacy Director of Shelf Life Kenya. Field Intelligence has also temporarily migrated as many clients as possible to longer supply periods to bolster inventories and reduce the amount of human contact that more frequent delivery schedules require.

Beyond continuing to supply pharmacies during these disruptions, Field Intelligence has taken other steps to support their clients during this time. When the coronavirus outbreak escalated in March, they rolled out an infection prevention campaign where they distributed handwashing stations and educational posters to over 150 pharmacies in under a week. They also began sending weekly newsletters to share guidance for pharmacies and updates on supply availability in the market and viable substitutes for products whose supply chains had been affected.

Whether or not a community is facing a public health emergency, pharmacies need to provide their patients with the medications they need to stay healthy. When pharmacists have a tool like Shelf Life that helps them operate their business more efficiently, they can be even more effective for the people that rely on them and better prepared to endure unexpected challenges.

Community pharmacies use new tech platform to keep shelves stocked

As the economic effects of the coronavirus pandemic hit cities and towns around the world, small business owners face major challenges, on both the supply and demand side, to keep their businesses running. These entrepreneurs are often risking their savings, and sometimes their health, to generate income to survive, and they need urgent support to keep going. Beyond providing essential goods and services in their communities, these businesses account for nearly half of the world’s jobs. If they collapse, global economies won’t be able to recover.

Financial service providers (FSPs) that serve low-income individuals and businesses need to act now to support families and communities. These providers must consider near-term challenges while positioning themselves for a very different future. Though we don’t know what the post-crisis world will look like, one thing is certain: given the speed at which the virus has spread and the depth of its devastation, a passive response from financial service providers is not an option. Once the immediate crisis has passed, the future viability of these institutions will depend on how quickly they can <a href="https://www.accion.org/how-three-financial-service-leaders-are-adapting-to-covid-19" target="_blank" rel="noopener noreferrer">adapt to new circumstances</a> and gain momentum that will drive efficiency and growth.

Accion Global Advisory Solutions is focused on building the resilience of financial service providers and their ability to support their clients who need their help to weather this crisis. Innovations in fintech and digital transformation will help financial service providers continue to offer needed services to their clients and remain viable themselves during these extraordinary times. We are working with our partners around the world to <a href="https://www.accion.org/responding-to-the-pandemic-guidance-for-financial-service-providers" target="_blank" rel="noopener noreferrer">help them navigate the crisis</a> so they can help their clients rebuild and relaunch their businesses.

[caption id="attachment_21265" align="aligncenter" width="800"]<img class="wp-image-21265" src="https://content.accion.org/wp-content/uploads/2020/05/chart.png" alt="Accion services to support MSMEs" width="800" height="352" /> <em>Accion Global Advisory Solutions services to support MSMEs recovery from the COVID-19 crisis </em>[/caption]

To fuel the recovery for low-income individuals and micro, small, and medium enterprises (MSMEs), we are working with our partners to:
<ol>
 	<li><strong>Conduct data-driven client impact analysis:</strong> Quarantine measures have impacted businesses and industries in different ways. Retailers selling essential items like food and toiletries have remained open, whereas hairdressers, apparel stores, and restaurants, have been forced to close and suffer losses. Because the pandemic has impacted sectors differently, it is important to be sensitive and responsive to the unique needs of clients. <a href="https://www.accion.org/data-management-and-analytics-capabilities" target="_blank" rel="noopener noreferrer">Data-driven client impact analysis</a> helps FSPs respond to clients in a targeted manner — delivering relevant education, marketing messages, and innovative disbursal and collections strategies. Additionally, this analysis allows FSPs to understand how their portfolio will be impacted based on which segments of the economy they serve.</li>
 	<li><strong>Develop a collections and delinquency management plan:</strong> Because of their reduced income, many clients are struggling to make repayments. It is critical to develop a customer-centric collections strategy and delinquency management plan. Evidence from past crises shows that the majority of clients want to repay loans to trusted FSPs and maintain a good relationship for future financial needs. Collections management should be clearly defined and follow client protection principles.</li>
 	<li><strong>(Re)launch digital channels with vigor:</strong> In an environment of mandated social distancing and lockdowns, <a href="https://www.accion.org/aye-finance-tackles-msme-credit-gap-in-india" target="_blank" rel="noopener noreferrer">digital and alternative channels</a> — mobile, card, ATM, internet banking, and agent networks — have become even more important as they ensure that clients can still complete transactions. FSPs need their digital channels to be stable and robust enough to handle more transactions as clients turn to digital channels to repay loans and seek other financial services. Many of these clients will need guidance and training to build comfort and trust in digital channels, especially those that are first-time users.</li>
 	<li><strong>Build a client engagement plan:</strong> Financial service providers should be a trusted partner to their clients. To provide immediate support, FSPs should relay important health and safety guidelines from local health authorities and share updates about their own response in a friendly and understandable way. They should also communicate information regarding loan moratoria and adjusted repayment schedules clearly and through a variety of channels. Providers can offer <a href="https://www.accion.org/margarita-prepares-her-business-for-the-digital-age" target="_blank" rel="noopener noreferrer">education, mentoring, and tools</a> to help microbusinesses rebuild or, in some cases, pivot and start a new business while embedding best practices to build financial health and resilience.</li>
 	<li><strong>Assess liquidity requirements:</strong> Maintaining sufficient financial liquidity is vitally important for on-lending, operating expenses, and capital purchases. As the risk of defaults has risen, levels of portfolio-at-risk will increase. In many countries, FSPs have faced government moratoriums on client repayments, but not always been able to negotiate rescheduling their own borrowing, which exacerbates the liquidity pressures. These combined factors have triggered a more urgent need for <a href="https://www.accion.org/the-financial-engine-for-half-the-worlds-jobs-is-about-to-seize-up" target="_blank" rel="noopener noreferrer">debt liquidity from third parties</a>, many of whom are themselves facing liquidity pressures. Developing a cohesive funder strategy is critical to an FSP’s ability to manage through such shocks.</li>
 	<li><strong>Embrace digital business models:</strong> The need for digitization of FSPs, to help reduce their operating cost and to support micro and small businesses remotely, is more apparent than ever. This includes the development of data-driven, technology-enabled products, channels, underwriting, and operating processes. Through <a href="https://www.accion.org/navigating-digital-transformation-is-complicated-so-we-made-a-map" target="_blank" rel="noopener noreferrer">digital transformation</a>, FSPs can build business models that serve existing clients better and help new clients through remote onboarding.</li>
 	<li><strong>Reignite seized supply chains:</strong> <a href="https://www.accion.org/how-supply-chain-finance-can-help-microentrepreneurs-during-a-global-pandemic" target="_blank" rel="noopener noreferrer">Supply chains depend heavily on MSMEs</a>, both for production and sales. These MSMEs can constitute up to half of revenues for the largest consumer goods companies. Supply chains everywhere are being impacted by decreased demand from these businesses or suppliers’ inability to complete orders. While production will require concerted efforts of supply chain anchor firms, retail sales can be sustained through greater financing flexibility for merchants and their distributors. Supply chain finance offers a realistic and short-term means of extending funds using data and technology.</li>
 	<li><strong>Support the digital transformation of microbusinesses:</strong> Given the massive impact this crisis is already having on the economy worldwide, there is an urgent need to reimagine how MSMEs — which account for <a href="https://www.un.org/en/events/smallbusinessday/" target="_blank" rel="noopener noreferrer">90 percent of businesses</a> in emerging countries — buy, sell, and operate. As digital platforms become ever more pervasive, businesses can leverage new tools to rebuild and relaunch. One way to enable the digital transformation of small businesses is through <a href="https://www.accion.org/the-digital-transformation-of-microenterprises-a-path-forward-in-a-post-covid-19-world" target="_blank" rel="noopener noreferrer">an ecosystem approach</a>: a marketplace for business opportunities, training for entrepreneurs to plan for the future and leverage these platforms, and the financial support to fund capital needs. E-commerce marketplaces and FSPs need to collaborate to identify MSMEs that could embrace new business opportunities, share data responsibly to build pragmatic data-driven risk models, and offer financial products.</li>
</ol>
In almost every crisis in the past, underserved <a href="https://www.accion.org/how-some-small-businesses-are-thriving-during-the-covid-19-crisis-in-india" target="_blank" rel="noopener noreferrer">MSMEs have proven themselves to be resilient</a>. They are hardworking and industrious, and they have little choice but to rebuild their livelihoods and thrive. But they don't have to do it on their own. For these businesses and the communities they serve, financial inclusion is more important than ever. Financial service providers have a critical role to play in mitigating the immediate effects of the crisis on low-income individuals and small businesses and building the financial health of their clients in the long run.

Accion is helping our partners to leverage digital technologies and respond effectively to help their staff, businesses, and clients to cope with the crisis and build resilience for the future. Accion Global Advisory Solutions stands ready to advise and assist as we collectively adapt to a new normal. <a href="mailto:GLASSupport@accion.org" target="_blank" rel="noopener noreferrer">Contact us</a> to learn more about how we help financial service providers put these strategies in action.

Eight ways financial service providers can drive economic recovery

In Ecuador, more than 1 million people work for micro, small, and medium enterprises (MSMEs). These businesses play a critical role in the overall economy, contributing to over 25 percent of the nation’s GDP.

In recent weeks, Ecuador has emerged as the epicenter for the COVID-19 pandemic in Latin America, with over <a href="https://www.worldometers.info/coronavirus/country/ecuador/" target="_blank" rel="noopener noreferrer">29,509 reported cases as of May 11th</a>. The situation has quickly overwhelmed the country’s medical resources and brought the economy to a halt. MSMEs have been particularly hard hit — these businesses have limited cash reserves, and many may not be able to survive the reduced demand, disrupted supply chains, and liquidity shock.

As of 2018, <a href="https://globalfindex.worldbank.org/sites/globalfindex/files/countrybook/Ecuador.pdf" target="_blank" rel="noopener noreferrer">5.7 million Ecuadorians, nearly half of the adult population, did not have access to savings, loans, and other formal financial services</a>. Digital financial services can address this gap and provide more businesses and individuals have the tools they need. In recent years, improving infrastructure and lower-cost smartphones have brought more and more Ecuadorians online. However, while <a href="https://globalfindex.worldbank.org/archdownload/chapter/11" target="_blank" rel="noopener noreferrer">77 percent</a> of Ecuadorians have a mobile phone, <a href="https://globalfindex.worldbank.org/sites/globalfindex/files/countrybook/Ecuador.pdf" target="_blank" rel="noopener noreferrer">only 32 percent are using their phone to make or receive digital payments, and only 69 percent are using a mobile phone to access accounts</a>.

Banco Pichincha, the largest private bank in Ecuador, is addressing these challenges with a recommitment to continue promoting an ambitious financial inclusion strategy to support small businesses with the use of innovative financial services designed to meet their needs. Founded in 1906, Banco Pichincha currently reaches 3.5 million customers in Ecuador, with more than 250 branches and 8 thousand non-bank correspondents across the country.

Accion has partnered with Banco Pichincha for more than 20 years, working closely with the team to build their microfinance methodology, develop a variety of financial products, and optimize their digital channels.

Helping small businesses build resilience in Ecuador

The coronavirus pandemic is changing business as we know it and sending a domino effect rippling through every aspect of our lives. And, as always during global crisis, the world’s most vulnerable will suffer the greatest consequences. As many as <a href="https://www.bbc.com/news/business-52211206" target="_blank" rel="noopener noreferrer">400-600 million people</a> worldwide could be forced back into poverty as a result of this pandemic. Because global supply chains connect millions of organizations of all sizes around the world, the fate of the most vulnerable is inextricably linked to the fate of larger businesses.

<a href="/small-businesses-need-help-supply-chain-finance">Small and microbusinesses</a> can constitute up to half of revenues for the largest consumer goods companies. To maintain business continuity, these manufacturers must extend stability out to the furthest edges of their supply chains to the end-merchants who are essential to their communities. However, COVID-19 pandemic-related lockdowns and disruptions in inventory delivery have led to sporadic sales, which severely harm these microbusinesses. They are facing a severe liquidity crunch that threatens to shutter their doors and are in immediate need of funds to stabilize their inventory and keep their lights on.

Supply chains offer one of the most realistic means of extending funds in the short-term. Getting funds to the microbusinesses that need them most requires a <a href="/how-banks-fintechs-and-corporations-can-expand-supply-chain-finance">collaboration of unlikely partners</a>: financial service providers (FSPs) that serve micro and small businesses and major brand manufacturers. These manufacturers possess sales history data that is relevant to risk modeling and supply chain relationships, and that allows them to build awareness and onboard users of supply chain finance products.
<h2>Action plan for lenders to initiate liquidity lending to micro and small enterprises</h2>
Lenders to micro and small enterprises in emerging markets already operate on thin liquidity margins and depend heavily on timely repayments and deposits. As more microenterprises are unable to repay loans during this time, lenders are feeling additional pressure on liquidity and are being forced to rationalize funds. One way to do this is for lenders to establish an explicit <a href="/the-supply-chain-finance-opportunity">supply chain financing practice</a> designed to channel funds to the moving of supplies and goods. Financial service providers who want to start offering a supply chain finance product to micro and small businesses should consider the following:
<h4>What supply chains do your current customers belong to?</h4>
Conduct a quick segment analysis of the businesses you serve by grouping customers by industry and region. You can supplement existing customer data with additional information gathered through phone calls and texts. Potential segments may include merchants of consumer goods, pharmaceuticals, agriculture production and processing, and more.

Our partner <a href="/five-crucial-insights-from-china-for-facing-the-pandemic">CD Finance</a> in China did a quick analysis of their customer base and found that while their clients in the service industry were forced to shut down during the lockdown, those in the crop-planting business— which provides essential products— were able to continue operating. When considering a supply chain product, FSPs should prioritize segments that work within supply chains that provide the most essential goods to communities.
<h4>What relationships can you leverage to form supply chain partnerships?</h4>
Suppliers with important purchase data that can be used to assess risk are critical partners for supply chain finance solutions. As a next step, conduct research to determine your customers’ top suppliers. Small merchants often have a dozen or more supply sources. Look for commonalities and propose partnerships with three to five of the most common suppliers to get short-term financing out to merchants using the suppliers’ historical purchase data. The supplier will benefit from such an arrangement through greater sales and turnover stabilization. CD Finance collaborated with a national agricultural inputs supplier to form a partnership and was able to negotiate a group price and secure a quality guarantee and support services for farmers.

Lenders should determine if they are serving any of the top suppliers within their own clientele. For example, a financial institution may have one part of the lending operation focused on smallholder farmers and a separate part of the business serving an agribusiness. By bridging these two groups, an organization can expedite the introduction of a cross-customer solution like supply chain finance.
<h4>How do you model risk?</h4>
<a href="https://finreglab.org/the-use-of-cash-flow-data-in-underwriting-credit-small-business-spotlight" target="_blank" rel="noopener noreferrer">Cash flow-based risk models</a> examine merchant purchasing and sales history patterns to discern their ability to acquire stock. To develop an effective cash flow-based risk model, FSPs should work with suppliers to isolate key products that can serve as proxies for determining overall turnover. This will provide an initial risk assessment that can then be calibrated. Once they have begun lending and refined the risk model, lenders can expand their scope to serve clients in other segments.
<h4>Are you preparing for long-term solutions?</h4>
When addressing the immediate need of getting liquidity to merchants now, it’s important to keep in mind this won’t be the last major disruption. Natural disasters, climate change, and the potential for future pandemics mean that practices put in place now can mitigate the profound challenges of the future. Digitizing supply networks and supporting the flows of information and funds they require will provide the transparency manufacturers need to better manage risk and create more adaptable supply chains. In better times, it will also bolster greater efficiencies and revenue growth. Opening data flows to lenders will further increase supply chain stability and growth.

Accion is working with manufacturers and lenders to build business models that extend supply chain finance to the last-mile merchant by structuring key partnerships, fully mapping supply chains, leveraging data flows to ensure robust risk assessment, designing solutions that meet the immediate needs of microentrepreneurs, and building client engagement. This approach ensures that the businesses at the end of the supply chain will have what they need to manage the ebbs and flows of consumer demand and can continue providing the essential goods their communities need.

How supply chain finance can help microentrepreneurs during a global pandemic

China’s economy has experienced tremendous growth in recent years, with a booming micro, small, and medium enterprise (MSME) market. There are over 50 million MSMEs in China that collectively account for over 60% of China’s GDP and over 50% of the government’s tax income. These businesses create 80% of total employment in China’s urban areas.

Despite China’s overall economic growth, the need to foster full financial inclusion is still imperative. In 2010, 38 million MSMEs lacked access to formal financial services, forcing them to borrow informally from friends, family, and moneylenders.

As the global coronavirus pandemic threatens the livelihoods of millions around the world, our mission to give people the financial tools they need is more urgent than ever. The populations we serve are particularly vulnerable right now, without access to affordable healthcare, savings, or loans to stay solvent in a crisis. As the whole world faces this challenge, we have an opportunity to learn from each other and improve how we offer inclusive financial services to those who need them. We’re committed to sharing the knowledge we have to help our global community remain resilient.

While we aggregate and <a href="https://www.accion.org/responding-to-the-pandemic-guidance-for-financial-service-providers">share resources</a> across the globe, we’ve been working closely with two of our partners in China, <a href="http://grassfin.com/#/" target="_blank" rel="noopener noreferrer">Grassland Finance Limited</a> and <a href="https://www.cdfinance.com.cn/en/index" target="_blank" rel="noopener noreferrer">CD Finance</a>, and learning from their experience. Before the coronavirus pandemic spread across the globe, it hit China, devastating some areas and creating challenges for small businesses everywhere. After a two-month nationwide lockdown to contain the virus, businesses have reopened across China. Though China is very unique in many aspects, as other nations are facing this same contagion, we can learn from China’s experience.

We recently hosted a webinar for our partners with Ms. Hooi Koon Seah, COO of Grassland Finance Limited, and Mr. Dongwen Liu, CEO of CD Finance, and they shared their top lessons learned from navigating this crisis:
<h2>Protect the wellbeing of staff and clients</h2>
Above all else, prioritize the safety of employees and clients. By taking the virus seriously and taking immediate action, organizations can protect both their business and their clients. Institutions must comply with all official quarantine requirements and health protocols to protect employees and customers. Grassland and CD Finance adjusted their budgets as needed to increase the number of protective masks and cleaning supplies available to staff in regions that were hit harder by the virus. “Most of all, we want our staff to know that they belong and that the company holds their wellbeing as the highest priority,” said Ms. Seah.
<h2>Communication is critical</h2>
While in-person contact is restricted, maintaining a close connection with employees through other communication channels ensures that they feel secure and supported. Good communication channels should be in place for both employees and clients to stay connected while working remotely. In China, the top digital communication platforms were already widely adopted and became critical for both employees and clients to stay in touch. Our partners in China found that using these existing platforms helped them stay connected to clients. Mr. Liu notes, “It’s really important for our clients to recover their business in the coming days. What we can do is to have a close connection with them and ask what kind of support we can give to them and help them to recover their abilities gradually.”
<h2>Develop and execute emergency plans immediately</h2>
Companies need to identify possible worst-case situations and determine how they will respond. Now is the time for the financial services industry to take this crisis seriously and make every effort to support their staff and clients. The crisis moves fast, and its effects are far-reaching. By being prepared in advance and unafraid to act quickly and boldly, financial service providers can help their customers stay afloat through an unprecedented challenge.
<h2>Evaluate risk by sector and develop segment-specific response plans</h2>
Due to dramatically reduced cash flow during and after the lockdown, overdue loan payments increased greatly. Grassland learned in an impact assessment conducted with support from Accion that the crisis hit certain sectors harder than others and required a differentiated strategy for each. Depending on the sector and market, Grassland Finance prolonged the payment period, granted additional loans, or deferred loan repayments.

The agricultural sector faced unique challenges during the lockdown, which occurred during the planting season. Farmers faced challenges in securing the agricultural inputs they needed, like fertilizers. CD Finance was able to disburse $5 million USD in loans for farmers to buy fertilizers through a partnership with an agricultural inputs company.
<h2>Focus on building digital capacity</h2>
As this crisis unfolded, China had several factors working in its favor for business to continue. Digital payment and e-commerce platforms like WeChat Pay and Alipay are widely adopted, reducing the need for cash. With good infrastructure in place, including electricity, telecommunications networks, and internet access, many employees were already equipped to work remotely.

During the national lockdown, loan officers were unable to visit clients, and clients were unable to visit banks. Mobile communications and digital payment options were critical. Educating customers about digital payment platforms reduces dependence on cash. CD Finance relied on their existing digital platform to manage payments. Based on previous loan history and credit assessments, they were able to make quick determinations on whether or not to offer credit and loan extensions through this digital channel.

Every market will face unique difficulties and China has some aspects that enable it to act faster and more effectively than other countries. Yet, these insights can help as financial service providers guide their clients through this hard time. As we continue to face daunting challenges, know that there will be a time for recovery. “Although the disaster remains a serious challenge for both financial institutions and small businesses, we should stay remain optimistic. We believe that things are slowly getting better in China, and it will be in the rest of the world as well. This can be an opportunity where we show our worth and commitment to our mission,” says Ms. Seah. We know that Accion’s mission is more urgent than ever, and we will continue to share as many resources as we can to help underserved populations to endure the pandemic.

<a href="https://www.accion.org/responding-to-the-pandemic-guidance-for-financial-service-providers"><em>View</em><em> Accion's recommendations for financial service providers on protecting customers, employees, and business operations during the COVID-19 pandemic.</em></a>

&nbsp;

Five crucial insights from China for facing the pandemic

<span style="font-weight: 400;">Micro, small, and medium enterprises (MSMEs) are the heartbeat of most African nations — the principal economic force behind growth and employment. However, these businesses face tremendous challenges keeping inventory stocked, managing logistics, and securing funding to grow. These challenges don’t just affect the business owners — they also impact the communities that rely on local shops and clinics for the goods and services that they need to live healthy and productive lives. This is where </span><a href="https://fieldintelligence.co/"><span style="font-weight: 400;">Field Intelligence</span></a><span style="font-weight: 400;"> comes in. </span>

<span style="font-weight: 400;">Field Intelligence, which operates in both Nigeria and Kenya, is focused on strengthening health systems in emerging markets. The startup uses data-driven supply chain management software and a highly efficient distribution service to help pharmacies operate more efficiently. In addition to distributing the products pharmacies need, Field Intelligence’s new product, Shelf Life,  also gives clients inventory management, delivery, and financing services for an affordable, weekly subscription fee. This model replaces conventional financing options, which don’t match the cash flows and inventory management cycles of pharmacies. Field Intelligence is our first </span><a href="https://www.forbes.com/sites/vikasraj/2019/11/20/platform-fintechs-are-cominghow-should-startups-respond/"><span style="font-weight: 400;">platform fintech (PlatFin)</span></a><span style="font-weight: 400;"> investment. It leverages proprietary Field Supply technology as the base to successfully launch Shelf Life. At its core, Shelf Life is a subscription service that fuses financing, digital supply chain management, and advanced analytics to allow retailers to offload their inventory planning, management, and ordering. It also lets users access preferred prices and pay for their inventory as they sell it. With this process, pharmacies have fewer missed sales, more cash on hand, lower operating costs, access to more stable pricing, less waste, and effective quality assurance. Shelf Life is currently available in four major cities, including Lagos, Abuja, Nairobi, and Mombasa, and the company is now looking to scale Shelf Life across Africa’s pharmaceutical market.</span>

<span style="font-weight: 400;">Field Intelligence is one of the most robust businesses that we have seen in market, with deep understanding and experience in the health space. We’re excited to invest in the company because they are:</span>

<b>Providing alternative and affordable financing options for MSME pharmacies: </b><span style="font-weight: 400;">By operating in both Nigeria and Kenya, Field Intelligence is tapping into two of the most vibrant economies in Africa. Combined, these two countries are home to around 240 million people. Pharmacies in these markets have traditionally relied on supplier-based financing to help fund their inventory needs. Many times, this financing is inflexible, unreliable, and requires pharmacies to purchase more inventory than needed, resulting in expired stock. Shelf Life turns a very expensive and complicated process into a manageable subscription service that pharmacies can use to decrease the cost of financing while reaping the benefits of not having to pay for inventory upfront. This helps to free up cash for pharmacies while simultaneously bringing the financing cost down. As a result, pharmacies can ensure that they have the necessary supply to meet customer demand, reinvest in their businesses, and expand their operations.</span>

<b>Establishing a PlatFin that can leverage data and efficiencies in new areas: </b><span style="font-weight: 400;">Field Intelligence has been able to build confidence with clients, access difficult-to-obtain data on their operations, and engage with them in a mutually beneficial way. This has helped the company build a comprehensive offering spanning financing, inventory management, and logistics. We’re excited about how Field Intelligence can use its platform to distribute additional products and services and how the company can leverage the infrastructure they built in other countries, regions, or verticals. The Field Intelligence team sees the opportunity to further provide efficiencies in financing through alternative data and has the skills to do so. </span>

<b>Using alternative data and business processes to better underwrite and manage risk:</b><span style="font-weight: 400;"> Field Intelligence has begun to design an underwriting process that considers many data points before onboarding a client.</span> <span style="font-weight: 400;">Over time, the team has driven down defaults while increasing client retention. By gaining deeper insights into the pharmaceutical space, Field Intelligence is  making data a competitive advantage. We’re excited by Field Intelligence’s ownership and use of data, both to create value for pharmacies and to enable robust relationships with their supplier partners. In the future, we believe their data science capabilities will make them more deeply entrenched in the markets where they operate and provide increased value to their customers and partners.</span>

<b>Communities gain access to safe, reliable, and consistent health inputs: </b><span style="font-weight: 400;">The fastest-growing parts of the world rely on some of the weakest health systems. In Africa specifically, small, private pharmacies and drug shops provide the majority of frontline care for 1.2 billion people. Due to a lack of financing and inventory mismanagement, 60 percent of retailers regularly run out of essential products, and 10 percent of inventory expires before it’s used, according to Field Intelligence’s customer research. These inefficiencies make it more expensive for patients to get the care they need. Through data, delivery, and financing, Field Intelligence helps to ensure the right products make it to the right shelves at the right time, increasing access to healthcare and products to those who need it most.</span>

<span style="font-weight: 400;">We’re extremely excited to have <a href="https://www.accion.org/investors-back-field-intelligence-on-transforming-healthcare-supply-chain">Field Intelligence in our portfolio</a> and look forward to supporting the team not only in Nigeria and Kenya but as they grow to other markets as well. </span>

This company is making healthcare more accessible in emerging markets

Small businesses are crucial for unlocking job growth and sustainable development, but they can’t succeed if they aren’t able to keep their shelves stocked. Micro, small, and medium enterprises (MSMEs) face a $5.2 trillion funding gap, according to <a href="https://www.ifc.org/wps/wcm/connect/03522e90-a13d-4a02-87cd-9ee9a297b311/121264-WP-PUBLIC-MSMEReportFINAL.pdf?MOD=AJPERES&amp;CVID=m5SwAQA">IFC analysis.</a> This gap means business owners struggle to stock the supplies they need, which makes it impossible to serve more customers and grow a business. In developing countries alone, there are <a href="http://documents.worldbank.org/curated/en/653831510568517947/pdf/121264-WP-PUBLIC-MSMEReportFINAL.pdf">141 million</a> MSMEs. If they had the opportunity to grow, imagine what that would mean for families, for communities, for economies around the world.

It turns out there is a solution that could unlock more inclusive growth.  Until recently, <a href="https://www.accion.org/series/supply-chain-finance">supply chain finance (SCF)</a> has been used only by the largest firms and their primary buyers and suppliers. Establishing <a href="https://www.accion.org/the-supply-chain-finance-opportunity">collaborative partnerships that leverage digital data</a> can bring the benefits of this solution to smaller businesses. Many firms, including members of the <a href="https://iccwbo.org/publication/standard-definitions-techniques-supply-chain-finance/">International Chamber of Commerce</a> and a partnership between <a href="https://btca-prod.s3.amazonaws.com/documents/332/english_attachments/Driving_sales_through_digital_working_capital_loans_for_small_merchants.pdf?1528522098">Mastercard, Kenya Commercial Bank, and Unilever</a>, are already pursuing the supply chain finance opportunity. The excitement is palpable from banks, fintechs, and corporations alike, and it is clear that the time and environment are ripe for this solution.

Through SCF, small merchants that tend to be underserved by traditional lenders can access high-quality, low-risk financing. This gives them the flexibility to order supplies as needed and take advantage of opportunities to grow. But everyone else in the supply chain also benefits from the merchants’ success: fast-moving consumer goods companies (FMCGs), agribusinesses, distributors, and retailers along the chain could see higher sales, faster turnover, and increased net profit through greater efficiency and lower costs of credit. And financial service providers (FSPs) have a low-risk way to build relationships with untapped micro and small business market segments.
<h2>Why hasn’t supply chain finance reached MSMEs?</h2>
Despite the benefits for all parties, no one along the supply chain has had a straightforward path for helping MSMEs benefit from supply chain finance. Fast-moving consumer goods companies don’t interact with end merchants directly, so they aren’t well-positioned to extend financing to MSMEs. Corporate efforts to work through their banks to provide funding are complicated because banks that serve the large corporations do not usually serve small businesses. Financial institutions that do typically work with MSMEs face difficulties in lending because credit histories and collateral are scarce. While these institutions could benefit from supply chain data to assess credit risk, they don’t always have relationships with large corporates to facilitate supply chain financing. Distributors face challenges in the collection and reconciliation of cash. Suppliers sometimes resort to offering credit to merchants, but this subjects suppliers to risks associated with collecting cash from merchants and managing delinquency.

For a solution to work, it will need to remove the barriers of working in silos to make the process run smoothly and unlock the knowledge to provide supply chain financing. A collaborative — and digital — approach will make SCF beneficial to all.
<h2>Eight key areas to enable supply chain finance</h2>
Bringing supply chain finance to small and micro businesses will require a holistic approach. It demands a robust business model and strong partnerships, which address a range of interdependent activities, as illustrated below:

<img class="wp-image-19901 size-full alignnone" src="https://content.accion.org/wp-content/uploads/2019/10/scf_graphic.png" alt="Supply chain finance model" width="974" height="704" />
<ul>
 	<li><strong>Data &amp; Risk Analytics: </strong>SCF leverages trade flow data among merchants, suppliers, and end customers. This data includes inventory purchases, goods sold, and payments made. It can be leveraged by FSPs to evaluate the creditworthiness of small businesses, which often lack credit histories.</li>
 	<li><strong>Lending: </strong>By working closely with merchants, distributors, and suppliers, financial service providers gain increased visibility into stock and turnover so they can provide the right amount of working capital. Suppliers will no longer need to extend credit to the merchants they work with, which frees up funds in the supply chain.</li>
 	<li><strong>Education of Chain Participants: </strong>MSMEs have limited exposure to SCF and require dedicated education programs to explain the value proposition, learn how it works, and, most importantly, build trust in a new solution.</li>
 	<li><strong>Merchant/Distributor Acquisition and On-boarding: </strong>A successful SCF solution needs to have a lot of merchants and distributors on board. Suppliers can leverage their existing distribution networks, and FMCGs can actively engage with merchants who demonstrate the potential for achieving the highest sales. Innovative business models should leverage existing networks and automation to achieve scale.</li>
 	<li><strong>Payments: </strong>SCF solutions need to facilitate easier payments for supply chains to operate smoothly. Payment solutions need to expedite the flow of payments among buyers and sellers while easing the disbursal of loans and their repayment through multiple channels. Digitizing these payments unlocks data for critical loan analytics.</li>
 	<li><strong>Account and Collections Management: </strong>Underlying SCF is a need for an account to facilitate distributions and repayments with MSMEs. Managing this account and the collections process requires digital methods to achieve the level of scale needed<strong>.</strong></li>
 	<li><strong>Orders and Invoicing: </strong>Accurate and valid orders and invoices create high-quality data that makes SCF possible. Mobile applications are simplifying this process and expanding accessibility to the smallest firms.</li>
 	<li><strong>Stock and Distribution Management:</strong> The logging of stock and inventory has cascading positive effects on FMCGs, distributors, and suppliers who can orient their operations to cater to the needs of merchants and the demand of end consumers. It’s also crucial for extending SCF to those with no credit history.</li>
</ul>
Digital innovation allows this comprehensive approach to work. Digital platforms facilitate coordinated decision-making among multiple stakeholders, record movements of goods in real-time, and reduce the risks associated with cash. <a href="https://sokowatch.com/">Sokowatch</a> and <a href="https://ke.kcbgroup.com/jaza-duka">Jaza Duka</a> in East Africa are promising examples of digital partnership-based models. The business case for these models is clear, as merchants that have access to SCF experience a <a href="https://www.ifc.org/wps/wcm/connect/45f62b14-ef6b-4c89-9403-511dd2291d39/Credit+to+Merchants.pdf?MOD=AJPERES&amp;CVID=mCrv7gV">15-25 percent increase in inventory turnover</a> — which translates to higher sales for corporations. Based on our analysis, a corporation that sells 20 percent of its products to MSMEs would see a 2-3 percent increase in overall revenue for the region, assuming only half of the merchants they serve have access to SCF.

At Accion, we’ve been researching, investing in, and advising on supply chain finance for the last few years. We’re eager to ensure this solution reaches its potential for driving financial inclusion among small businesses. Whether you are an FMCG, FSP, distributor, wholesaler, or supplier, if you’re interested in working with MSMEs in emerging markets, <a href="mailto:glassupport@accion.org">reach out to us</a>.

Stay tuned for our ongoing <a href="https://www.accion.org/series/supply-chain-finance">insights on supply chain finance</a>.

<em>Arisha Salman also contributed to this article.</em>

How banks, fintechs, and corporations can expand supply chain finance

<h3><em>Executive Summary</em></h3>
<em>Supply chain finance (SCF) offers high-quality, low-risk financing to the small merchants that tend to be underserved by traditional lenders. These microentrepreneurs often lack the credit data traditional lenders need and are seen as too costly to serve at scale. SCF leverages data generated by businesses when they buy from suppliers and sell to customers, using this information to evaluate the creditworthiness of small merchants. It is a useful tool to expand financial inclusion for the 141 million microenterprises in developing countries and to promote inclusive economic growth globally.  </em>

<em>SCF benefits merchants with timely access to credit; it also benefits merchants, suppliers, and fast-moving consumer goods companies (FMCGs) with higher sales, faster turnover, and more efficient operations. Lenders benefit as well: SCF reduces risk and costs, allowing financial service providers (FSPs) to cater to new markets.</em>

<em>We believe that platform-based models, those that consolidate data produced by the movement of money and goods in the supply chain, are best suited to deliver SCF. Platform-based SCF models can satisfy the interdependent needs of multiple stakeholders simultaneously and facilitate coordinated decision-making. FSPs and FMCGs are well positioned to develop SCF platforms. </em>

<em>This brief discusses how SCF platforms can help small merchants, FMCGs, suppliers, and FSPs realize their economic potential. For institutions interested in developing an SCF solution, access our recent in-depth guide and playbook, <a href="https://www.accion.org/how-digitized-supply-chain-finance-can-help-small-merchants-grow/"><strong>How digitized supply chain finance can help small merchants grow.</strong></a></em>

&nbsp;

Small merchants such as grocery shops, corner stores, and other micro-retailers employ <a href="https://www.smefinanceforum.org/sites/default/files/analysis%20note.pdf">more than half</a> of the world’s labor force and contribute significantly to global GDP. These merchants rely on personal savings, family and friends, and sometimes personal credit to meet cash flow needs, but collectively these businesses face an <a href="https://www.smefinanceforum.org/sites/default/files/Data%20Sites%20downloads/MSME%20Report.pdf">$8.1 trillion credit gap</a>, creating a significant barrier to inclusive growth.  This global credit gap is almost entirely a supply-side problem, as micro, small, and medium entrepreneurs’ (MSMEs’) demand for financing is significant. Serving this market is challenging for lenders. Small merchants have little to no business documentation, are often unable to provide high-quality collateral, operate primarily in cash, and require loan sizes that are not always worth the operational cost of serving them, making it difficult to assess credit risk and sustainably offer products that meet small merchants’ needs.

By addressing this problem and helping MSMEs obtain the financing they need when they need it, we help microentrepreneurs restock their shelves, expand operations, and hire more employees. By addressing this credit gap, we can help more people around the world realize their economic potential.

The supply chain finance opportunity

<em>This guide is for institutions interested in developing a supply chain finance solution. For those interested in better understanding how supply chain finance can help small merchants, fast moving consumer goods companies (FMCGs), suppliers, and financial service providers (FSPs) realize their economic potential, access our report, the  <a href="https://www.accion.org/the-supply-chain-finance-opportunity">Supply Chain Finance Opportunity.</a></em>
<h3>Executive Summary</h3>
Supply chain finance (SCF) is the use of financing mechanisms that can optimize the management of liquidity tied up in supply chain processes. SCF solutions have long been offered by big banks to large corporations, such as fast moving consumer goods (FMCG) companies and manufacturers, to support trade.

However, today SCF techniques are being transformed by technology, expanding the addressable market to include micro, small, and medium size enterprises. Improved connectivity, increasingly available customer data, and new technologies lower the cost and make it possible to extend digital SCF solutions to the small merchants at the end of global supply chains.

By tying credit to the flow of goods, SCF facilitates more efficient business operations and cash flow management for all actors along the chain – resulting in higher sales, faster turnover – and ultimately, increased profitability and growth.

A platform-based model that satisfies the interdependent needs of multiple stakeholders simultaneously using digital innovations is well suited to provide SCF solutions. Platform models consolidate digitized data produced by the flows of goods and money throughout the supply chain, building trust and facilitating coordinated decision-making. The net effect is to provide deeper insights into merchant and consumer behavior.

We believe independent third-party technology providers are best positioned to mediate between multiple stakeholders and take the lead in operating a flexible and scalable SCF solution. We also see a major opportunity, particularly for FSPs and FMCGs, to lay the groundwork for such a platform approach to succeed.  A digitized SCF solution will not only help merchants to grow their business but will drive meaningful financial inclusion for the millions left un- or underserved by the status quo. With nearly 141 million microenterprises in developing countries, digitized supply chain finance represents a scalable solution to drive greater sales through the supply chain, which will propel inclusive growth.

<img class="aligncenter" src="https://content.accion.org/wp-content/uploads/2018/09/Citi-Foundation.png" width="240" height="162" />

<em>Accion would like to thank the Citi Foundation for supporting this report. The Citi Foundation works to promote economic progress and improve the lives of people in low-income communities around the world. The Citi Foundation invests in efforts that increase financial inclusion, catalyze job opportunities for youth, and reimagine approaches to building economically vibrant cities.</em>

&nbsp;

How digitized supply chain finance can help small merchants grow

<p class="graf graf--p">In emerging markets, small merchants often struggle to keep their shelves stocked. Since many of these merchants aren’t being served well by the traditional banking sector, they can’t use credit to stock up on enough inventory to meet demand. The challenges small businesses face are a massive global problem — nearly 300 million micro and small enterprises worldwide face a <a class="markup--anchor markup--p-anchor" href="http://www.worldbank.org/en/topic/smefinance" target="_blank" rel="noopener noreferrer">combined $5.2 trillion credit gap</a>. We recently explored the idea of <a class="markup--anchor markup--p-anchor" href="https://medium.com/accion/small-businesses-play-a-huge-role-in-communities-but-they-need-help-31665eac1ef1" target="_blank" rel="noopener noreferrer">supply chain finance (SCF) as a tool to drive financial inclusion</a> for these businesses.</p>
<p class="graf graf--p">Emerging technology platforms that allow substantial data collection in the supply chain make supply chain finance solutions possible. This data can enable small merchants to manage their cash flows and business inventory better, and it can unlock funding for them, even if they don’t have a robust formal financial history. Just-in-time credit, which is a line of credit offered to small merchants when they place orders with their suppliers, can have benefits throughout the supply chain. For example, Heineken Mexico distributes half of its volume through small merchants across the country. They currently have financing agreements with their larger wholesalers, such as Walmart, which allow for payment to be received in 60–90 days from delivery, whereas most of their small merchants are obliged to pay the same day in cash. If Heineken could partner with a financial service provider to offer just-in-time finance to these small merchants, they might be able to ensure better sales as they would no longer be competing for whatever cash the shop has on hand that day.</p>
<p id="e678" class="graf graf--p graf-after--p">Supply chain finance involving the last mile distributor and a small merchant is classified as downstream finance. The graphic below illustrates how downstream supply chain finance works. Since many small merchants lack a formal credit profile, a financial service provider reviews the merchant’s supply chain transactions, such as order and payment history, and then agrees to pay the supplier on behalf of the merchant. The merchant will repay the provider the invoice amount and any finance charges over the term per the agreement. In this scenario, the financial institution mitigates risk by ensuring that the funds are used to purchase the specific inventory items.</p>
<p class="graf graf--p graf-after--p"><img class="progressiveMedia-image js-progressiveMedia-image" src="https://cdn-images-1.medium.com/max/1440/1*6lVnLOKEEQR84PkaFb0h4w.png" /></p>
<p id="3087" class="graf graf--p graf-after--figure">Increasing penetration of smartphones and strong data networks in emerging markets make it easier than ever for businesses to place orders, access financial services, and make payments. Improvements in technology and connectivity also mean that the downstream supply chain finance model is now within reach, even for small merchants. While financial service providers have a valuable opportunity to serve this market, their model needs to be data-enabled and technology-driven to scale sufficiently and make a meaningful dent in the massive funding gap for small businesses. An enabling ecosystem for developing downstream supply chain finance products should include:</p>

<ul class="postList">
 	<li class="graf graf--li">Digital payments from merchant to supplier for inventory delivered.</li>
 	<li class="graf graf--li">Digital invoice management by suppliers and merchants.</li>
 	<li class="graf graf--li">Digital inventory management systems, allowing transparency of downstream inventory levels to the supplier.</li>
 	<li class="graf graf--li">The ability for the supplier or merchant to quickly and easily apply for credit against its receivables or invoices due.</li>
</ul>
<p class="graf graf--p">It’s also critical that the solutions are developed with the right actors in mind. Based on the size of the suppliers, distributors, and merchants, different types of financial service providers may be involved. Microfinance entities would be most familiar with micro and small merchants, whereas larger commercial banks will have relationships with large fast-moving consumer goods (FMCG) suppliers and distributors. The graphic below lists the ecosystem actors necessary for downstream supply chain finance to work and depicts the flows of goods and financing across the supply chain.</p>
<p id="28c0" class="graf graf--p graf-after--p">Each actor will have their role to play and accrue benefits from a data-driven, micro-enterprise supply chain finance model for financial inclusion.</p>
<p class="graf graf--p graf-after--p"><img class="progressiveMedia-image js-progressiveMedia-image" src="https://cdn-images-1.medium.com/max/1440/1*DKsH9TiwvSsuNbnjoTOiUw.png" /></p>
<p id="44f0" class="graf graf--p graf-after--figure">Just-in-time financing could help small merchants manage their businesses better and improve their lives. Smart solutions will take into account the interests of the involved stakeholders so that the benefits outweigh the risks for all. Our next piece in this supply chain finance series will dive deeper into the business case for an integrated solution that delivers value to each of these actors.</p>

How supply chain data can unlock credit for small businesses

<p class="graf graf--p">Small merchants, such as “mom-and-pop” retailers, restaurants, and micro-grocers, are an important part of society — bringing life’s essentials within easy access for families and employing <a class="markup--anchor markup--p-anchor" href="https://www.ifc.org/wps/wcm/connect/9ae1dd80495860d6a482b519583b6d16/MSME-CI-AnalysisNote.pdf?MOD=AJPERES" target="_blank" rel="noopener noreferrer">more than a third</a> of the world’s labor force.</p>
<p class="graf graf--p">However, these merchants can’t currently realize their full potential to support themselves and their communities. This is because they often lack access to the core resources or services they need to buy stock, sell goods, and run their businesses effectively. A lack of access to credit for buying stock is a key example of this. According to the IFC, approximately <a class="markup--anchor markup--p-anchor" href="http://www.worldbank.org/en/topic/smefinance" target="_blank" rel="noopener noreferrer">70 percent of the 365–445 million micro, small, and medium enterprises (MSMEs</a>) in emerging markets lack access to credit, resulting in a financing gap <a class="markup--anchor markup--p-anchor" href="https://www.smefinanceforum.org/sites/default/files/Data%20Sites%20downloads/MSME%20Report.pdf" target="_blank" rel="noopener noreferrer">of $5.2 trillion</a>.</p>
<p class="graf graf--p">The need for credit is difficult for merchants to predict and often requires funding to be available at the point of purchase. Historically, this type of lending, known as “just-in-time” credit, has been difficult for formal financial service providers to offer due to the lack of accessible data that can be used to assess creditworthiness quickly. This dearth of data is primarily driven by merchants’ reliance on manual operational processes and cash-based transactions, which are often not recorded and difficult to verify.</p>

<h4 class="graf graf--h4"><strong class="markup--strong markup--h4-strong">Time to scale up supply chain finance solutions for small merchants</strong></h4>
<p class="graf graf--p">Supply chain finance is not new — big banks have long offered it to large corporations to support cross-border trade, and informal mechanisms have existed for centuries. However, as markets evolve, the variety of available technologies capable of digitizing business operations today mean that now more than ever this type of financing can benefit small merchants.</p>
<p class="graf graf--p"><a class="markup--anchor markup--p-anchor" href="http://www.accaglobal.com/ab111" target="_blank" rel="noopener noreferrer">Supply chain finance</a> (SCF) is the use of financial mechanisms and technologies for optimizing the management of liquidity tied up in supply chain processes. It enables merchants and other supply chain participants to apply and gain approval for credit to fund purchases at the point of sale. Merchants can purchase goods as needed, as opposed to only when they have cash.</p>

<h4 class="graf graf--h4"><strong class="markup--strong markup--h4-strong">Merchant-centric services can alleviate critical pain points for merchants and ecosystem</strong></h4>
<p class="graf graf--p">The lack of credit for small businesses has an impact on the merchant themselves, the local communities where they operate, and nationwide trade and fast moving consumer goods (FMCG) distributors, such as Unilever and Coca-Cola. For merchants, the lack of credit means their ability to restock is limited by the amount of cash they have on hand, which has been generated from previous sales. This lessens their efficiency and ability to scale. As a result, communities miss the chance to have the job growth and convenience that thriving local businesses bring. FMCG distributors have to deal with a lack of consistent demand and low visibility in a supply chain where they are trying to operate as efficiently as possible.</p>
<p class="graf graf--p">As merchants buy and sell, this creates transaction and behavior patterns that can be used to provide finance. Traditionally, financial service providers’ (FSP) ability to leverage those patterns and behaviors was limited by the lack of a digital footprint. Today, as with innovations in consumer credit, new technologies can also help small merchants develop a digital data ‘<a class="markup--anchor markup--p-anchor" href="https://www.youtube.com/watch?v=yhdTyqjUMEI&amp;feature=youtu.be" target="_blank" rel="noopener noreferrer">footprint</a>’ to show their creditworthiness. Organizations such as <a class="markup--anchor markup--p-anchor" href="https://medium.com/accion/dan-cohen-of-tienda-pago-d57c77c53fe8" target="_blank" rel="noopener noreferrer">Tienda Pago in Mexico and Peru</a> and <a class="markup--anchor markup--p-anchor" href="https://medium.com/accion/using-fintech-to-support-small-businesses-in-nigeria-f7dff3d6ff23" target="_blank" rel="noopener noreferrer">Lydia in Nigeria</a> have already begun tapping into the data streams of small merchants by offering them business services that encourage digital transactions. One way Lydia helps businesses build a digital footprint is through enabling access to invoice management tools. These provide a more convenient and efficient method for merchants to track debtors and allows for the capture of invoice data to be used to assess creditworthiness. But innovations in supply chain finance have not yet reached small merchants at scale.</p>

<h4 class="graf graf--h4"><strong class="markup--strong markup--h4-strong">How can we help merchants buy better, sell better, and run better?</strong></h4>
<p class="graf graf--p">Enabling merchants to buy better, sell better, and run better through the use of technology is the first step to implementing a merchant-centric supply chain finance solution at scale. These solutions could include access to marketplaces for better pricing on purchases, the use of digital channels to drive customer engagement, and digital means of tracking and managing inventory, payables, and receivables to allow greater visibility of cash flows.<img class="graf-image" src="https://cdn-images-1.medium.com/max/1080/1*ek-ocLutQGYiy673lPDCMw.png" /></p>
<p class="graf graf--p">We at Accion believe supply chain finance can be a useful tool to drive significant adoption and usage of financial services and therefore meaningful financial inclusion, but to implement successfully at scale, we first need to understand the market thoroughly, to ‘get the equation right’ between the merchant and others along the supply chain. Each merchant has unique needs within their market context, and comprehending these needs is essential for the design, launch, and optimization of merchant-centric services. A full understanding of each market can reveal where pain points are and help identify which digital mechanisms will be most conducive to driving change. With a growing focus on digital payments and merchant acceptance, the time to develop scalable merchant-centric solutions is now.</p>

Small businesses play a huge role in communities, but they need help