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According to Price water house Coopers (PwC), in Nigeria, Small and Medium-sized Enterprises contribute 48% of the national GDP and account for 96% of businesses and 84% of employment. Despite the significant contribution of SMEs to the Nigerian economy, challenges persist that hinder the growth and development of the sector. Numerous studies report that the average lifespan of an SME is three years. The problem of credit facilities among other issues is responsible for the infant deaths of SMEs in Nigeria.
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SMEs in Nigeria represent around 96% of registered companies and half of the total labour force, but they account for only 7% of total bank lending- the lowest level in the world. Often, SMEs struggle to secure loans and funding as they are seen as too much of a financial risk by banks and do not have the turnover to satisfy prospective lenders. Traditional financial institutions also require businesses to have strong credit scores, which SMEs may not have. The inability to get loans from traditional banks has opened an opportunity for FinTechs to help salvage the untimely death of SMEs. In this article, I discuss how FinTech can help SMEs survive, grow and thrive.

  • A Faster And Cheaper Route To Alternative Lending

An SME getting a loan from a traditional bank in Nigeria could take roughly 3 to 6 months as this business is forced to do neck-breaking paperwork that centers on legitimacy, scalability, identity, and risk worthiness. This has led to the untimely death of several SMEs as most do not pass the test. Existing studies show that the alternative lending and investment market is growing, and it is expected to exceed US$35 billion by 2024.
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One of how fintech companies can assist SMEs in Nigeria is with the provision of alternative lending options such as peer-to-peer finance. Through fintech platforms, SMEs will have new opportunities to access alternative investors and request direct loans. FinTech companies have developed the capabilities of accessing finance in this way quicker, cheaper, and easier to navigate for SMEs. Due to not having the backlog of assets and legacy baggage, with just NIN, CAC, and a few documents of identification, SMEs can get loans quicker. 
  • A Streamlined Way To Raise Capital
Unlike the traditional financial institutions where the business owners meet with bank representatives to engage in so many discussions, inquiries, and paperwork, which can take months, and at last reach a dead end, the FinTech disruptive methods in which small business owners just need to download an app and transact through a custom-made platform where all that is the needed by the FinTech company are supplied digitally.
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Furthermore, Fintech companies, on the other hand, are launching platforms that allow Nigerian SMEs to raise capital through new methods, such as crowdfunding.
  • Financial Management 
Another problem that has led to the death of several SMEs in Nigeria is poor financial management such as savings and budgeting. With FinTech software solutions like PiggyVest, the business owner’s finances are regulated by real-time data.  Featured Image Source: Business Standard
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This article was first published on 27th April 2022

nnaemeka-emmanuel

Nnaemeka is an academic scholar with a degree in History and International Studies from the University of Nigeria, Nsukka. He is also a creative writer, content creator, storyteller, and social analyst.

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