Providing digital financial solutions to MSMEs: A path to economic growth

Senior Vice President and Country Manager for East Africa and Indian Ocean Islands at Mastercard, Shehryar Ali. [Courtesy]

By Shehryar Ali, Senior Vice President and Country Manager for East Africa and Indian Ocean Islands at Mastercard

Kenyan MSMEs are fundamental to the nation’s economy employing over 14.9 million people and contributing to 40% of the country's GDP. On a continental scale, according to the World Economic Forum, MSMEs contribute to more than 80% of Africa’s employment and 50% of its GDP. Addressing the unique challenges faced by these businesses can lead to their robust growth, benefiting not only Kenya but Africa as a whole.

A significant barrier faced by many of Kenya’s 7.4 million MSMEs is the limited access to adequate digital services, notably fintech platforms. These platforms offer avenues to affordable credit, expanded markets, and safe payment methods. Overcoming this barrier is imperative, especially in the first two years of an MSMEs existence so that they can survive past their fourth year - the common make-or-break point. By ensuring that they have the technological support they need to overcome market challenges and make it easier for them to do business, I do believe that significant growth is achievable for Kenya’s economy.

Unlocking Growth through Accessible Credit

For many merchants, a lack of accessible credit hampers their ability to stock products, frustrating customers who are trying to purchase what they need and not always having the funds to do so. By providing small business owners and their customers with lower-cost access to credit and customised finance solutions that make transacting easier, merchants can increase their customer base, grow sales and expand their product and services offerings.

One of the biggest obstacles to accessing credit is the lack of a formal ID, a challenge for nearly 850 million people globally. This makes securing lines of credit from banks difficult. This is why Mastercard created Community Pass, a platform that equips individuals, including farmers, with a digital ID.  

Through Mastercard’s Farm Pass, an initiative under Community Pass, farmers are provided with a chip card that can be used offline and includes a functional digital ID. They also have a digital profile which banks can use to understand the farmer’s risk profile, enabling them to provide faster credit decisioning. Community Pass has already onboarded 2.5 million users in Uganda, Kenya, Tanzania, and Mauritania, with plans to expand to Ghana and Ethiopia by the end of the year. We aim to register 15 million people in Africa by 2027.

In Nigeria, where MSMEs face challenges due to a lack of digitization, Mastercard has teamed up with Alerzo, a top technology service provider. This collaboration offers MSMEs affordable digital solutions like Tap on Phone and QR. Through the Alerzoshop B2B app, they also gain access to micro-lending, supporting growth in the Fast-Moving Consumer Goods sector. The partnership prioritizes innovative solutions tailored for small and informal businesses.

Broadening market access is crucial for SME growth

An effective market access mechanism is instrumental for SME growth. Community Pass users in Africa are mostly smallholder farmers. Through the platform, they can now easily access traditional banking services and a digital agricultural marketplace. Farmers can interact with buyers, ensuring fair prices for their produce, leading to reduced post-harvest losses.

In Kenya, Mastercard has collaborated with Kenya’s Co-operative Bank, launching Co-op Bank Soko, a platform that empowers farmers to trade their harvests and purchase farming essentials, all while building a reliable credit profile. So far, over 750,000 farmers are benefitting from this platform.

Contactless payment technology makes it easier for MSMEs to transact

Making transactions should be straightforward for both merchants and customers. Our emphasis on contactless payment technologies ensures revenue collection is swift and secure. Our collaboration with the Central Bank Kenya on the Quick Response (QR) Code standardization offers both locals and tourists a seamless payment experience, fostering financial inclusion.

Collaboration is key to creating a bigger impact

Attaining large-scale financial and digital inclusion in Africa necessitates collaborative efforts. By partnering with corporations, government entities, and development agencies, we aim to enhance payment infrastructures, boost financial literacy, and uplift even the smallest of enterprises. The recent accomplishment of our Strive Community in partnership with MESH, Kenya’s first online community for young entrepreneurs in the informal economy, reached 150,000 Kenyan entrepreneurs, a testament to the power of collaboration and the potential of digital solutions.

Mastercard is firmly committed to empowering every business everywhere by extending our innovative solutions beyond payments. Our vision is to enable them to get paid, acquire capital, and digitize securely. Only through collaborative innovation and a dedicated focus on creating digital solutions tailored to their needs can we drive economic growth in Kenya and Africa as a whole.

[1] http://www.parliament.go.ke/sites/default/files/2022-11/The%20Annual%20Performance%20report%20for%20the%20MSMEs%20credit%20guarantee%20scheme.pdf

[2] https://www.worldbank.org/en/news/press-release/2021/12/08/kenya-s-small-and-medium-enterprises-receive-a-100-million-pandemic-recovery-boost

[3] https://blogs.worldbank.org/digital-development/850-million-people-globally-dont-have-id-why-matters-and-what-we-can-do-about

[4] https://www.mastercard.com/news/press/2022/december/with-focus-on-africa-new-dfc-and-mastercard-collaboration-to-provide-up-to-50-million-in-potential-financing-to-enable-digitization-and-financial-inclusion/

[5] https://www.mastercard.com/news/eemea/en/newsroom/press-releases/press-releases/en/2023/july/mastercard-partners-with-alerzo-to-digitize-smes-in-the-nigerian-fmcg-space/

[6] https://cioafrica.co/how-digitizing-transactions-can-empower-small-scale-farmers-in-ssa/

[7] https://www.mastercard.com/news/eemea/en/newsroom/press-releases/press-releases/en/2023/june/kenyan-start-up-grows-to-reach-150-000-young-entrepreneurs-following-funding-from-mastercard-s-strive-community-program/

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