It’s no secret that we’re witnessing a new era of young entrepreneurs and a huge start-up culture across East Africa. With new startups being founded, the need for funding is at an all-time high.
ICT Opinions

How the new age Fintechs are addressing the financial gaps for entrepreneurs

It’s no secret that we’re witnessing a new era of young entrepreneurs and a huge start-up culture across East Africa. With new startups being founded, the need for funding is at an all-time high.

That’s why we empower millions of entrepreneurs and MSMEs by using technology transformation coaching, mentorship and skills training on starting new innovations and pitch to Fintechs for digital financing and/or funding options

I was on the panel speaking about “How Fintechs are closing the age-old SME finance gap” during the Africa Fintech Festiva at Kampala Serena Hotel in Kampala, Uganda hosted by the Fintech Association of Uganda (FITSPA Uganda), the Africa Fintech Network (AFN) and Financial Sector Deepening Uganda (FSD Uganda) convening the event bringing together representatives from across Africa to discuss the theme “The Role of Fintechs in Africa Digital Economy

Fintechs have the power to accelerate economic growth through innovation and efficiency gains across the financial sector.

They are financial technology companies that are disrupting the lending industry by working digitally. Long gone are the days of standing online at your local financial institution or talking to government agencies, Now all you have to do is submit your information, financial credentials and bank history via the web and secure a loan.

Banks and other traditional non-banking financial companies are weakened with non-performing assets and do not like to extend short-term financing to businesses that deem risky especially start-ups and SMEs.

To mask the risk, they accept collateral. Since most SMEs do not have collateral to give, they lose out on the short-term financing offer

To avoid short-term financing from banks, most SMEs turn to money market lenders for their financing needs. These lenders charge interest rates of 2-3% per month and do not offer flexibility in repayment conditions.

How are Fintech companies making access to funds easier than ever before and are successfully filling the financial gaps faced by SMEs?

Strengthening Business Finances: A new opportunity could knock on your door at any time and as a smart entrepreneur and SME, you need to be prepared for anything. If your cash flow situation is not stable or you need working capital to meet business expenses, it helps to take out an unsecured loan for a short period of time until the situation improves. For Fintechs, such loans do not come with any major repayment penalty and can last from a few months to years.

Flexible and Convenient Applications: Fintechs tend to work on a Monday through Sunday schedule where banks do not work on certain days of the week and/or month. This poses an issue when you need to visit a bank branch in person while applying for business financing and implies that there will be days where your request will not be processed. Additionally, most Fintechs are conveniently accessible to applications via the web.

Quicker Loan Processing: Through bank loans, it can take weeks before the money is transferred into your account. If you have an urgent need for money and cannot afford to wait, a loan from a Fintech company is your better option.

No Collateral Required: Traditionally banks ask for collateral for a sense of security and can come in the form of residential or commercial property, gold holdings or any other asset that can be liquidated. Fintechs do not ask for collateral and offer their loans based on evaluating the business.

The underlying objective for Fintech companies is to support promising entrepreneurs in getting quick funds to jumpstart their business ideas. SMEs can grow if they consistently have access to a quick way to secure funds.

As the government continues to promote digital transactions through e-wallets, the mobile-drive point of sale and internet banking, the financial structure must be modernized to continue to grow with the new frontiers in emerging technology and innovations like Fintech companies.

What does it all mean for the future

Fintech Firms: Despite prominent success stories, the vast majority of Fintech firms on the continent are grappling with gaining users and scaling their operations sustainably. The Africa Fintech Festival provided

Fintechs across the continent with an opportunity to share cross-border learning’s on growing firms and user-bases sustainably while navigating uncertain or nonexistent regulatory waters.

Incumbent Financial Firms: Fintech and emerging financial advisory firms represent a threat to the market shares of incumbent firms’, revenues and strategic models.

However, they also create opportunities for incumbent firms to differentiate themselves and become more competitive.

In addition to potential joint ventures, acquisitions and investments into Fintech firms, incumbent financial providers can utilize their existing strong customer bases and scale to their advantage through strategic partnerships with Fintechs that bring in nimble processes and newer approaches – enhancing an incumbent’s operational efficiency.

Regulators and Policy Makers: With a growing middle class, regulators and policymakers are beginning to see the potential for Fintech to meet underserved demand in the markets, and the opportunity to encourage economic activity, improving industry efficiency and providing better services to customers.

The author, Patrick O. Adengo Jr. is the Managing Director at Stalworth Consulting Group, LLC (www.scg.ug) a management and strategy consulting firm focused on digital strategy, emerging technology advisory and inclusive financial services.