GRBusiness

The Opportunity Cost of Doing Business for SMEs in Africa

Published

5 years ago

December 3, 2018

The African economy has gathered momentum over the years, with an estimated increase of 3.8% of the real output growth in 2017. As the largest economies gradually strengthen, the 2018/2019 performance should reach 4.1% according to the African Development Bank.

This economic growth and sustainable development have largely been contributed by Small and Medium Enterprises (SMEs). In Kenya for instance, SMEs contribute approximately 40% to the GDP and employ over half of the country’s workforce.

Yet, becoming a profitable SME in the continent is never a smooth sail for many. There’s the presence of stringent government regulations in several countries, though the flexibility of doing business in others is a force to be reckoned with. The World Bank has recognized Kenya as having implemented the most reforms in the region between June 2016 and June 2017. These include the reduction of the number of procedures required to register a business, as well as utilizing a single window system to reduce the time for import documentary compliance. Then there’s the implementation of iTax, an online platform that allows Kenyans to easily register their businesses, fill and pay corporate income tax among others.

Moreover, access to credit remains one of the biggest hindrances for SMEs in Africa to thrive. The major banks are mainly huddled in big cities, making it difficult for a predominant section of businesses in rural areas to access formal financial services.

Besides, there exist rigorous risk assessment requirements by financial institutions that tend to limit the number of businesses that can access credit. These requirements include but are not limited to collateral, which often proves cumbersome to acquire even when trying to access short-term credit or simply, is non-existent.

According to Juan Seco, the Chief Operating Officer of JumiaPay, “Non-collateral loans are on the other hand quite expensive for most SMEs in Africa, with an Annual Percentage Rate (APR) that can go as high as 300% in Kenya and 240% in Nigeria.” The Central Bank of Nigeria records about 69 percent of SMEs who wanted to apply for loans but failed, due to fear of application rejection related to collateral requirements and other associated conditions attached to the loan approval processes such as bad scores.

Notably, the entry of Fintechs (Financial Technology) companies into the banking market in Africa, is gradually improving the process of accessing credit for SMEs. Jumia is one of the companies revolutionizing the sector with its Jumia Lending service, an initiative that provides working capital financing for short-term borrowers. These are vendors selling on the online ecommerce platform for at least six months, seeking to expand and grow their online business. The program aims at boosting financial inclusion in the continent, not only by providing sellers with an online visibility and a vast customer base; but also, with access to affordable working capital to boost their commerce.

Juan Seco notes that “we understand the challenges faced by our vendors and SMEs in general, to access working capital financing. We have, therefore, also partnered with some of the best institutions where we try to bridge the gap for sellers seeking long-term credit facilities. With Jumia being in the middle, our lending partners have the security that the data of our sellers on Jumia, such as sales or customer ratings is accurate. In addition, we give them first lien on the sales on Jumia, so even though these are not collateralized loans, they are highly de-risked as we give them some control over the sellers’ cash flows. For our sellers, we understand they cannot afford to spend hours in
traffic and at the branch, so we digitize the onboarding process, so they can keep running their shops and not lose valuable income”.

Currently applicable in Kenya and Nigeria, and soon to be launched in other countries where Jumia has operations, the Lending Program involves a quick online registration process with feedback provided within 72 hours. Vendor applicants benefit from low-interest rates of as low as 12% per annum, on the non-collateral loans with flexible repayment plans of between 1- 6 months.

“I am on the second loan and the process of paying back is quite efficient and flexible since you get to plan your instalment deposits and manage it by yourself. I have managed to grow my business capital and gotten higher returns. When I lost funds and communicated the same to the lending team, they gave me a grace period to recover; a benefit that is not available on other lending facilities,” says Nauri Mwei, a vendor on Jumia.

The impression fintechs such as Jumia Lending are leaving on credit consumers and especially SMEs in Africa, is that of value added to their businesses. They are bridging a long-existing gap in financial inclusion in relations to credit access, by providing a more transparent and seamless way of availing financial services to a wider range of consumers in the continent.

Credit: Josephine Wawira

Finance

Banks To Now Charge 0.5% Cybersecurity Levy As Directed By CBN; Netizens React

Published

2 weeks ago

May 7, 2024

Alice Ginika Simon

The Central Bank of Nigeria (CBN) has directed deposit money banks in the country to start charging 0.5% cybersecurity levy on some transactions done by their customers.

The apex bank gave the directive in a circular dated May 6, 2024 and sent to all commercial, merchant, non-interest and payment service banks as well as mobile money operators and payment service providers.

“Following the enactment of the Cybercrime (Prohibition, Prevention, etc) (amendment) Act 2024 and pursuant to the provision of Section 44 (2) (a) of the Act, ‘a levy of 0.5% (0.005) equivalent to a half percent of all electronic transactions value by the business specified in the Second Schedule of the Act’, is to be remitted to the National Cybersecurity Fund (NCF), which shall be administered by the Office of the National Security Adviser (ONSA),” the circular partly read.

The Cybersecurity Levy implementation notice

The apex bank said that the implementation of the levy would start two weeks from the date of the circular.

“The levy shall be applied at the point of electronic transfer origination, then deducted and remitted by the financial institution. The deducted amount shall be reflected in the customer’s account with the narration, ‘Cybersecurity Levy’. Deductions shall commence within two weeks from the date of this circular for all financial institutions and the monthly remittance of the levies collected in bulk to the NCF account domiciled at the CBN by the fifth business day of every subsequent month,” the circular said

The apex bank added that this new levy will not be applied on transactions such as loan disbursements and repayments, salary payments, intra-account transfers within the same bank or between different banks for the same customer, intra-bank transfers between customers of the same bank.

Also exempted from the levy were inter-branch transfers within a bank, cheque clearing and settlements, ⁠Letters of Credits, ⁠Banks’ recapitalisation-related funding only bulk funds movement from collection accounts, savings and deposits including transactions involving long-term investments, among others.

This current implementation however is not sitting well with some netizens as they reacted to the new development.

Here were some of their reactions from X.

Finance

EFCC Chairman Tasks Nigerian Youths Against Crimes And Fraudulent Acts

Published

2 weeks ago

May 4, 2024

Alice Ginika Simon

The Chairman of Economic Finance Crime Commission (EFCC), Ola Olukoyede, has stressed the need for Nigerian Youth to see themselves as agents of positive change that have a lot to contribute to the socioeconomic development of the Nation.

Speaking at the 2nd edition of a Leadership Trainings Programme in Abuja, Olukoyede, who was represented by the Head Enlightenment and Re-orientation unit, (EFCC), Aisha Mohammed, said the commission’s dream is to see the youth contribute meaningfully to the society, emphasizing on the need to work together in bringing positive change to society.

The Economic and Financial Crimes Commission Boss declared the readiness of his agency to work with all Stakeholders, including the youth towards changing the narrative and reposition the country to greater exploit.
Also speaking, the representative of the Executive Secretary of Tertiary Education Trust Fund (TETFUND), Sonny Echono, appealed to the youths is to eschew social vices that could deter their full potential in life.

Other speakers at the event, including the Chairperson, Zero Tolerance for Social Immoralities Initiative (ZEITI) Africa, Rasak Jeje called on all stakeholders to join hands in collective pursuit of empowering new generation of leaders to curb the rising tides of social Vice among Nigerian youths.

The Chairperson, Zero Tolerance for Social Immoralities Initiative (ZEITI) Africa, Rasak Jeje made the call while addressing journalists at the 2nd edition of it Leadership Trainings Programme in Abuja on Thursday.
He said the training was aimed to intimate students leaders with knowledge and insights that will help them drive positive change and become exemplary leaders in their respective spheres.

Finance

AISA Has Refunded The Fees Paid By Yahaya Bello To EFCC

Published

3 weeks ago

April 27, 2024

Alice Ginika Simon

The Economic and Financial Crimes Commission (EFCC) says the American International School Abuja (AISA) has refunded the fees paid by the immediate past governor of Kogi state, Yahaya Bello, for his children attending the school.

In response to a letter addressed to the Lagos zonal commander of the EFCC, the school said $845,852 was paid in tuition “since the 7th of September 2021 to date”.

AISA said the sum to be refunded is $760,910 because it had deducted educational services already rendered.

“Please forward to us an official written request, with the authentic banking details of the EFCC, for the refund of the above-mentioned funds as previously indicated as part of your investigation into the alleged money laundering activities by the Bello family.

Since the 7th September 2021 to date, $845,852.84 (Eight Hundred and Forty-Five Thousand, Eight Hundred and Fifty Two US Dollars and eighty four cents) in tuition and other fees has been deposited into our Bank account.

We have calculated the net amount to be transferred and refunded to the State, after deducting the educational services rendered as $760,910.84. (Seven Hundred and Sixty Thousand, Nine Hundred and Ten US Dollars and Eighty Four cents).

No further additional fees are expected in respect of tuition as the students’ fees have now been settled until they graduate from ASIA.”

In a chat with The Cable, the spokesperson of the EFCC, Dele Oyewale, confirmed that the school has refunded the money.

‘’The money has been paid into public account,” Dele Oyewale was quoted as saying