African SMEs are finding another way to borrow money

For a small retailer, the need for finance can come down to something as ordinary as stock. A supplier wants to be paid. Customers are buying. The shop needs to order again, but there is not enough cash in the business to do both. That is where some digital platforms are starting to play a different role. 

Instead of sending a small business to a bank to apply for a loan, they are using the information already sitting on their platforms to provide or arrange credit. The data can be quite basic: what the business buys, how often it orders, how much it sells and whether it pays on time. In Nigeria, this is already happening at scale.

The stock comes first, the loan comes with it

OmniRetail runs a B2B platform connecting manufacturers, distributors and retailers. A small retailer can use the platform to order products and make payments. It can also access inventory finance to buy stock and pay for it later. That is a different proposition from a business owner walking into a bank and asking for a general purpose loan. The retailer has a specific need: put more products on the shelves.

OmniRetail says its OmniPay business processed more than ₦1.3 trillion in transactions in 2024, while its inventory-financing product was disbursing more than ₦19 billion a month. The company says its network reaches more than 160,000 retailers across four countries. The platform already sees the retailer's purchasing activity. That gives it a record to work from when deciding how much credit to provide.

Kenya is doing something similar with invoices

The problem looks different for a supplier. A small company can deliver an order to a large customer and issue an invoice, but still wait weeks or months to get paid. Meanwhile, wages, stock purchases, transport and rent do not wait.

Kenya's EASETRADE programme is targeting this problem through supply-chain finance and invoice discounting. It plans to support around 5,000 MSMEs over three years, with a target of $150 million in loans. A $9.2 million financing agreement with Faulu Microfinance Bank is already supporting MSMEs through the programme. The programme is also using digital credit-scoring tools from companies including SOLV Kenya and Kaleidofin. So instead of looking only at what a company owns, the assessment can also look at what it does.

That matters for businesses without property

A small wholesaler might have customers, regular orders and years of trading behind it. What it may not have is a building to use as collateral. That has always been one of the awkward parts of SME lending. A bank has to work out whether the business can repay. A balance sheet and collateral make that easier.

Digital records can add another layer. If a platform has months or years of sales and payment information, it can see whether the business is actually moving stock and collecting money. That does not make the business risk free. It just gives the lender more information.

The market is much bigger than retailers

This model can work wherever businesses leave a digital trail. A farmer selling through an agricultural marketplace generates transaction data. A transport operator using a digital logistics platform generates delivery and payment records.

A small manufacturer using accounting software leaves a trail of invoices and expenses. A restaurant processing payments digitally creates a record of its daily turnover. These businesses are still exposed to the same problems as any other borrower. But their digital activity can make them easier to assess.

Africa's SME finance gap is still enormous

There is plenty of room for this because traditional finance has not reached enough small businesses. The Trade and Development Fund estimates that around 80% of African SMEs lack access to formal finance, with the continent facing an estimated $330 billion SME financing gap. That does not mean every business in that gap should receive credit. Some businesses have weak cash flow. Some have poor records. Others simply operate outside the systems banks normally use to assess borrowers. The companies building digital platforms are trying to close part of that information gap.

Banks can still provide the money

The platform does not have to become a bank. It can bring the customer and the business data, while a bank or other lender supplies the capital. That is part of what makes the model interesting. A bank gets a route to customers it might otherwise struggle to reach. The platform gets another service to sell. The business gets a financing option tied to the activity it is already carrying out. In Kenya, EASETRADE's work with Faulu Microfinance Bank is an example of this kind of arrangement.

But there is a line between useful data and too much data

The model also raises questions. A platform may know how much a business sells, but that does not tell the whole story. Margins can be thin. A major customer can disappear. Costs can jump. A business can look healthy on paper while struggling to keep cash in the bank. There is also the question of what happens to all that business data when it is used to make lending decisions. Those issues will become more important as more platforms move into financial services.

The loan is becoming part of the transaction

The interesting thing about these businesses is that the financing does not always arrive as a separate product. A retailer orders stock and gets credit. A supplier raises an invoice and gets access to some of the money before the customer pays. A business uses a payment platform and builds up a financial record that can eventually support borrowing. That is a different way of looking at SME finance. For a business owner, the question is not necessarily, “Can I get a loan?” It can be much simpler: “Can I get the money I need to keep trading?” That is where platforms that already sit inside the daily operations of African SMEs could become important.