The Covid 19 pandemic has advanced at an alarming rate all over the world, causing levels of disruption to the global economy not seen in a decade. Supply chains of goods and services are under extreme pressure, with few firms experiencing revenue strains. According to the head of the Organisation for Economic Co-operation and Development (OECD), the latter has stated that we could face the ‘gravest threat’ to the economy worldwide since the 2008 financial crash.
As a result, policymakers and regulators around the world are responding by introducing various initiatives to boost their economies, with the need to help SMEs in this time of crisis. However, government supporting the several businesses which are facing uncertainty are limited and further support for SMEs during this time of emergency must be found elsewhere. In addition, in view of this global financial crash, traditional banks are reluctant to lend to small businesses. The use of sophisticated digital capabilities is making services such as factoring even easier of banks and in turn, more accessible to small medium sized enterprises. If we are to pull through this crisis, lenders must embrace such innovation.
SMEs facing significant issues:
As such, in this current situation, with the rapid spread of coronavirus, there is a possibility that we will see businesses delaying invoice payments- resulting to a delay in receiving payments and hence disrupting their own operations. Furthermore, supply chains are already suffering from trade tensions between China and the US. Due to the Covid-19 outbreak, manufacturers globally are experiencing supply chains problems. Restrictions on movement around the world resulted in less international trade, and thus reduction in sales. Without having access to finance, many businesses which are at risk will not be able to survive the pandemic and can end up being bankrupt.
The importance of accessing trade finance for these businesses during this crisis is therefore crucial and governments around the world have stepped up to make dramatic commitments to support them. In the UAE, for instance, the Central Bank of the country has moved to ensure that banks can help SMEs to gain access to funding by reducing the amount of capitals held by banks. 15-25 % of the capital held by banks to be used to offer loans to small- sized companies. Banks will also limit fees and the minimum balance of accounts. Many other countries are implementing similar measures so that SMEs remain afloat as they are considered to be the backbone of national economies.
However, these resources are limited. The question here is how much reserve the governments have to be able to continue funding these companies, given that we do not know exactly how much finance will be needed. Moreover, before the coronavirus outbreak, with a $1.5 billion trade finance gap, SMEs were already finding it difficult to attract funding from banks and other major lending. Hence, there must be other business options to solve this major issue.
Technologies helping to fill in the finance gap
The use of sophisticated digital solutions has presented themselves as an opportunity for lenders to support small medium sized companies. Fintech solutions can help SMEs address these and other obstacles, primarily by allowing digital transactions and also facilitating fast track transactions. Technology solutions will be pivotal in helping businesses globally to get access to finance they need during this difficult economic period.
On the other hand, fintech companies provide micro finance solutions. In Africa, there has been a historical increase in the number of female entrepreneurs. Women are currently involved in several forms of trade in almost different parts of the country. As we are all facing difficulties during this pandemic, SMEs are having financial problems. As such, micro financing is considered as one of the tools which can be used to encourage female entrepreneurship. Microfinance has been looked upon as an initiative for poverty alleviation. For instance, the World Bank has encouraged SMEs in Africa to invest in digital technology through the implementation of new digital platforms as well as the establishment of an enabling regulatory environment.
The rise of these new technologies will therefore make factoring accessible to even the SMEs, as well as providing support through supply chain financing and invoicing. Increased service speed will allow the companies to receive funds at a faster space, based on sophisticated data analysis.
The coronavirus outbreak has been with us for a couple months and have had an adverse impact on our daily lives- on the way we work, travel and consume, which has major consequences for businesses. As such, technology will become even more important than we thought it would be previously. Sophisticated tools will help enable lenders to address this need as well as offering digital platforms to keep our backbone of our economies running beyond Covid 19.
Partnering with NanoBNK
NanoBNK, our fintech company is offering its services and solutions to help during this Covid-19 Pandemic by accelerating Digital Transformation of SMEs through e-commerce and online payment enablement.
