‘Fintech as panacea for exclusion, funding impasse in Nigeria’

The advent of Financial Technology (Fintech), a combination of technology and innovative business models in financial services, has gained considerable momentum in recent times, with global investments rising at exponential rates.

It holds the potential to revolutionise the Small and Medium Enterprise (SME) financing, as it can offer unprecedented solutions to deal effectively with the main barriers that SMEs face in financial markets- information asymmetries and collateral shortage.

Indeed, digital technologies, such as online and mobile banking and payment solutions, have had an important impact on traditional SME financing.

They allow financiers to considerably lower transaction costs when reaching out to unserved and underserved segments of the SME population.

Furthermore, they introduce accounting technology to help manage SME financial statements, as well as alternative credit scoring mechanisms using non-traditional sources of information, such as payment history, usage, and payment of utilities, online activities, and mobile history.

These make lenders able to address information asymmetries in a cost-effective manner and enable higher approval rates with a relatively low default rate.

While traditional banks are investing in updating their business practices, many newborn Fintech companies are entering the market addressing the increasing demand for fully digital, remotely accessible and cheap financial services.

Giant online merchants have also started to offer financing options for their clients, leveraging the wealth of information on their trading history and business behaviour.

These developments are particularly relevant for emerging economies and small businesses that currently find it hard to access the formal financial sector, such as micro-enterprises, informal ventures and firms operating in rural and/or remote areas.

As new financing opportunities for entrepreneurs open up, the entry of large tech companies into the SME finance market might be disruptive for traditional players, and the overall implications of these changes need to be better comprehended.

Digitalisation has also allowed some innovative and inherently digital financial services to be offered to SMEs.

Similarly, there is no gainsaying the fact that the impact of digital finance for financial inclusion and financial system stability cannot be over emphasised.

Fintech has the potential to benefit underserved individuals and communities through salient features: mobile money and e-wallets, crowdfunding, alternative credit scoring, cross-border remittances, payment technologies using digital KYC process, and Regulatory Technology (RegTech).

Financial innovations, including new delivery channels, new products, and new intermediaries, have helped increase financial inclusion dramatically in some countries over the past decade, but also have repercussions for how we measure financial inclusion.

The combination of the rapid pace of innovation in financial services technology and the commitment to financial inclusion of an unprecedented number of leading policymaking institutions in emerging countries is a unique opportunity to resolve some of the most intractable challenges for financial inclusion and reach ‘last mile’ consumers with high-quality financial services.

At the third edition of First Bank of Nigeria Limited Fintech summit themed: “Banking + Tech = Solving Real Problems, experts underscored the potential social and economic benefits of fintech in increasing access to financial services and financial inclusion for the underserved.

Specifically, the Chief Executive Officer of the bank, Adesola Adeduntan, said as the country can now leverage advanced technology to leapfrog and dynamically enhance the lives of the people.

He noted that financial technology is causing positive disruption in the financial services industry, adding that the impact of technology in lifestyle, business and other areas of today’s world is huge.

“With technology, we can move from ground zero to greatness. The solutions banking plus technology: how do we begin to use financial technology to deliver a good standard of living and customer experience through financial products.

“We are therefore following global trends in collaborating with Fintechs and other big technology companies on several transformational initiatives to be able to satisfy our customers’ needs.

He continued: “Customer experience and innovation are key in our approach to satisfying our customers. As a banking services solution provider, FirstBank has continued to set the pace in the financial services industry, coming up with new initiatives to provide financial products and services with greater speed, accountability, and efficiency.

“Key areas of interest to us, amongst others, are propositions around e-business and Digital Offering, Agent Banking, Wholesale or Transaction Banking Product Suite, Retail and Consumer Lending and SME Productivity,” he added.

The Founder of Swifta Systems and Services, Victor Asemota, said emerging technologies and innovative business models can improve SMEs’ access to financial services and boost long-term economic growth.

According to him, despite the fact that SMEs are key contributors to economic activity, especially in the areas of employment, growth, and innovation, they receive a disproportionately small share of credit from the financial system.

He listed the structural barriers that impede bank lending to SMEs to include: information asymmetries, high transaction costs, insufficient financial capabilities of SMEs owners and entrepreneurs.

He urged SMEs operators to be more innovative, noting that innovation in SME financing can unlock liquidity and working capital that allows SMEs to survive the volatility.

“A lot of small businesses die after a few years of establishment. A lot of people jump into entrepreneurship to survive not to solve problems. You must be committed to entrepreneurship because investors only fund viable businesses,” he said.

The Head of Innovation, EFInA, Dayo Ademola, said SMEs said data could be an effective tool for financial institutions in analysing the business and financial conditions of their customers and providing effective consulting services.

She said SMEs must employ the services of innovative banks and non-banks to provide comprehensive services to them in the areas of business restructuring to enable them access credits.

“There is not yet a uniform identity. The two key boxes that can unlock our future are identity and data. When Nigeria is able to conquer these two issues, then the future is guaranteed.

“Startups do not employ the services of professionals in structuring their business model. Regulations should provide information to these startups in the process of incorporation to serve as a guide,” she said.

She said one reason banks are unwilling to lend to SMEs is that they are unable to gather enough information to evaluate the creditworthiness of these borrowers, as a large proportion of them cannot provide a record of trading history or offer valid collateral to secure a loan.

She added that fintech platforms are in a better position than conventional lenders to check the credit background of potential borrowers, as they are equipped with big data technology.