Access to finance remains a huge headache for entrepreneurs and SMEs in Kenya, with the agony of guaranteed cash flow harboured by the waiting of the stipulated credit period.
Yesterday, Kenya’s largest privately owned bank, Commercial Bank of Africa (CBA) has partnered with the African Guarantee Fund for Small and Medium-Sized Enterprises (AGF) and Nairobi-based fintech firm- ECap, to introduce a solution that will see suppliers of Corporate Institutions, receiving payment for goods and services offered, without having to wait for the stipulated credit period.
Now Suppliers can access finance on the strength of the buyer's risk profile #CBASupplyFinance Launch of the Supply Chain Finance Platform in partnership between @CBA_Group_ AGF and @ennovativecap pic.twitter.com/qKnIDgydL3
— Ennovative Capital (@ennovativecap) June 13, 2018
The solution, known as Reverse Factoring or Supply Chain Financing, borrows from the traditional invoice discounting facility given by banks. However, unlike the traditional product, which was offered to suppliers, Reverse Factoring is extended to Corporate Customers as long as they have a good credit standing with CBA. Their suppliers are the eventual beneficiaries.
CBA becomes the first Kenyan bank to offer the solution through an Open platform, which gives participating buyers access to liquidity.
“This is yet another innovative solution that we are introducing for our Corporate Banking segment. We have leveraged technology and teamed up with the leading provider of financial guarantees across the continent, to address some of the key concerns affecting business today. In particular, this solution will spur growth among Small and Medium Enterprises (SME) by availing working capital faster to enable them finance new projects,” said Jeremy Ngunze, Chief Executive Officer, CBA Kenya.
— AfricanGuaranteeFund (@AG_Fund) June 13, 2018
The solution works by having corporate buyers approve and submit their supplier invoices to CBA through an online platform, and the bank in turn facilitates immediate payments to suppliers with recourse to the corporate buyers. This ensures that suppliers are able to access their payments before the due date. The business model has been quite successful in the United States of America, Europe, South Africa, and some countries in Asia.
“The quick pace at which technology is advancing has provided a tool that innovative financial sector players will use to revolutionize this industry. CBA has set a pace that will support the growth of SMEs, many of whom do not have huge capital reserves to allow them take on all the new projects that come their way. Together with CBA, we intend to track and document the economic impact arising from this development,” said Felix Bikpo, Chief Executive Officer, AGF.
In addition to improving SME operations, Reverse Factoring also reduces the administrative burden placed on procurement and finance teams, who ordinarily have to deal with each of the individual suppliers on a regular basis. This responsibility has now been extended to CBA, which will manage all the payments on behalf of the corporate institutions.
The solution has been developed by Ennovative Capital (ECap), a Nairobi based Fintech. According to Chief Executive Officer, Kefa Nyakundi, the solution provides a marketplace for SMEs supplying goods and services to credit worthy buyers to trade their approved invoices without the need for the SME suppliers to undergo credit assessment. This structured financing model allows participating SMEs to incur debt only when borrowing for expansion, rather than on routine working capital.
Kefa Nyakundi noted, “This facility is also applicable to overseas suppliers therefore making it a perfect solution for Boosting Intra Africa Trade (BIAT) and therefore facilitating the aspirations in the Africa Continental Free Trade Area agreement signed earlier in the year in Rwanda.”