We Need More Digital and Innovative Financial Solutions for MSMEs Beyond Credit

By Eunice Kinyanjui - Head of Small Business at I&M Bank Ltd 

MSME’s account for over 90% of private sector enterprises in Kenya, playing a crucial  role in the decentralized economic development model promoted by devolution that  aims to achieve equitable social and economic development across the country. 

As we marked the World MSME Day on June 27th, the significance of these enterprises  was highlighted. Despite their critical role in economic growth and job creation,  MSMEs face significant challenges, including high rates of business closure within the  first year of operation. To address these challenges and ensure sustainable growth,  there is a pressing need for digital and innovative financial products and services  beyond traditional credit offerings. These solutions can provide MSMEs with the tools  and resources necessary to thrive in an increasingly digital economy. 

MSMEs are essential for economic development, providing employment opportunities  and contributing to poverty alleviation and inclusive growth. The Sustainable  Development Goal (SDG) 8 underscores the importance of MSMEs in creating decent  work and economic growth. The Government’s economic Transformation initiative  further highlights the potential of MSMEs to generate employment and livelihood  opportunities, especially for marginalized groups. However, despite the introduction  of favorable policies over the years, a significant proportion of MSMEs continue to  face financial constraints, limiting their ability to thrive and expand. 

I&M Bank's initiatives to support MSMEs through flexible working capital solutions  illustrates the need for financial products that go beyond traditional credit. I&M Bank's  initiative to waive transaction fees for transfers between bank accounts and mobile  wallets demonstrates the potential of digital payments to reduce operational costs  and deepen financial inclusion. This integration allows MSMEs to conduct seamless  financial transactions, enhancing their operational efficiency and reducing the cost of  doing business. 

These solutions among others help MSMEs manage cash flows and invest in the  supply chain, enhancing their operational efficiency and scalability. By offering  business insurance products and supply chain financing, banks can provide comprehensive financial support that addresses various aspects of business  operations. 

The introduction of unsecured digital lending products by banks in recent years has  revolutionized access to finance for MSMEs. These products, accessible via mobile  apps, offer faster and more efficient loan application and renewal processes, enabling  businesses to access funds quickly and conveniently. Such innovations are crucial in  a digital era where speed and accessibility can significantly impact business success. 

The COVID-19 pandemic highlighted the vulnerability of MSMEs to external shocks.  Digital insurance products and risk management solutions can provide a safety net  for these businesses, protecting them from unforeseen events and ensuring business  continuity. These products are particularly beneficial for women and youth  entrepreneurs who may face additional challenges in accessing traditional financial  services. 

Technology today plays a pivotal role in the provision of innovative financial services.  Digital platforms enable financial institutions to interact with MSMEs efficiently, from  application and onboarding to monitoring and fund disbursement. This digital  transformation not only strengthens the connection between financial institutions and  MSMEs but also empowers businesses with digital intelligence, enhancing their  decision-making capabilities. 

The expansion of the financial ecosystem for MSMEs requires collaboration among  various stakeholders, including financial institutions, fintech companies, government  bodies, and international organizations. By fostering partnerships and leveraging the  strengths of each stakeholder, we can create a more inclusive and supportive financial  environment for MSMEs. 

The integration of mobile money platforms with banking systems is one such  collaborative effort that has revolutionized financial transactions in Kenya, providing  MSMEs with greater flexibility and accessibility.  

Leveraging data analytics and artificial intelligence can provide MSMEs with valuable  insights into their financial health and market trends that financial institutions can  use to offer personalized financial products and advisory services, helping MSMEs  make informed decisions and improve their business strategies. 

The need for digital and innovative financial products and services for MSMEs must  extend far beyond traditional credit products. By providing flexible working capital  solutions, integrating mobile wallets, offering digital insurance and leveraging  technology, financial institutions can create a conducive environment for MSMEs to  thrive.  

These innovations are essential for addressing the financial access gap and ensuring  the sustainable growth of MSMEs, ultimately driving economic development and  reducing inequality. 

As we move towards a more digital and data-driven financial landscape, it is crucial  to continue developing and implementing financial solutions that cater to the diverse  needs of MSMEs, ensuring their resilience and success in an ever-changing economic  environment.