BOI tasks MSMEs on adoption of financial digitalisation to grow businesses

By Cynthia Ezekwe.

Financial experts have urged Micro Small and Medium Enterprises (MSMEs) in Nigeria to priotise opportunities created by technological advancements by adopting financial digitalisation for easier financing options to facilitate business growth.

Olukayode Pitan, MD/CEO, Bank of Industry (BOI),who made the call, observed that many MSMEs in Nigeria still run informal business structures based on physical infrastructures and cash payment systems.

Speaking at the fourth Annual  MSME and  Startup summit 2023 held recently in Lagos, Pitan said the traditional way of doing things is changing, hence the need  for MSMEs to adapt and grow with the innovative trend.

Represented by Osah Obaro, BOI divisional head, SME-South 2, Pitan noted that the MSME space is very large, and plays significant roles as engines of socio-economic transformation,contributing between 40 to 55 per cent of GDP, and 50 to 80 per cent of employment in most economies.

“Globally, there is an increasing focus on ways to exploit the potentials of financial innovations and inventing digital finance technologies, particularly, activities of financial technology companies, popularly referred to as fintechs, are quickly transforming how MSMEs can access finance with innovative digital platforms providing alternative funding sources,” he said..

The BOI MD noted that industry players welcome the idea of digital platforms that provide alternative sources of funding for MSMEs against the traditional methods, stating that  the traditional banks cannot meet the requirements of the large population of MSMEs.

“So, opportunities to create fintechs PSBs, other agencies, all providing different support services to address the large number is highly welcomed,” he said.

This, he explained, will alter the way things are done traditionally, as customers will gain access to better service,while  the entire ecosystem benefits from the alternative window that is being established.

Speaking on the theme, “The Role of Alternative Financing and Digital Payment Adoption For MSMEs Sustainability and Competitiveness”, Pitan noted that there are lots of benefits to be enjoyed by these businesses, and the economy at large, if they can digitise core aspects of their operations.

According to Pitan, realising the prominence of e-commerce has accelerated the digitalisation of many SMEs, and fostered their diversification in the digital ecosystem and marketplace, increased reach and visibility of new customers and market, improved efficiency and productivity,eliminated paper work and streamlining processes.

However, Pitan noted that MSMEs face challenges that have hampered  their ability to expand and improve their output.

He pointed out that the  challenges include difficulties in accessing finance; challenges of business environment;infrastructural deficit;, dearth of business and technical knowledge by most enterprises,stressing that difficulties in accessing finance is the core issue.

The BOI chief noted further that some of the major challenges that MSMEs have is a knowledge gap, as some of them don’t know what structures organisations such as Payment Service Banks (PSBs),Bank of Industry,commercial banks and microfinance banks can offer, and how they can access them, alongside the applicable requirements.

In light of the above, Pitan stated that there are various alternatives to financing which MSMEs can cue in.

“Mobile money services such as flutterwave, Opay, Moneypoint etc have  made it easier for people and MSMEs to send and receive money and pay for goods and services using their mobile phones, and Point-Of-Sales (POS) terminals and machines. These services have been particularly beneficial for (MSMES), especially in areas where traditional banking makes it difficult for them,” he said.

He added that digital banking has disrupted international banking models, and made it easier for MSMEs to access financing, giving an instance of Cowrywise, a digital investment platform which allows users to save and invest money at the same time.

The MD also pointed out there  are government policies supporting MSMEs  in adopting digital technology and competing in the global economy.

Highlighting some of the policies that encourages digitisation, he said, the National Digital Economy policy and Strategy outlines the objectives and priorities in charge of promoting digital innovation towards making Nigeria a digital economy by 2030. This includes the initiatives to support digitalisation of MSMEs such as providing access to finance, training, and infrastructure.

He also identified the National Broadband plan 2020-2025, which   aims at providing broadband digital assets to 7 per cent of Nigerians by 2025, to  make it easier for MSMEs to connect to the internet, and use digital technologies.

The BOI MD also pointed out that the Nigerian startup Act  provides  a legal framework for startups in Nigeria, including provision of support for digitalisation of start-ups such as access  to government funding.

Giving his recommendations on ways to  support MSMEs and startups, Pitan said it is vital to establish a conducive regulatory environment that encourages regulation, by simplifying the licensing process of fintechs and providing clear guidelines on regulatory compliance.

He further implored regulators to listen to the operators  and vice-versa, so that they can work together, with the ultimate goal of supporting MSMES.

“Improving the credit information infrastructure and bureau coverage to address information and increase transparency in the market is important. This will reduce deceit rate for investors, and financing costs, which are typically higher for SMEs,” he said.

Pitan  also encouraged financial institutions to leverage digital technologies in supporting MSMEs.