New Podcast: Solving the MSME Credit Gap

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Small, midsized, and micro-enterprises are the main drivers of employment in Africa. Yet many cannot grow and add employees because of poor access to capital. Traditional banks are not wired to lend to established small businesses, let alone those in the informal sector.

This dilemma is among the key challenges Africa faces. With MSMEs being the main drivers of employment in a continent that is young and growing quickly, stifling their growth stifles Africa’s growth. 

This challenging problem was a primary thread at the recent BigFive Small Business Fintech Summit (10th March). And it was the focus of a conversation with Lauren Kagori of Pezesha, a MSME crowdfunding platform based in Kenya. 

Our latest BIG5D Podcast episode features the interview with Kagori originally recorded for Fintech Summit. 

Massive Gap

The MSME credit gap in sub-Saharan Africa tops $331 billion, according to an estimate from the lending and financial management platform OZÉ. 

“Close to 80% of employment opportunities in Africa are made up of micro small and medium enterprises,” said Lauren Kagori, a consultant to Pezesha, a Kenya-based financial inclusion platform focused on the MSME sector. 

“And the number one problem that MSMEs face is access to credit. And the issue is that traditional banks find MSMEs too costly and too risky to lend to they just don't have the data or the traditional security or collateral assets that a bank needs to vet and credit score these businesses. And so it's they're just completely avoiding this entire sector.”

Pezesha was launched by Hilda Moraa in Kenya in 2016. Pezesha Initially focused on B2C lending. But it quickly pivoted into a B2B lending company, creating a digital financial marketplace for the underserved. 

The company’s current mission is to connect MSMEs to affordable credit, which they do through a crowdlending platform powered by our own proprietary algorithm. And Pezesha has also created its own credit scoring mechanism designed to reflect the true credit-worthiness of very small African businesses. 

While Pezesha began in Kenya it has since expanded to Ghana. And to date, Peseha has made 70,000 disbursements totaling around $2 million.

One of the keys to the success of crowdfunding is the growing African middle class, combined with successful Africans in the diaspora who want to invest in their native countries. 

“Crowdlending in Africa is really interesting because we have profitable viable businesses that need access to capital,” Lauren explains. “And a growing middle class that has disposable income, and also diaspora who wants to do good back at home. And there are not many mechanisms that are connecting these two needs.”

Vision in Action

Lauren said the crowdfunding approach is helping African MSMEs think bigger about the opportunities in front of them.

She cites one example in the interview of a Ghanaian shoe company that used Pezesha's capital to speed up its supply chain. That enabled the company to more than double its production, cut its delivery time, and hire two employees to help with the increased volume. For this company, the demand was always there. It needed a small amount of capital to unlock its potential. 

“I love that story because it’s just so great when you see the vision in action,” Lauren said. “It's like yes, this is the purpose of this money.”

Lauren said Pezesha’s next move will be to expand the platform further into West Africa. 

And she also expects her industry to form deeper alliances with NGOs. 

“NGOs are a big player in this space, they see all this money coming in as remittances,” Lauren said. “And then they see these FinTech companies. So we've seen in the last two years, just a lot more connecting between those two sectors. And so I wouldn't be surprised if we saw new ways of using development money to grow FinTech companies in Africa.”

Listen to the full podcast here

The BIG5D Podcast · Episode 13: Lauren Kagori, Pezesha


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