The pandemic has caused enormous misery in Sub-Saharan Africa’s economy, resulting in $115 billion in output losses and a 3.3% drop in gross domestic product (GDP). It particularly badly struck small, micro and medium-sized companies (SMMEs) when banks were hesitant to lend, magnifying Africa’s challenge with financial inclusion.
This is where CapitalSavvy, a Ugandan venture capital investment firm, comes into the picture. The company wants to address African SMMEs’ two-pronged finance issues—access to banking services and making them available to everyone—using the capabilities of the BSV blockchain.
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Redirecting Interest to Affordable Financing
CapitalSavvy CEO and Founder Reginald Tumusiime says these solutions are timely and required because most banks in the nation are not prevalent and easily accessible, leaving a large section of the people unbanked. These digital loan solutions will also aid in transforming the financial system in Uganda into something that is available to the masses and not just the privileged few.
Few methods exist for predicting whether a new loan customer will repay or default. The inability of microfinance institutions and other lenders to assess risk adequately is what drives them to charge such high interest rates—up to 40% in extreme cases. But the availability of mobile credit history is a game changer in providing low-cost loans in Africa.
“That’s what drove the popularity we saw in mobile money, because you don’t need a smartphone to access financial services,” Tumusiime noted. “Access to credit is very difficult and most of the big commercial banks have many requirements that are not met by most SMMEs.”
Africa has been familiar with mobile money services for some years now, which allow consumers to borrow money and return it on a set date using their mobile device. Mobile credit data displays loan history information that provides a better estimate of credit-worthiness than previous proxies, providing critical data that mobile network operators (MNOs) can use in creating client credit ratings.
Although the pandemic has expanded the usage of mobile money and improved financing affordability, it has also aggravated global gender disparities. Despite accounting for one-third of registered African SMEs, women-owned SMMEs have been particularly badly affected in terms of financial access.
Capital Accessibility to Women-Owned Businesses
Africa’s women-owned SMEs continue to suffer legal discrimination, education and skill disparities, confidence and risk preferences, and lack networks and information. All of this impact their revenues, community participation and capacity to sustain their companies. Because of these, they earn 34% less than others on a monthly basis, and only 10% of women-owned SMMEs have access to the financing market.
As far as capital access goes, private lenders perceive women as substantially riskier than males, since they have less access to land for collateral and a lack of credit history. Venture investors also inquire more about women’s loss potential than their profit potential. Worse, they receive around one-quarter of the investment they seek, while their male counterparts receive half on average.
Establishing property rights and removing the barrier of requiring collateral to secure financing are some avenues financial institutions can take to support women-owned businesses. These can be realized with tailored technical assistance, such as technical guidance, research and data exchange, and skills training.
In this sense, it entails coaching SMMEs on how to mature current investments or plan for future financial transactions and development success. Technical assistance attempts to improve investment climates, develop enabling conditions, and prepare for investment opportunities.
Technical assistance is a significant blended financing in high-risk locations with a poor enabling environment and few great transaction opportunities. African SMEs have a high need for technical assistance but lack the resources to recruit specialists on their own—an area where blockchain technology can help without the burden of bias against women-owned companies.
