Lack of access to finance hinders growth of African small businesses
Doing business in other African countries has grown exponentially in the last few years. The continent presents major potential in terms of cross-border opportunities and the majority of Africa’s small businesses have the ability to grow at a rapid rate if certain challenges are overcome.
Barron, Africa’s largest promotional clothing organisation, hosted its first Barron Africa Forum to engage its Africa reseller client base. Countries who formed part of the discussion were the Democratic Republic of Congo, Angola, Zambia, Swaziland, Zimbabwe, Ghana, Lesotho, Malawi, Mozambique, Nigeria and Swaziland. During the two-day discussions, it became evident that the main challenge hindering small business growth across the continent is access to finance.
Most African countries do not have advanced credit systems, so access to capital and trade funding remain a key obstacle. There is a high demand for capital in order for businesses to grow, however, the majority of financial institutions are skeptical of lending small businesses finance due to various market uncertainties such as high interest rates and inflation associated with volatility in these markets. Other factors such as trading in foreign currencies and how to deal in these currencies versus the local currency in market also play a crucial role.
Barron’s CFO Stefan Smit highlighted the need for established organisations to add value to small businesses by becoming more of a one-stop-shop. This requires moving towards more solution-based partnerships as understanding clients’ needs becomes ever-more critical.
“Over the years, it has become evident that we as Barron need to find experts within the credit and risk industry – which has led to us forming a relationship with Credit Guarantee because of the organisation’s extensive track record and experience across the African continent, particularly in terms of trade credit insurance.”
Typically, the payment cycle of doing business in Africa is between 30 and 90 days – and a 90-day wait for payment can have a negative impact on the cash flow needed to sustain the business. A solution with the potential to bridge this gap is trade credit insurance: it removes unnecessary risks by insuring a debtor’s payment risk with a reputable company. This gives the insured party peace of mind that their organisation will always be paid.
In this way, trade credit insurance gives businesses the confidence to explore higher risk opportunities that organisations normally avoid for fear of non-payment. It protects cash flow by replacing cash promptly should customer insolvency or payment default occur.
Trade credit insurance is only one of the ways that established organisations can help small businesses across Africa grow. The most important thing is to keep having the conversations that bring these solutions to light. “Barron is committed to engaging and facilitating discussions between its Africa resellers and pool of service providers to enable their businesses to reach absolute growth,” Smit says.
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