Commercial Bank of Africa (CBA), Kenya’s largest privately-owned bank, has launched a supply chain finance platform to finance more of the country’s small and medium-sized businesses.
CBA launched the initiative in partnership with Nairobi-based fintech firm Ennovative Capital (ECap), which built the platform, and the African Guarantee Fund (AGF) for small and medium-sized enterprises, which funded acquisition of the technology.
CBA Kenya CEO, Jeremy Ngunze said the solution enables the bank to offer reverse factoring and aims to spur growth among Kenyan SMEs by making working capital available more quickly. Corporate buyers will approve and submit their supplier invoices to CBA through an online platform. The bank will then facilitate immediate payments to suppliers with recourse to the corporate buyers.
“We have leveraged technology and teamed up with a provider of financial guarantees, to address some of the key concerns affecting business today,” said Ngunze. “In particular, this solution will spur growth among SMEs by availing working capital faster to enable them finance new projects.”
He added that reverse factoring also reduces the administrative burden placed on procurement and finance teams, who typically have to deal with individual suppliers on a regular basis. Ngunze noted that the business model has been successful in North America, Europe, South Africa, and parts of Asia.
ECap’s CEO, Kefa Nyakundi, commented that the solution provides a marketplace for SMEs supplying goods and services to creditworthy buyers to trade their approved invoices without the need for the SME suppliers to undergo credit assessment. This structured financing model allows participating SMEs to incur debt only when borrowing for expansion, rather than on routine working capital.
“This facility is also applicable to overseas suppliers, therefore, making it a perfect solution for Boosting Intra Africa Trade (BIAT) and therefore facilitating the aspirations in the Africa Continental Free Trade Area agreement signed earlier in the year in Rwanda,” Nyakundi added.
Work on the system began in April 2017, and CBA has been running pilots with a major corporate client since December. The bank has participated in a pilot scheme itself buying goods itself, financing its own suppliers via the platform.
The solution promises to provide funding relief for Kenya’s SMEs, which have felt the impact of the country’s current interest rate cap. Since September 2016, Kenya has capped commercial lending rates at four percentage points above the central bank’s benchmark rate, currently 9.5%.
While the aim was to limit the cost of borrowing for businesses and individuals, the plan has largely backfired with banks deeming SMEs too risky to lend to under the cap.