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Mohan Chen

Mohan Chen is currently an SME Finance Forum intern. She is a second-year graduate student in M.A. in Arab Studies program at School of Foreign Service, Georgetown University. Her research interests include Sino-Middle East relations, technology and development in MENA region, and social movements. Mohan graduated from College of the Holy Cross, Worcester, MA, with a double major in Political Science and Computer Science and a minor in Middle Eastern Studies. Prior to Georgetown, Mohan worked as a research assistant at the Development Research Center of the State Council of China, a journalist at Palestinian News Network in Bethlehem, and a knowledge management analyst at CARE International. She has experience in data analysis and visualization, video/audio editing, and social media outreach. She is a native speaker of Mandarin Chinese and is proficient in Japanese and Arabic as well. In her spare time, she enjoys photography and traveling.

Connecting SMEs and Financial Institutions with Technology – The Critical Roles of Fintechs in Financial Market

Nov 23, 2021
Connecting SMEs and Financial Institutions with Technology – The Critical Roles of Fintechs in Financial Market

A virtual marketplace summary. 

On September 22, 2021, five leading fintechs presented their latest products and services at SME Finance Forum’s virtual marketplace – a match-making platform that facilitates partnership and collaboration between financial institutions, fintech companies, development financial institutions, as well as investors. Carol Caruso (Bloom Impact), Emem Usanga (Bnkability), Patrycja Strzelecka (CashDirector), Moazzam Ahmed (CashNow), and Sadeq Safarini (Vector ML Analytics) joined the panel and connected with the member institutions of SME Finance Forum.

Bloom Impact is a prominent Africa-based digital App helping SMEs access financial services and introducing banks high-quality customers with technology. It is a common issue that financial institutions incur huge costs and risks to locate and evaluate eligible customers. Limited data, high prospecting, acquisition cost, and demanding labor to review documents have resulted in slow portfolio growth and limited market share. In addition to the long turn-around times in the decision-making process, conversion rate of leads remains under 20%. On the other hand, the MSMEs also encounter difficulties sustaining and growing their businesses due to lack of access to finance. It is often time consuming, risky, and costly for small business owners to find the most suitable products or keep books to improve their own eligibility. And universal education on financial services and responsible borrowing is critical to develop a sustainable SME lending environment. 

Bloom Impact addresses these issues through technological innovations. By digitally receiving verified, qualified leads, completed application and documents, Bloom sends reminder to MSMEs, saving 30-50% of the original costs for the financial institutions. The analysis of data sets, application of risk score, validation of credit history and customers, as well as performance of KYC have greatly reduced risks and improved portfolio quality. Digitalization has not only increased the efficiency of lending processes but also encouraged better account behavior with education, tools, and digital messaging. 

Currently, Bloom Impact has two major products. Embedded with advanced algorithm, the mobile App equips MSMEs with tools including bookkeeping and financial education, eligibility guidance, and decision empowerment. The other product is the digital platform, SaaS Service, designed for financial institutions. The platform integrates various tools, including a reporting dashboard, product management, data analytics, digital origination and onboarding, and an online portal for providers to access their customers with radically reduced costs and risks. 

With Bloom Impact’s own configurable scoring engine, the ratings can be defined, and criteria can be created on various data points. Since its establishment in 2018, Bloom Impact has served 6 banks and accumulated more than 18,000 App users, 42% of whom are women owned SMEs and 74% are youth owned SMES.

Bnkability is a fintech company ensuring African trade transactions are bankable through automation, de-risking opportunities for financial institutions and providing quality dealflow. Emem Usanga presented three key problems that Bnkability aims to solve. Firstly, the SMEs do not always comprehend the requirements needed or adopt the business practices required for them to be deemed creditworthy. Secondly, banks tend to be risk adverse. Lastly, there is pressure from central banks to increase SME lending.

To evaluate the credit readiness of SMEs, Bnkability uses a simple Q&A style process to conduct comprehensive due diligence (PEP, AML, litigation, adverse media etc) of a trade finance transaction. The recommendation engine guides SMEs through any red flags discovered. Once reaching the minimum criteria, their portfolios will appear on the financial institutions dashboard with a due diligence report and alongside fully verified documentation so financial institutions can just focus on decision-making. To understand the true financial status of the SME, Bnkability offers free management accounting enabling full financials to be stress tested and forensically examined using a proprietary credit risk model. Bnkability continues to ensure the SME remains creditworthy throughout the lifetime of the credit facility reducing the risk of defaulting. 

Bnkability also brings additional value to banks from the aspects of sourcing and matching. As well as financial institutions referring new SMEs to Bnkability, the platform independently sources prospective applicants through its network of strategic partners and expands the market. The banks are notified about the latest transactions that meet their criteria helping them actively reach out to potential qualified customers. 

CashDrirector is a fintech devoted to encouraging long-term partnership between banks and SMEs. Strzelecka pointed out the current challenges facing both sides. Because of poor financial management, the SMEs are largely underserved and underfinanced. An increasing number of entrepreneurs are looking for one-stop shopping digital solutions that help them manage daily finance. From the perspective of banks, it is difficult to monetize the SME clients due to the lack of specific approach to them. The low value to risk ratio also disincentivizes them to involve in SME lending or attract potential customers. 

The solution presented by CashDirector is a digital CFO integrated with online banking. The service helps SMEs manage their daily business activities, control liquidity, and increase credibility for banks. At the same time, it enhances banks and corporate partners’ visibility of SME’s financials and increases monetization of the SME segment, empowering them to become the preferred provider for small businesses. The digital CFO reduces the risk and raises the profitability of SME portfolios. 

CashDirector operates as a private label platform for financial institutions that will be ready in 90 days. With the service provided by the fintech company, the providers are empowered to set their own SME banking standards, while outperforming competition and reaching sales targets. For instance, CashDirector has cooperated with mBank through offering digital invoicing service, which made the Polish financial institution unique in the SME sector. The growth of new SME business acquisition reached 25% since the launch of CashDirector add-ons and transactions in online banking by clients using CashDirector platform has increased by 90%. And 50% of new SME clients has signed up for CashDirector as well. 

In Belgium, the fintech has worked with Aion Bank to offer the first one-stop shopping offering for SMEs in the country. The bank-fintech partnership led to five Apps mobile banking for SMEs that are fully integrated with their business account. CashDirector sets up a dedicated private label platform customized for each bank with minimal IT integration and IT development involvement from the client side. Utilizing the CashDirector service does not require on-premises projects and the inexpensive POC also makes the product easier to master.   

CashNow is the first electronic invoicing and supply chain platform in Pakistan. By connecting corporates, SMEs, and financial institutions under one platform, CashNow aims to transform small businesses’ access to finance. Bringing the experience from the West to the emerging market, CashNow provides services focusing on supplier finance, distributor finance, supply chain analytics, as well as AI-based credit scoring. 

The fintech company is an all-in-one platform addressing the needs of Pakistani market and the specific challenges that the stakeholders face.  Its comprehensive offerings include an end-to-end framework that drives the entire procure to pay process, SMEs and anchors education and training, PO linked invoices and real-time tracking, electronic KYC, digitized tax information repository, as well as customized reports and analyses. 

Ahmed highlighted CashNow’s latest technological innovations in his presentation. With its mobile App designed for SME owners, a cloud-based platform in which blockchain and token-based protocols available, and integration of data exchange an API, CashNow has built a marketplace for funders and shareholders and provided an environment with competitive rates to the suppliers. 

Currently, SME financing only accounts for 7.27% of private sector financing in Pakistan. The size of supply chain finance market is estimated at USD 18 million, however, only USD 300 million funds are available. Hence, CashNow is dedicated to facilitating the small businesses with more available access to funding. Since March 2021, the platform has processed more than 100 invoices worth more than USD 1.5 million. 

Compared with traditional method that take 8-10 days to process applications, the CashNow platform has successfully reduced the average time from invoice acceptance to financing to only 1.2 days. In the past year, CashNow learned precious lessons from real-world operations. For example, it saw a great demand for Islamic finance, especially in the long tail, worked against ingrained resistance to digitalization and corporate inertia, conquered ill supply chained process and inefficient and manual procure to pay process, and obtained regulatory support in the country. 

With the invaluable experience, CashNow is optimistic about the future SME lending in Pakistan and looks forward to leading the transformation in its financial system. 

Vector ML Analytics is an intelligent modeling and decision platform for financial institutions. In the past, vector has built and fully automated a loan forecast model for Nuula Financial, a mobile application solution company in Toronto, and applied industry best practices on a USD 150 million credit facility with high accuracy and efficiency while reducing the costs by USD 200,000. In general, poor financial analytics is one of the biggest challenges to financial institutions, which may lead to bankruptcy or different levels of suffered loans. 

With over 100 models across four departments, the financial institutions are quite complex to analyze that 80% of them are still using traditional bookkeeping methods. The large number of financial models often overwhelm financial analysts – the fragmented system requires higher financial literacy, more resources, trainings, and experience in the manual processes. However, Vector ML Platform has aggregated more than 100 financial models in a single application, where a 360-degree view of the banks’ portfolio is presented, and industry best practices are brought in. The platform features auto financial modeling and generates accurate results 100 times faster. 

In the projection of Vector ML Analytics, its product is leading the Fourth Industrial Revolution of banking and lending analytics, and this simple, intelligent, and affordable financial modeling tool will have the potential to replace the financial analysts and data scientists. The startup is currently looking forward to collaborating with more financial institutions and exploring new opportunities in SME lending.
 

Fintech companies are playing an increasingly critical role in connecting SMEs and financial institutions, especially in the emerging markets. With aid of technology and innovation, the entrepreneurs are empowered with more available access to finance to grow their businesses. On the other hand, the providers are able to actively reach out to new clients in the sector with higher efficiency but reduced cost.