Credit Solutions for SMEs
Credit Solutions for SMEs
Business Model Description
Set up fintech companies that offer credit services based on technological solutions that provide services to SMEs: microloans, invoice financing, and merchant cash. The business uses non-traditional data points – such as utility payments, social media activity, and online sales history – to assess the creditworthiness of companies. This approach allows the fintech to extend credit to businesses that may not have traditional collateral.
Expected Impact
Democratize credit services for SMEs, harnessing non-traditional data to foster inclusive growth and reduce economic disparities for underserved communities.
How is this information gathered?
Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.
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Country & Regions
- Angola: Malange
- Angola: Bié
- Angola: Luanda
Sector Classification
Financials
Development need
Nearly 30-40% of Angolans aged 15 and above have a bank account, with a lower proportion of women (1). In the insurance market, only 26.3% of adults have access to general insurance products (2).
Policy priority
The national programme of formalization of the informal economy is supported by increased banking and financial inclusion for SMEs (29). New legal instruments have been enacted to support businesses (3).
Gender inequalities and marginalization issues
Women are less empowered than men in terms of access to digital financial solutions, which hinders entrepreneurship, investment, and participation in the economy (16). Remote populations are also more marginalized in terms of access to digital financial solutions (17).
Investment opportunity introduction
Five traditional banks command nearly 80% of the total assets, deposits, and loans. There exist significant opportunities for strategic partnerships or market entry for entities capable of disrupting this concentration through technological innovation (4).
Key bottlenecks introduction
Angola's financial sector faces challenges like market dominance by top banks, heavy state influence on credit distribution, high non-performing loans and reliance on costly third-party banking (4).
Corporate and Retail Banking
Development need
As of 2023, only a small fraction, about 2-3%, of SMEs have access to credit (5). Access to financing and credit is considered critical by both analysts and emerging young entrepreneurs (31).
Policy priority
Government reforms aim to boost entrepreneurship by offering incentives and creating a more favourable lending environment for SMEs (6). The Angola Investee programme is offering financing and allowances for SMEs (30).
Investment opportunity introduction
SMEs contribute significantly to Angola's economy, accounting for more than 40% of the GDP. Tailored financial products and services are being developed to meet the specific needs of SMEs (7).
Key bottlenecks introduction
Challenges may include limited infrastructure for instant payments, insufficient technological infrastructure, poor internet coverage, and low digital literacy (8).
Consumer Finance
Pipeline Opportunity
Credit Solutions for SMEs
Set up fintech companies that offer credit services based on technological solutions that provide services to SMEs: microloans, invoice financing, and merchant cash. The business uses non-traditional data points – such as utility payments, social media activity, and online sales history – to assess the creditworthiness of companies. This approach allows the fintech to extend credit to businesses that may not have traditional collateral.
Business Case
Market Size and Environment
> USD 1 billion
The IFC estimates that about 92% of small and medium-sized enterprises in Angola lack access to finance, equating to a financing gap of USD 34 billion (10).
Indicative Return
> 25%
The profitability indicator used was taken from the cost-to-income ratio published by the main banks in Angola, which ranges between 38% and 40% (36). The cost to income is calculated by dividing operating expenses by operating income generated, i.e. net interest income plus other income.
Investment Timeframe
Short Term (0–5 years)
Investments made in this business model are expected to have payback periods of between 1 year and 2 years (35). This period is determined by the term at which the credits are granted by Kixi Crédito, a micro credit society in Angola, especially for SMEs.
Ticket Size
USD 1 million - USD 10 million
Market Risks & Scale Obstacles
Market - Highly Regulated
Market - High Level of Competition
Impact Case
Sustainable Development Need
SMEs are essential to Angola’s economy, contributing significantly to job creation and economic diversification. However, at least 65% of SMEs fail within their first year, largely due to the significant challenges they face in accessing traditional lending options (37). In addition, about 92% of small and medium-sized enterprises in Angola lack access to finance, exacerbating their struggles and hindering their growth and sustainability (10).
Gender & Marginalisation
Women-led SMEs are less capable of accessing credit and financing, which hinders entrepreneurship, investment, and participation in the economy (16). Remote populations are also more marginalized in terms of access to credit and financing (17).
Expected Development Outcome
Providing credit solutions for small and medium enterprises (SMEs) aims to enhance their financial inclusion by offering them access to crucial funding that might otherwise be inaccessible. This increased access to credit can lead to improved development outcomes for SMEs, such as business growth, job creation, and economic stability.
Gender & Marginalisation
Providing credit solutions for women-led SMEs enhances financial autonomy and economic participation by enabling business growth and sustainability, promoting economic diversification and inclusion, and empowering women through increased financial independence.
Providing credit solutions for rural SMEs contributes to reducing inequalities and fostering economic development. By facilitating access to resources, these solutions enable businesses to invest in expansion, create local employment opportunities, and contribute to community growth.
Primary SDGs addressed
9.3.2 Proportion of small-scale industries with a loan or line of credit
4.35% (33).
N/A
10.2.1 Proportion of people living below 50 per cent of median income, by sex, age and persons with disabilities
The proportion of people living below 50% of median income reduced from 23.4% in 2000 to 22.8% in 2018 (34).
N/A
8.10.2 Proportion of adults (15 years and older) with an account at a bank or other financial institution or with a mobile-money-service provider
N/A
N/A
Secondary SDGs addressed
Directly impacted stakeholders
People
Gender inequality and/or marginalization
Corporates
Indirectly impacted stakeholders
People
Gender inequality and/or marginalization
Planet
Corporates
Public sector
Outcome Risks
Data privacy risks: As more financial activities are conducted online, there is an increased risk of data breaches and misuse of customer data, leading to privacy concerns (18).
Over-indebtedness of SMEs: With easier access to credit, there's a risk that SMEs may borrow more than they can sustainably repay, leading to financial distress or insolvency (19).
Impact Risks
If SMEs cannot access capital through formal channels, they may turn to informal sources, increasing financial instability and debt burdens. This can lead to long-term financial difficulties for both businesses and individuals, perpetuating cycles of poverty.
Impact Classification
What
Increase financial inclusion and access to capital for SMEs.
Risk
A significant risk arises when SMEs are unable to access capital through formal channels, compelling them to resort to informal sources. This shift increases financial instability and debt burdens.
Contribution
By leveraging technological solutions for credit assessment, the fintech companies can significantly contribute to expanding financial inclusion and economic development in Angola, particularly among underserved SMEs.
Impact Thesis
Democratize credit services for SMEs, harnessing non-traditional data to foster inclusive growth and reduce economic disparities for underserved communities.
Enabling Environment
Policy Environment
Angola's government has introduced various initiatives, such as FinScope Angola 2022, that will provide credible benchmarks on level of financial inclusion and guide the National Financial Inclusion Strategy. Innovative lending practices, such as mobile banking and digital platforms, bolster financial inclusion in Angola by reaching underserved populations and enabling access to credit for SMEs and micro-entrepreneurs. Initiatives like FinScope Angola 2022 and the National Financial Inclusion Strategy leverage these practices to gather comprehensive data, inform policymaking, and promote the adoption of digital financial services, fostering inclusive economic growth and reducing reliance on cash transactions (20).
The National Bank of Angola (BNA) Notice 10/20 requires banks to provide a minimum of 2.5 percent of their liquid assets to finance domestic production, with nominal interest rates in the range of 7-10 percent, targeting SMEs in key productive sectors. The BNA’s Notice 9/22 extended Notice 10/20 to housing and construction loans (38).
Financial Environment
Fiscal Incentives: Created under Presidential Decree No. 108/12, of June 7, the Fundo Activo de Capital de Risco Angolano (FACRA), is a public venture capital fund focused on investing in Micro, Small and Medium-sized Enterprises (MSMEs) in the initial phase of activity or in the expansion of their businesses (24).
Regulatory Environment
Law No. 13/05 defines Angola's financial system framework, mandating that banking institutions establish administrative and supervisory bodies. This law primarily focuses on banking activities and the regulation of financial institutions, rather than specifically addressing innovative lending practices (22).
Notice 10/20 by the BNA requires banks to provide a minimum of 2.5% of their liquid assets to finance domestic production, with nominal interest rates in the range of 7-10% (23).
Laboratory of Innovation of Payment Systems in Angola, is an initiative by the Banco Nacional de Angola to promote innovation in terms of the fintech and wider entrepreneur and financial services ecosystem of the country. Beta-i, together with Banco Nacional de Angola and the local accelerator Acelera Angola is helping to create an experimental regulatory environment for fintech in the country (28).
Marketplace Participants
Private Sector
Deya, KixiCrédito, VISA.
Government
Ministry of Finance, National Bank of Angola (BNA), Ministry of Telecommunications and Information Technologies.
Multilaterals
United Nations Development Bank (UNDP), World Bank, International Finance Corporation (IFC), USAID, African Development Bank (AfDB).
Target Locations
Angola: Malange
Angola: Bié
Angola: Luanda
References
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- (2) Statista (2022). Share of adults who owned a financial account in Angola between November 2019 and January 2020. Source:https://www.statista.com/statistics/1226262/financial-account-ownership-in-angola-by-area/#:~:text=Aug%201%2C%202022%20A%20huge,nearly%2060%20percent%20of%20the.
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