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Credit Solutions for SMEs

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Credit Solutions for SMEs

Country
Sector
Most major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Financials
Sub Sector
Most major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Corporate and Retail Banking
Indicative Return
Describes the rate of growth an investment is expected to generate within the IOA. The indicative return is identified for the IOA by establishing its Internal Rate of Return (IRR), Return of Investment (ROI) or Gross Profit Margin (GPM).
> 25% (in GPM)
Investment Timeframe
Describes the time period in which the IOA will pay-back the invested resources. The estimate is based on asset expected lifetime as the IOA will start generating accumulated positive cash-flows.
Short Term (0–5 years)
Market Size
Describes the value of potential addressable market of the IOA. The market size is identified for the IOA by establishing the value in USD, identifying the Compound Annual Growth Rate (CAGR) or providing a numeric unit critical to the IOA.
> USD 1 billion
Average Ticket Size (USD)
Describes the USD amount for a typical investment required in the IOA.
USD 1 million - USD 10 million
Direct Impact
Describes the primary SDG(s) the IOA addresses.
Industry, Innovation and Infrastructure (SDG 9) Reduced Inequalities (SDG 10) Decent Work and Economic Growth (SDG 8)
Indirect Impact
Describes the secondary SDG(s) the IOA addresses.
Responsible Consumption and Production (SDG 12)

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

Explore the country and target locations of the investment opportunity.
Country
Region
  • Malange
  • Bié
  • Luanda
Learn more

Sector Classification

Situate the investment opportunity within sustainability focused sector, subsector and industry classifications.
Sector

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).

Sub Sector

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).

Industry

Consumer Finance

Pipeline Opportunity

Discover the investment opportunity and its corresponding business model.
Investment Opportunity Area

Credit Solutions for SMEs

Business Model

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

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Market Size and Environment

Market Size (USD)
Describes the value in USD of a potential addressable market of the IOA.

> 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

GPM
Describes an expected percentage of revenue (that is actual profit before adjusting for operating cost) from the IOA investment.

> 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

Timeframe
Describes the time period in which the IOA will pay-back the invested resources. The estimate is based on asset expected lifetime as the IOA will start generating accumulated positive cash-flows.

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

Average Ticket Size (USD)
Describes the USD amount for a typical investment required in the IOA.

USD 1 million - USD 10 million

Market Risks & Scale Obstacles

Market - Highly Regulated

Navigating the intricate regulatory landscape governing financial services poses a significant obstacle for fintech startups specializing in innovative credit provision or financial solutions. These regulatory challenges not only affect operational costs but also hinder the agility and scalability of fintech firms in deploying their services effectively (13).

Market - High Level of Competition

The financial services market is highly competitive, with traditional banks starting to adopt digital technologies and other fintech players targeting similar market segments (13).

Impact Case

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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

Industry, Innovation and Infrastructure (SDG 9)
9 - Industry, Innovation and Infrastructure

9.3.2 Proportion of small-scale industries with a loan or line of credit

Current Value

4.35% (33).

Target Value

N/A

Reduced Inequalities (SDG 10)
10 - Reduced Inequalities

10.2.1 Proportion of people living below 50 per cent of median income, by sex, age and persons with disabilities

Current Value

The proportion of people living below 50% of median income reduced from 23.4% in 2000 to 22.8% in 2018 (34).

Target Value

N/A

Decent Work and Economic Growth (SDG 8)
8 - Decent Work and Economic Growth

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

Current Value

N/A

Target Value

N/A

Secondary SDGs addressed

Responsible Consumption and Production (SDG 12)
12 - Responsible Consumption and Production

Directly impacted stakeholders

People

Small and medium-sized enterprises are the primary beneficiaries. Access to fintech lending can fuel their growth by overcoming traditional financing barriers.

Gender inequality and/or marginalization

Women can benefit from more equitable access to credit when fintech companies utilize alternative data points such as utility payments and online sales history.

Corporates

Banks and fintech companies may see increased transaction volumes and expanded customer bases. They benefit from tapping into previously underserved markets.

Indirectly impacted stakeholders

People

Communities benefit from growing peripheral sectors like transportation and retail, which can benefit from credit themselves.

Gender inequality and/or marginalization

Rural operators and SMEs benefit from credit and can further expand activities.

Planet

The planet benefits from reduced paper usage due to electronic transactions, lower carbon emissions from fewer physical bank visits, and reduced energy consumption from smaller physical banking infrastructures.

Corporates

Companies providing the necessary infrastructure, software, and hardware benefit from increased demand for their products and services.

Public sector

The Angolan government could benefit from digital financial services that enhance the efficiency of public services like tax collection and disbursement of social benefits.

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

C—Contribute to Solutions

What

Increase financial inclusion and access to capital for SMEs.

Who

SMEs, women, marginalized groups, private sector, and public institutions.

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.

How Much

This approach could potentially increase the availability of credit to SMEs in the mid term, directly contributing to GDP growth and employment opportunities in Angola.

Impact Thesis

Democratize credit services for SMEs, harnessing non-traditional data to foster inclusive growth and reduce economic disparities for underserved communities.

Enabling Environment

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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

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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

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country static map
semi-urban

Malange

Malange is the province with the lowest financial inclusion rate in the country with 11.3% access (25).
rural

Bié

Bié is the second province with the lowest financial inclusion rate in the country with 12.2% access (25)
urban

Luanda

Over 92% of small businesses in Angola do not have access to finance, and 60% of all businesses are concentrated in Luanda.

References

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