- Consumers and MSMEs can access financial services through non-traditional financial platforms, which is called embedded finance.
- The adoption of embedded finance business models has been strong across all B2B and B2C sectors in African nations.
- Enterprises in the pharma business have also embraced embedded financing.
Non-traditional financial platforms are offering financial services to consumers or businesses. Have you ever wondered what the technical term for such a solution is? It’s called “embedded finance.” In simpler terms, embedded finance happens when a company that is not a bank or financial institution offers financial products from loans and micro loans to insurance and payment solutions.
In Africa, MSMEs constitute 90% of all businesses. They are, therefore, a crucial component of the economy, yet these structures struggle to receive credit from financial companies. The majority of those who encounter this challenge lack formal financial history and registered bank accounts. Essentially, it prompts them to turn to informal financial systems like the use of friends, microcredit companies, family, and money lenders.
The introduction of innovative, tech-oriented embedded financial business models to resolve this problem has been well embraced across all sectors, B2B and B2C, in African countries. For instance, in Kenya, Twiga Foods, a company that mainly deals with the supply of wholesome fruits and vegetables, has incorporated this system. It has developed a blockchain-based financial organization through IBM to aid retailers in accessing microloans. The loan acquisition process is transparent to the parties involved. Retailers benefit from receiving low interest rates from them. In addition, the operation is conducted smoothly for those with limited literacy in IT.
Nigeria’s Omnibiz Connect was created to connect retailers to manufacturers. Because of the pandemic, this company digitized its supply chain. In addition, Omnibiz partnered with OnePipe to eradicate cash payments. They leveraged embedded finance by offering a Buy Now Pay Later (BNPL) service, which currently enables qualified retailers to extend their businesses.
Enterprises in the pharma industry have also embraced embedded finance. In Ghana, mPharma is a health tech startup that specializes in the management of drug inventory for pharmaceutical suppliers and drug stores as well as financing. mPharma utilizes a program called QualityRx that provides affordable financial aid for smaller drug stores that caters to customer management, refurbishment, technology costs, and inventory. The company’s other programs are being used by pharmacies all over Africa.
Additionally, DrugStoc from Nigeria, an e-medical product distribution startup that links registered healthcare providers to over 400 manufacturers, has partnered with financial companies to expand access to feasible supply chain funding for these healthcare providers. This enables them to solely focus on delivering coherent healthcare.
This clearly shows that embedded finance remains the next big thing for Africa. The impact so far has been nothing short of innovative and catalytic for the parties involved. It relieves banks and fintechs by transferring the power to businesses to regulate their own financial journey.
Main photo Credit: Arne Hoel - "woman in small shop in Ghana" Copyright: © 2006 Arne Hoel/The World Bank
