Cash Advance through Mobile App Technology for Micro businesses
Tunde Raji - June 2, 2016

Innovation has come to the fore of microfinance business with the introduction of Cash Advance product through mobile app technology to Small and Medium Enterprise as a result of 80% decline rate in loan applications to micro entrepreneurs by commercial banks in South Africa.

 

According to Putman M. (2016) most of loan applications put up to commercial banks by micro entrepreneurs and SMEs are often declined due to volatility of risk inherent in loan portfolio as a result of inadequate or no collateral to secure the loan, hence micro businesses and SMEs seeks solace in microfinance institutions.

 

He stressed that research was carried out on their existing merchants to confirm the level of demand for Cash Advance product, the turnout was impressively massive. The modus operandi of Cash Advance through mobile app technology consists of a smartphone, mobile app, and internet connection.

Existing merchants who have downloaded and installed the mobile app on their Smartphone opens the mobile app, go through Cash Advance product offer, chooses repayment period, and accepts the mandatory fixed charge. Merchants’ accounts are credited within 24 hours after completion of the application process.

 

Pre-requisite to qualify for Cash Advance by existing merchants is merchants’ trading history with the financial provider in South Africa. Hence, the merchant trading history serve as collateral security and no additional paperwork documentation is required. In addition, existing merchants of the financial service provider must be actively involved in trading business for more than 90 days in order to generate credible trading history.

 

Putman M. (2016) emphasized that Cash Advance product is subject to automated deduction of a fixed percentage on each card transaction processed. There is also flexibility in the repayment terms in the sense that each merchant monthly repayment value is determined by the merchant’s business activity performance.

The philosophy behind this cash advance product is: the better the business performs, the quicker the pay off. If the volume of business activity is low, it will not have devastating effect on cashflow of merchants as he or she will not be compelled to a fixed monthly repayments.

 

Conclusively, the goal of this financial service provider is to meet the financial needs of struggling entrepreneurs who strives to access financial services for their business growth in South Africa. I enjoin other African countries to follow suit, most especially microfinance banks in Nigeria. If this cash advance credit facility is given to entrepreneurs in Nigeria, it will enhance the economic growth and reduce the rate of unemployment.

 

What is your own view?

Reference
Putman, M. (2016). “iKhokha mPOS offers Cash Advances to SMEs in SA”. Financial Technology, 21 June 2016

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18 thoughts on “Cash Advance through Mobile App Technology for Micro businesses”

  1. Significant impact on credit delivery through mobile technology can be achieved. However, due diligence through human efforts will still be needed. For instance verification of need and actual usage of funds. This channel of financial services delivery is were banking has been heading to. Microfinance institutions, with the help of other stakeholders can impact more lives faster than ever before.

  2. Elvis,
    Cash advance through mobile app technology is being run successfully in South Africa. The due diligence aspect you made mention of is conducted by ensuring the Cash Advance facility is granted to existing business that has operated active account with Microfinance institution for at least 90 days.
    Proper KYC would have been conducted and cashflow analysis of the existing clients would determine how much to be approved as Cash Advance.
    The convenience of getting loan approved and transferred to your account without living your shop or office through mobile technology is awesome.
    It is worthy to note that evaluation of credit history of existing client is one of the prerequisites to accessing this loan product.
    Regards

  3. Over the years, Microfinance bank in Nigeria is evolving and the impact of the technology to drive the sector is a new frontier in the sector. ATM debit cards, Mobile Apps, PoS repayment is growing gradually but the challenge remains low level of digital education among the larger number of the microfinance bank clients. Also, many mfbs are not reporting their transaction to credit bureaux which makes client credit history, that can aids success of such innovation, not to be available for people that need such data to make credit decisions. Nevertheless, the future of hassle free credit facility is nearer than projected with continuous steady growth in mfb operation driven by technology as seen in many mfb today.

  4. It is a good development, some MFB have started it though not as perfect as it is been done in other countries of the world because paper works are still involved but as we continue to embrace technology it will be improve on over time. The advantage of it is it allows more SME businesses to benefit from Microfinance bank

    1. Sunday, I quite agree with you but paperwork would have been perfected during the first 90 days.
      It is only existing customers who operates their accounts actively (in & out ) for at least 90days that are eligible for Cash Advance via mobile app.

  5. it is 100% ok, presently NPF MFB is using Credit Card for cash advance for her customers, the disadvantage is that you have to come to the bank ( except for customer that has one of the staff number) to request for 50% of your salary and 30% of your salary if you have loan.
    Advice: Customers should be enlightened that they should fill standing order form (Monthly Amount to be credited into their account) before cash advance could be credited into their Credit Card without coming to the bank. This is because a customer can be in a remote location where the bank does not have a branch or very far distance from the bank.
    This makes it flexible to render cash advance service through credit card.

    1. Adeniyi, I believe you are referring to Cash advance remittance to salaried earners in form of loan. Whereas in the above article, the Cash advance ioan product is specifically designed for entrepreneurs and SMEs who needs quick or cash to augment their business with convenient repayments plan with low charges.

      1. Mr. Tunde it is still the same the charges is still 4% per month on the amount you collected as cash advance .
        It can be giving to a non salary customer such SME and others but the need to have security ( collateral). try NPF MFB Credit service their services are ok in that area.

  6. Well, credit disbursement/cash advance remittance through various E channel platform including mobile app banking is presently growing in the MFB sector, but like Elvis spotted, so level of due diligence would still be needed even after the usual 90 days banking relationship and kyc, this is to ensure that the funds are actually used for the said purpose.

  7. Superb! The Cash Advance could be the best if most of this customer realized that microfinance bank meet their need at their stage than that of commercial bank but most of this customers run-away with banks money forgetting where the bank picked up their business. Through the mobile app, this need a strictly KYC n KYG. Wish you the best of the best

  8. If it’s over the phone thing, I think I’d rather call it “Elite Finance” and not Microfinancing, because I think, going so fast to that level is a bit of diversion from the conventions of microfinance banking, although, every crude market is bound to metamorphosise, regardless, such metamorphosis should follow the trend of development in the economy and not just above it to avoid a deviation from financial inclusion which is the foundation of microfinancing

    1. Agoro, the customers will have good credit ratings and credit history with the bank before Cash Advance loan application can be granted.
      It is an emergency or contingent loan facility for existing customers who quickly needs quick cash to augment existing business.
      Timing is important to business clients. It is working effectively in South Africa.

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