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