Q&A: The partnership approach to MSME scalability

Despite being integral to achieving the Sustainable Development Goals, micro-, small-, and medium-sized enterprises, or MSMEs, in emerging markets face numerous challenges in achieving scale and aren’t getting the support they need, said Chris Fendley, executive vice president at Mastercard. He believes that needs to change.

“MSMEs play a key role in the global economy. They represent over 90% of businesses, they employ over 70% of the workforce, and in some countries, they represent [almost] half the gross domestic product,” he said. “Despite all of that, a lot of them are underserved.”

They struggle to access lines of credit that could help them to expand and oftentimes operate without the support of technology, rendering them limited in terms of their reach and efficiency, he said.

To remedy this, Fendley believes a collective focus “on providing sustainable growth through appropriate inclusion initiatives” is needed. To address this, Mastercard has developed a micro-credit framework, which connects micro-enterprises to consumer goods companies and banks, to facilitate “access to short-term credit utilizing sales data.” It aims to provide equitable access to affordable, secure credit that allows businesses to access more products and services which increases their offering to the consumer, generating more income and growing their business. This is supplemented with free financial education so that MSMEs better understand how to manage credit lines responsibly.

“By developing a scalable micro-credit framework, Mastercard is contributing to an overhaul of the credit process for the MSMEs,” Fendley said. 

Speaking to Devex, he shared more about the barriers that have historically stood in the way of MSME progress, how Mastercard’s micro-credit framework will help overcome those, and the lessons learned through its initial pilot phase in Kenya.

This conversation has been edited for length and clarity.

What more can you share about the challenges MSMEs face in emerging markets?

The key challenges as we see for the micro-merchants, [are] around a couple of key areas. One is around access to affordable credit and ultimately liquidity so they can grow their business in a sensible and affordable manner, and in an educated manner.

Another key element that micro-merchants are facing is access to digital technologies and platforms to deliver services, get access to information, and ultimately make payments. We [saw] through the pandemic that merchants that had access to digital technologies and tools were able to ride the impact better than merchants who were not online or included in the digital economy. They're the key areas that we need to help address. And it's about working with partners to address them.

How might taking a partnership approach help to overcome these challenges?

The key is to understand that this is not a one-company solution. It's about working in partnership with different players in the ecosystem. At Mastercard, we're working with a combination of financial partners, consumer goods companies, and also with local and regional fintechs. It's about providing a framework in which we can all play a part and ultimately provide and address the issues we talked about before, where the micro-merchants get access to affordable credit through local entities.

Can you explain more about how Mastercard's micro-credit framework works and who it benefits?

We've developed a framework whereby we leverage sales data from micro-merchants with their existing suppliers. Then we work with local issuers or financial providers to provide a one or two-week trading credit for those merchants. That allows those merchants to buy more; they're not limited to the cash in the bank. Then what we provide the consumer goods companies [with] is the ability to get cash out of the system. Cash is not kind for growing the business when you have all the hassles of managing cash, so we're helping the consumer goods companies sell more products through their merchants.

We're working with fintechs to allow ease of access to data and digital services and then providing the consumer goods companies with different ways of growing their business and distributing more products.

On top of that, we wrap this with education for the merchants so they know how to grow the business in a sensible and controlled manner and support entrepreneurial abilities.

Where has this been implemented and what impact is this having?

We've got a live program running in Kenya where we've been running this for over four years. We've partnered with Unilever, KCB [Bank], and we have a local fintech that we're working with. We have over 20,000 merchants actively engaged in using the program and we've been able to demonstrate that the merchants who are part of the program are selling up to 20% more goods than they were before.

Mid-last year, we announced that we'd hit the one billion Kenyan shillings — around $8 million — target, and we're now very close to doubling that, which shows we've managed to build a framework that is generating month-on-month growth and real value for everyone,ultimately making a positive impact to the everyday lives of MSME’s and micro entrepreneurs by removing their historic barriers to secure credit.

Testament to that is we're now getting additional players like Kasha, which is providing hygiene products and is able to increase its distribution through additional merchants. We're also talking to a number of other consumer goods companies about being part of the initiative in Kenya.

The reason we talk about a framework is because this is not an off-the-shelf product solution, it's a partnership approach. So what we need to do now is take the framework, the learnings with other markets, find new partners, and ultimately roll out that solution and hopefully see the same positive results we've had in Kenya in other markets.

Why is this issue and work important to Mastercard?

Mastercard believes in doing well by doing good, and our approach to micro credit truly brings this to life. It's very much about delivering tangible programs on financial inclusion because we can see the benefits provided to communities and society as a whole. Specifically, in this instance, we're collaborating with people like the consumer goods companies and our financial partners, to bring a fresh approach to micro-credit to life for MSMEs. We're committed to ensuring that anything we do supports sustainable and inclusive growth. It must have long-term viability. Hence, we've been committed to this initiative for four years. We understand what it means to commit, invest, and learn in order to drive impact and see results. We want to take those learnings and then apply them to other markets.

It's proven that bringing people into the digital economy benefits those individuals, those micro-merchants, and the economy as a whole. The global pandemic made the contrasts of the digital divide even more stark, which is why we’re working to bring one billion people into the digital economy by 2025. Alongside this, we’re committed to help 50 million small and micro merchants, with a direct focus on providing 25 million women entrepreneurs with solutions that can help them grow their business.

What we are doing with our micro-credit framework directly supports this company-wide goal and we are excited about the ongoing impact this initiative will continue to make as we expand with new consumer goods partners and into new markets.