Currently, the world is dealing with the adverse impact of the Russia-Ukraine war on markets; travel, leisure, hospitality, food and other connected sectors. Markets such as downstream oil and gas may experience short-term turbulence but will rebound quickly due to demand inelasticity. Others, such as pharmaceuticals, sanitary products and medical consumables, may experience a short-term surge but will revert to the mean in the post-corona era. The reason is simple – Seasonality.
Here is the good news: three new contiguous markets will certainly evolve in a post-Russia-Ukraine era with revenue curves that will swing upward on the back of a fundamental demographic shift. E-commerce, logistics and electronic payments will be the new normal in sub-Saharan African markets. Having grown exponentially due to increased access to mobile technology devices, e-commerce has made tremendous strides in the last decade, evolving alongside new payment platforms. This growth is spurred by a burgeoning middle class that increasingly shows a preference for faster and convenient services ranging from grocery purchases to consumer durables. In response, several e-commerce businesses have responded with different value propositions to meet market needs. Such supply-side actors vary in terms of business model and quality of offerings. Jumia, for instance, offer a full suite of services that integrates multiple payment platforms to go with logistical support functions for outbound activities. Other brands operate a simple marketplace model where buyers and sellers are matched for a fee. Transaction risks with such models are usually borne by the buy-side; typical caveat emptor. Other models include platforms, who essentially annexes surplus resources through contracts to satisfy underserved or untapped markets. Whether platforms, marketplaces or value aggregators, opportunities for supply chain financing are immense. Connected links such as logistics and warehousing present opportunities not just for working capital or asset finance but for fire-related Bancassurance. The fundamental social shift spurred by current geopolitical tensions would drive growth for the foreseeable future. Banks and other financial institutions need to position themselves with these strategies:
Empathise, design, test, deploy, and learn. The need for continuous adaptation cannot be overemphasised. Finance companies need to reorient their decision mechanisms to make them more experiment-friendly by building feedback loops that stream lessons learnt from credit portfolios back into the risk management processes. This will help refine product-market fit.
Re-evaluate key strategic assumptions. Medium to long-term strategic plans assume a stable and predictable business environment. The business-as-usual approach to strategy is insufficient to meet the challenge of the future.
Adopt a new risk management philosophy with respect to SME. Small and medium-sized Enterprises are risky, no question. But almost invariably, the risk comes from a few identifiable sources: weak corporate governance, commercial viability and poor financial management. Credit with Representation (CwR) is a risk management philosophy that allows a debt financier the luxury of behaving like a common equity investor. One way to operationalise this philosophy is to mandate the formation of an advisory board that controls the business through shared decision-making and reporting. As a consulting firm, Metis Decisions Limited has done some work in this area by helping finance companies strengthen their credit portfolios through Credit with Representation. We will be happy to work with you.
Recruit tech-savvy people on your credit team. A new worldview implies having “new eyes”, which also means a fresh perspective from a pool of technically competent workforce. Hire right. Hire fresh.