Leveraging tiered pricing models to enhance financial inclusion & profitability for MSMEs

Digital Financial Services (DFS) have become a crucial tool in driving financial inclusion, particularly for Micro, Small, and Medium Enterprises (MSMEs) in Africa. Despite their pivotal role in promoting economic growth, a significant chunk of MSMEs, estimated at 60%, continue to face challenges in accessing capital, largely due to inadequate financial data. To address these hurdles, DFS providers are leveraging tiered pricing models and advanced data analytics to enhance financial inclusion and profitability for MSMEs in Kenya and beyond. In a recent interview with CNBC Africa, Njeri Macharia, the Digital Financial Services Manager at Microsave Consulting, MSC, shed light on some innovative solutions and strategies being employed in the market to revolutionize the MSME financing landscape. Let's delve deeper into the key insights from the interview and explore how these developments are transforming the financial ecosystem for MSMEs in Kenya. Key Theme: Njeri Macharia discussed the critical role of tiered pricing models and data analytics in promoting financial inclusion and profitability for MSMEs in Kenya's evolving digital financial landscape. Key Points: 1. Tiered Pricing Models: Macharia highlighted the significance of tiered pricing models in striking a balance between financial inclusion and profitability for MSMEs. By offering basic services at low costs and charging fees for advanced features, DFS providers like M-Pesa in Kenya are catering to the diverse needs of MSMEs while ensuring scalability for their businesses. These innovative pricing strategies are enabling MSMEs to access essential financial services affordably, thereby fostering their growth and sustainability. 2. Data Analytics for Value Creation: Macharia emphasized the untapped potential of data analytics in empowering MSMEs to harness vital insights for business growth. By leveraging crucial data points such as historical financial data, transaction volumes, and values, DFS providers can tailor financial products and services to meet the specific needs of MSMEs. The utilization of data analytics not only enables MSMEs to identify growth opportunities but also facilitates the creation of new revenue streams through personalized offerings, as evidenced by success stories like Alibaba A&T's financial services. 3. Risk Management and Credit Scoring: Macharia delved into the challenges surrounding credit assessment for MSMEs and highlighted the role of innovative risk management frameworks in addressing these obstacles. With an estimated 60% of MSMEs in Africa facing credit constraints due to a lack of formal financial data, DFS providers are leveraging alternative data sources such as mobile phone usage and social media behavior to evaluate creditworthiness. By developing robust risk assessment models, players like Tala and Branch in Kenya are effectively extending digital credit facilities to MSMEs based on non-traditional metrics, thereby expanding financial access and inclusion. Quote: "Collaboration has to be the key. It will have to take governments, NGOs, financial institutions, anybody we can bring on board to carry on workshops, whether it is physically come up with apps and tools for both feature phones and smartphones to include in the MSC sector so that we are able to disseminate this information and pass the information." - Njeri Macharia, Digital Financial Services Manager at Microsave Consulting, MSC. As the interview with Njeri Macharia elucidates, the intersection of tiered pricing models, data analytics, and innovative risk management frameworks holds the key to unlocking enhanced financial inclusion and profitability for MSMEs in Kenya. By fostering collaboration among various stakeholders and embracing technological advancements like open APIs for interoperability, the DFS sector in Kenya is poised for further growth and impact regionally. While the country boasts high smartphone penetration and internet connectivity rates, there is still a need to focus on education and capacity-building initiatives to empower MSMEs to leverage digital financial services effectively. Through concerted efforts and strategic partnerships, Kenya's DFS landscape is paving the way for a more inclusive and sustainable financial ecosystem that is set to drive economic empowerment and growth across the continent.