The role of financial literacy in nurturing sustainable SMEs

The role of financial literacy in nurturing sustainable Small and Medium Enterprises (SMEs) in Africa has been a topic of growing importance. Nikhil Patel, Chief Growth Officer at Watu, a leading asset fintech company, recently joined CNBC Africa to discuss the impact of financial literacy on SMEs and the innovative models driving economic growth and job creation across the continent. According to Patel, financial literacy plays a critical role in laying the foundation for sustainable growth. He highlighted that financially literate individuals and SMEs are better equipped to make informed decisions about savings, investing, budgeting, and borrowing, leading to improved financial well-being and reduced stress. Moreover, financial literacy empowers businesses to understand financial models, assess risks, and manage resources effectively, fostering entrepreneurship and sustainable business practices. One of the key aspects discussed was the impact of financial literacy on reducing risks for potential investors in Africa. Patel emphasized the need to educate businesses on financial literacy to address the perception of Africa as a risky market. By empowering SMEs with financial knowledge, businesses can become more appealing to investors, thus driving economic growth and job creation. Innovative financing models such as pay-as-you-go and lease-to-own were also highlighted as tools to provide access to financing for SMEs that lack traditional funding options. Patel noted that companies like Watu focus on customer-centric approaches, working closely with customers earning low daily incomes to ensure flexibility in repayment and financial management. The conversation delved into the impact of these financing models on borrower behavior and enterprise growth. Patel explained that by providing responsible financial guidance and flexible repayment options, borrowers are motivated to meet their commitments, leading to better growth outcomes for enterprises. Watu's success is directly linked to the success of its customers, emphasizing the importance of a customer-centric approach in driving sustainable business practices. Comparing traditional financing mechanisms to innovative models, Patel highlighted the importance of accessibility and speed in the lending process. Unlike traditional banks that may take weeks to approve loans, Watu offers a frictionless process, enabling customers to access income-generating tools within hours. The collateral for loans is based on assets such as two-wheeler vehicles, smartphones, and other essentials, catering to the specific needs of borrowers. The discussion also touched upon the role of the private sector in promoting financial literacy and inclusion in Africa. Patel stressed the need for private companies to educate customers on financial discipline, promote savings culture, and collaborate with governments to create sustainable policies and regulatory frameworks. By partnering with governments, the private sector can drive financial inclusivity and long-term economic growth. However, expanding innovative financing models in Africa faces challenges, primarily in gaining regulatory approval and understanding from government bodies. Patel highlighted the importance of continuous communication and education with central banks and regulatory authorities to demonstrate the value and impact of these new business models on economic development and digital inclusion. In conclusion, the role of financial literacy in nurturing sustainable SMEs in Africa cannot be understated. With a focus on financial education, innovative financing models, and strategic partnerships, businesses like Watu are paving the way for inclusive economic growth and job creation across the continent.