Small and Medium Entreprises (SMEs) have been hit hard by various adverse events : the Covid-19 pandemic and the lockdowns, depreciation of the rupee, and rising inflationary pressures, amongst others. Ounishka Chuckowree, CEO of Strategic Insight Ltd, talks to Investor’s Mag about the main challenges facing entrepreneurs and the opportunities arising for them.
Featured in Investor’s Mag, 21th Edition, June 22 – Aug 22
Strategic Insight recently signed a partnership agreement with Modefinance for launching tech-driven credit scoring automation. Can you tell us more about that?
Modefinance International and Strategic Insight have signed a partnership agreement with the purpose of offering the Mauritian market a unique, flexible, and cloud-based platform to manage credit risk assessment and automate internal procedures.
The main solution will be based on Tigran Risk Platform, the mode finance patented Rating-as-a-Service, which integrates the entire functions and tools of a rating agency into a FinTech modular web/on-premises system, able to digitize and manage the entire process: counterparty credit risk assessment, exposure portfolio management, pricing models, with a specific focus on financial institutions, corporates, investment funds, Fintech companies, and insurance companies.
The solution is open for integration with database/software. It will include Strategic Insight functionalities related to credit risk underwriting processes, together with a business information database and a practical credit report elaboration.
What is your view of the economic situation in Mauritius?
The current economic situation in Mauritius is quite difficult, with both internal and external factors impacting on the outlook. These include:
- Lingering effects of 2 lockdowns
- Slowdown in consumption mainly due to declining purchasing power
- Slackened private investment
- Growing threats of stagflation
- Imported inflation coupled with cost-push inflationary tendencies due to depreciation of the Mauritian rupee, revised minimum salary, implementation of PRGF, salary compensation, hike in fuel and transport costs, amongst others
- Supply chain disruptions worldwide
- Timid recovery in international tourism
- Main export markets facing challenges
- Geopolitical tensions with the Russian-Ukraine war
As such, given the high number of downside risks weighing on this year’s outlook, our realistic projection for growth in Gross Value Added (GVA) for this year stands at 5.0%.
To what extent has the SME sector in Mauritius been impacted by the crisis?
Mauritian SMEs were among the first impacted by the crisis due to several reasons but very often linked to a cash flow problem given the fragile structure of their business. Unfortunately, many SMEs have ceased operations in 2020 and 2021, and this trend is likely to persist in 2022. Those who are still holding out have reduced their costs and often to the detriment of employment. A large majority of SMEs operate in the “Wholesale and retail trade” sector, which risks being further impacted this year by the slowdown in consumption, an increase in the “cost of sale” due to inflationary trends generated by the growing pressure on the rupee and the erosion of the purchasing power of Mauritians.
It should be noted that the majority of SMEs have very little working capital reserve, which varies between 1 to 3 months in the best case. This is explained by several reasons, in particular very limited facilities with banks (which apply a collateral model), long delays in recovering their trade receivables from customers (often between 90 to 180 days) and also the fact that many SMEs do not make the necessary differentiation of the business and the owner as 2 distinct entities (good management and good governance). In addition, SMEs often sell their products or provide their services to large companies. In the current environment, even large companies are facing financial problems. SMEs often find themselves at the bottom of the scale for payments, which directly affects their working capital and contributes greatly to crippling SMEs in their development. This situation is likely to be even worse this year.
Small businesses need financing to grow and create jobs. Is it still an uphill battle for SMEs to get financing?
Traditional financing still remains a challenge as banks still have that collateral-backed financing approach. However, we have seen the emergence of alternative financing, including factoring, supply chain finance, peer-to-peer lending, private equity funding, amongst others.
Factoring and supply chain finance are mostly transaction-based financing backed by credit insurance as the collateral. The government launched the Industrial Financial Corporation of Mauritius, which provides factoring and leasing solutions at low-interest rates to incentive SMEs and MMEs. This is a laudable initiative and has been welcomed by the business community. Furthermore, several schemes have been put in place by the DBM to assist and support SMEs. SME Equity Fund has also contributed to financing the growth of SMEs. The private sector, especially through NBFIs like CIM Financial Services, have also played their part in coming forward with an SME-centric strategy through factoring, supply chain finance, and working capital loans. Furthermore, the emergence of Fintech companies like Fundkiss (which is the pioneer in peer-to-peer lending), Olive Crowd, FinClub has also has also provided an alternative solution to SMEs as a source of finance.
With the pandemic and now the war in Ukraine, what are the main challenges faced by the SME sector?
The pandemic in 2020 and 2021 has already adversely impacted the resilience of countries, businesses, and SMEs worldwide. Its effects are still lingering in 2022 and are likely to still have a lagged effect in the future as well. Covid-19 changed the world to the extent that specialists refer to it as the new normal. In its aftermath and its global ramifications marked by volatility and increased costs, the war in Ukraine is just rubbing salt into the wound of a battered business community worldwide, with SMEs being the most fragile layer.
The main challenges faced by our domestic SMEs include:
- Rising cost of sales
- Hike in expenses
- Depreciation of the Mauritian rupee
- Supply chain disruption
- Escalation in freight
- Limited access to financing
- Skills mismatch in the workforce
What leads could the authorities explore to boost the SME sector?
Some of the main leads the authorities could explore to boost the SME sector:
- Have a long-term strategic plan with a proper roadmap for creating a proper environment fostering growth of SMEs – example: Vision 2050 involving various stakeholders including professionals, academics, public sector, private sector and regulators
- Consider tax holiday period for start-ups and SMEs in emerging sectors like green energy, Fintech, sustainability, smart agriculture & farming, tech-based manufacturing, and IT amongst other emerging sectors
- Making support schemes more easily accessible to act as an enabler for growth
- Additional reforms to encourage \ efficiency – decrease bureaucracy and red-tapism
- Boost access to export markets for SMEs
- Increasing awareness campaigns on the different forms of support and financing mechanisms made available to SMEs
- Improve further access to finance
- Having a proper training and development plan for SMEs
- Additional grants and subsidies, especially for those SMEs who wish to become more technology-oriented
- Leverage further on the public-private sector collaboration
“SMEs often find themselves at the bottom of the scale for payments, which directly affects their working capital and contributes greatly to crippling SMEs in their development…”Ounishka Chuckowree | CEO | Strategic Insight Ltd
What are the top startup trends to look out for in the next decade?
Covid19 has reshaped our world, and experts around the globe refer to the way forward as the “new normal,” whereby the fundamentals have evolved characterized by numerous challenges. Nonetheless, it has also brought about numerous opportunities. For our country, the stochastic shock has indeed jumpstarted and accelerated the concept of “Maurice: une nation d’entrepreneurs” with the increasing number of start-ups in various industries, including emerging sectors like:
- Bio-farming, smart agriculture and other agri-business – to bridge the gap of food dependence on imports
- Financial services including FinTech, InsurTech, RiskTech and RegTech
- Digital solutions including Artificial Intelligence, Blockchain and Robotics
- Renewable and green energy
- Aquaculture/ocean economy
- Tech-based manufacturing
Many industry experts and even financial institutions believe that the growth will come from these emerging start-ups and SMEs that have quickly adapted and reimagined themselves over the next five years.