10 Oct Why do so many MSME’s fail in Colombia?
It’s not an exaggeration to say that Colombian economy is driven by micro, small and medium enterprises (MSMEs). According to Confecámaras (federation of business chambers in Colombia), by 2015 there were over 1.3 million companies in Colombia; out of those, 92.1% were micro; 5.9% were small; 1.5% were medium, and only 0.5% were considered big.
This percentage is so representative that it makes MSMEs the most important income, tax and workforce generators of the country. For this same reason, government and private institutions should be focusing on MSME’s survival. Currently, only 29 out of 100 companies in Colombia survive their first 5 years.
Why do MSMEs fail in Colombia?
The study by Confecámaras: “Birth and survival of companies in Colombia” reveals that companies’ survival varies according to their initial size. The smaller they are, the less chances they have of survival. Micro companies have a 29.1% chance of survival, whereas big companies report a 71.4% chance of survival.
One of the main recommendations the study provides is implementing new financing tools for smaller companies so they can “improve productivity to reach an optimum size that offers better chances of sustainability in the market”.
There should be financing tools specialized for microcompanies because, according to Confecámaras, these are the most vulnerable given they have “fewer employees and less qualified, facing limitations to access financial resources”.
Why is it so important that a MSME has low working capital?
It’s important because when the MSME has low working capital, it’ll need less money to keep its business running. This means that it’s better to need $100.000 to keep your company working than $400.000. By needing less money, you can increase the chances of survival within the first 5 years of operations.
If they can’t reduce the time of your receivables, Colombian MSMEs can sell your invoices on Mesfix.
Mesfix is a Colombian, online marketplace that connects MSMEs that need financing with a community of people interested in buying them. Investors participate in a dutch bid in which the winner is whoever offers the lowest APR in exchange of buying the receivable. This process is called crowd factoring.
It’s an alternative to traditional factoring as Mesfix isn’t the company buying the receivables, but a community of people. Furthermore, all transactions are done drectly from investors bank accounts to the MSMEs bank account through a payment gateway called PayU. This means that Mesfix never receives the money into its accounts, making the transaction transparent and with no moral hazard.
Mesfix’ crowdfactoring is ideal for MSMEs because:
- Doesn’t affect the MSMEs debt capacity.
- It can be done from anywhere in Colombia as the process is 100% online.
- Invoices to be sold can be of low amounts.
- The amount an MSME can sell is calculated based on the commercial relationship between the seller and the payor of the receivable.
- The amount an MSME can sell depends on each payor, and not a general amount.