June 8, 2022
June 8, 2022
This article by Nicola Villa, Executive Vice President, Strategic Growth at Mastercard outlines why supporting SME procurement is so important, and highlights some key takeaways from the Global SME Procurement Benchmark report!
The economic importance of public procurement – which represents about 13% of GDP according to the World Bank - makes it a powerful tool for improving public service delivery. The past decade has seen governments increasingly using their purchasing power to pursue strategic objectives in policy areas such as sustainability, innovation, and inclusion. A key group in this equation are small and medium-sized enterprises (SMEs), who often face barriers when trying to do business with government.
While significant progress has been made towards addressing these challenges, the COVID-19 pandemic saw a regression in many aspects, such as worsening payment delays when SMEs were most in need of cashflow.
Addressing these challenges involves first taking stock of the global landscape. This is why Mastercard has supported PUBLIC to develop a benchmark that assesses a representative sample of 18 countries’ procurement practices against six robust metrics, each representing key stages of the procurement process for SMEs – Awareness & Access; Onboarding; Cashflow Management; Payment Processing; Security; and Data. This was supplemented by direct insights from 20 global public procurement experts engaged through roundtables.
The resulting Global SME Procurement Benchmark report unveils some of the leading approaches to buying from SMEs around the world, as well as broad areas where there is room for improvement. More importantly, it outlines tangible steps that governments can take towards ensuring that the progress made is not only sustained but strengthened.
Onboarding: This was found to be the lowest performing area overall across benchmarked countries. Undue complexity with registering, finding, and bidding for opportunities can result in lower participation from SMEs. A well-designed e-procurement system that is integrated with existing platforms and databases can significantly improve this process.
An interesting example is Bela Pengadaan in Indonesia––a dedicated portal for procurement of low-value goods from SMEs. The platform also allows government agencies to buy from SMEs via e-commerce marketplaces like Gojek, Grab and Shopee, reducing friction between government and their supplier base.
Cashflow Management: SMEs can run into cashflow management problems at many stages of the procurement process. While most countries provide credit facilities, the cost to access them can be high. Pairing open datasets with innovative technologies can help reduce transaction costs associated with SME financing and help streamline the process for SMEs to access credit.
In India, SMEs can get a working capital loan on a debit card issued by the Micro Unit Development and Refinance Agency (MUDRA), a state-owned enterprise. MUDRA cards allow borrowers to stagger withdrawals and repayments of working capital loans, both helping to better manage loans and building up a credit history for the borrower. Loans on card can also help ensure that spend is limited to agreed categories of goods and services.
Payment Processing: Late payments continue to be a challenge for many SMEs. While most countries require invoices to be submitted electronically, fewer provide the centralized infrastructure needed to do so. Procurement cards were found to be particularly effective in helping governments manage low-value payments to SMEs. In addition, integrating e-procurement and public finance systems can help contracting authorities better assess budget availability and benefit from payment processing efficiencies, while SMEs can benefit from greater visibility and faster payments.
For example, Argentina’s procurement portal, COMPR.AR, is integrated with the country’s public financial management system. This has enabled it to offer a payment tracking module through which suppliers can view the statuses of purchase orders and invoices.
Making it easier for SMEs to access public procurement opportunities improves the general economic environment and supports principles such as equal treatment, open access and effective competition. Through its work with governments around the world, Mastercard has seen that this is essential to promote inclusive and sustainable growth.
We are pleased to support PUBLIC in developing the Global SME Procurement Benchmark. It is a valuable resource to understand the current state of public procurement for SMEs around the world, the wide range of policies, tools and systems that have been developed to help them, and how global best practices could be brought together to create an ideal future state blueprint.