How Sprout by Cowrywise is helping businesses unlock potential from idle funds

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Cowrywise, a fintech company founded on the belief that investing should be as simple as sending a tweet, has had its eyes on breaking down the barriers that keep businesses away from fully leveraging the opportunities in financial services.

The company was one of the first fintech companies to not only provide an automated savings platform that helped individuals and businesses save for the rainy days, but users can also invest those funds in assets that could generate interest. In 2021, Cowrywise secured a fund and portfolio management license from the Securities and Exchange Commission, which enables the company to pursue its ambition of onboarding 10 million retail investors to the formal investment management industry by 2025.

Sprout is one of the innovations Cowrywise plans to use to achieve that target. The digital-driven tool helps businesses invest their spare cash in professionally managed, SEC-regulated investment products that will ensure capital preservation.

“We noticed the difficulty businesses face when seeking investment options (Cowrywise inclusive). Options were scarce, available platforms were either limiting or difficult to manage. Sprout, as the name implies, was built simply to solve this problem and give businesses access to investment instruments to unlock an additional revenue stream for their businesses,” said Busola Jeje, Portfolio Manager, Cowrywise.

In 2021, The Nigerian Interbank Settlement System (NIBSS) reported that out of the 191.4 million bank accounts created, only 8.9 million accounts belonged to corporate organisations. The implication is that with over 40 million micro, small and medium scale (MSMEs) currently existing in the country, less than a quarter of them operate a corporate account.

Apart from underscoring the need to find creative ways to drive financial inclusion, it also means that there are millions of small businesses using the traditional ways of securing their money including thrift networks, burying the funds underground or inside a pillowcase, or vaults, etc.

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In essence, there may be billions of naira in funds owned by small businesses both ones with bank accounts and those without accounts, that are idling away, not generating a profit and therefore not sufficiently benefitting the Nigerian economy.

Jeje says there are reasons even formal businesses tend to hold cash. For example, a business can prefer to hold cash, treasury bills, certificates of deposit, short-term bonds, or other liquid assets to mitigate liquidity risks. The business can turn these assets into cash when necessary. This ability to access cash readily is why many businesses also prefer to deposit their cash in banks despite the low-interest rates and returns they get.

Some businesses with a bigger appetite for risks may choose to invest in low-risk instruments through traditional fund managers, with little or no autonomy or control over the nature of these investments in question or the risks associated with them. While holding too much cash gives other businesses easy liquidity at the expense of the opportunity to invest and earn returns since holding cash generates relatively low value.

“Other businesses that invest their funds with traditional fund managers do so at the expense of their autonomy, transparency regarding available market rates, and the capacity to invest on their own terms,” Jeje said.

As a digital-first approach to investing, Sprout enables businesses access to one dashboard, giving them the autonomy they need to identify, make, manage and monitor their investments without needing middlemen. With middlemen out of the way, businesses can save the cost of charges as well as invest in more profitable assets.

Through Sprout, businesses can identify aggregated investments from top asset managers in the country and have the freedom to ascertain the best rates that work for them. Sprout’s technology-driven approach makes it a better alternative to the antiquated, traditional treasury management process available today. The current treasury management process is manual, opaque, prone to arbitrage, and exposes businesses to liquidity and operational risks. The process also takes a tremendous amount of time to complete.

Sprout’s focus on security also means that businesses can invest in safe, liquid, better-yielding investment products like the money market funds and indexes, which are purposefully and carefully curated to help them avoid putting their funds at risk.

So far, there are six money market mutual funds from notable asset managers across Nigeria on Sprout. The mutual funds invest in a combination of high-yielding bank deposits, commercial papers from issuers, treasury bills, and other short-term, attractive, but safe instruments. This means the businesses are getting a slice of all the investment opportunities.

“We also have plans to offer tenured investments (both in domestic and foreign currency) that offer businesses the benefits of locking funds to meet future obligations at favourable, market-competitive rates, as well as manage the liquidity and maturity profile of their assets and liabilities,” Jeje said.

On Sprout, businesses can also get help in deciding the assets to invest in. Hence, there are returns hovering around the high single-digit to the low double-digit range for the different funds listed on the platform. Jeje explains that a business can judge the quality of yields by benchmarking them against what is obtainable with treasury bills and bank fixed deposits.

Businesses can bypass the bureaucratic treasury management process and simply execute on the Sprout platform. There is no need for letters, a human interface, and therefore no stress. For Liquidation, businesses have a window of 24-48 hours to receive their funds, which is industry standard. The one to two days window is to allow time for users moving large-sized monies to complete the investment process.

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