Recent African experience in SME Financing A case of CRDB Bank LTD Tanzania

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• Recent African experience in SME Financing A
  case of CRDB Bank LTD (Tanzania)
  
• Presented by Elibariki Masuke

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Presentation Outline

• Country Profile
• CRDB Bank Ownership
• CRDB Bank Mission and Vision
• CRDB Banks performance
• Why SME Lending
• Definition of SMEs at CRDB Bank
• Challenges faced by SMEs in Tanzania
• Initiatives taken by CRDB Bank to support SMEs
• Current status of SMEs at CRDB Bank
• Evaluation of Banks Initiatives
• Policy Environment
• Lessons learned

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1.0 Country Profile- Tanzania

• Tanzania is located in East Africa and the
• countries boundaries are as follows
• North Kenya and Uganda
• (Mount Kilimanjaro, Lake Victoria, Serengeti
• Natinal Park and
  Ngorongoro crater)
  
• West Rwanda, Burundi and Democratic Republic of
  
  
• Congo (Lake Tanganyika)
• South Zambia, Malawi and Mozambique
• Selous game reserve
• East Indian Ocean ( Zanzibar Island- Stone Town)

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1.0 Country Profile

• Total population by year 2006 was 37.5mn
  (Tanzania mainland)
  
• GDP per capita by end of 2006 was TZS 399,554
• Average Deposit rate (12months) in 2006 was 8.3
• Average Medium and long-term lending rate in 2006
  was 15.6
  
• Inflation rate by April 2007 was 6.1
• Source BOT (Bank Of Tanzania) and Ministry of
  Planning, Economic and Empowerment

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2.0 CRDB Bank Ownership

• CRDB BANK LIMITED is a private commercial bank
  which was established in July 1996.
  
• The bank is owned by over 11,000 shareholders and
  the major groups are private individuals with 37
  ownership, cooperatives with 14, and companies
  with 10.2, DANIDA with 30 and Parastatals 8.8.
  
• CRDB Bank has wide network coverage with 39
  branches all over Tanzania Mainland.
  

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3.0 Mission and Vision of CRDB Bank

• The bank aspires to be a local leading profitable
  bank, which is customer need driven, with high
  quality products and services, offering
  competitive returns to shareholders.
• The bank has a mission of being a leading local
  bank, providing quality financial services with a
  strong focus on retail clients and customized
  corporate services, while ensuring competitive
  returns to shareholders.

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4.0 CRDB Banks performance

• Overview of Banks performance by end of 1st
  quarter of 2007 was as follows
  
• Total deposits were TZ S 843billion
• Total assets were TZS 941 billion
• Total loans and advances were TZS 390 billion
• Total Profit before tax was TZS 12.5billion

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5.0 Why SME Lending at CRDB
Most commercial banks in Tanzania Including CRDB
Bank cannot escape doing and expanding business
with the SME segment, due to severe competition
for the small corporate market.
Due to this dilemma CRDB Bank has been forced to
modify the traditional banking philosophy and
practice and search for methodologies of
addressing the problems inherent in financing of
small and medium enterprises in Tanzania.
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6.0 Definition of SMEs at CRDB Bank

• SMEs have been given many definition Worldwide
  but CRDB Bank defines SMEs are those with
  
• Staff between 1 and 100 amongst them are
  relatives of the entrepreneur
  
• Capital of TZS 5 million to TZS 800 million
• Annual sales turnover of TZS 20 million to
  TZS 500 million
  
• Business loan requirement of TZS 1 million to
  100

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7.0 Challenges faced by SMEs in Tanzania

• CRDB bank conducted a survey to find out what
  problems were hindering SMEs from accessing
  finance from the Bank and the following were the
  major outcomes
• SME segment perceived as a high risk and costly
  to finance. Reasons for high costs in screening
  of credit are
  
• High cost of screening and administering small
  loans spread over big areas. Absence of Credit
  Rating Agencies (CRAs CRAs tend to reduce the
  unit costs of credit screening by exploiting
  economies of scale.)
• Inadequate Auditing and Accounting Framework
• -SMEs are not transparent in their accounting
  records and financial statements
  
• -auditing firms have failed to disclose to the
  public the true and fair financial assessments.

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7.0 Challenges faced by SMEs in Tanzania

• Inability of SMEs to fulfil collateral
  requirements. Properties with titles are
  limited to urban areas. Most rural location do
  not have titles, and it is very expensive to
  do land survey.
• Some banks operates in limited geographical
  areas
  
• Lack of adequate guarantee schemes to back up
  financing SMEs
  
• Inabilities of borrowers to prepare and
  present applications/ Business plan that meet
  bank requirements
  
• Poor knowledge on business operations

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8.0 Initiatives of CRDB Bank to support SMEs

• 3.1 To design customised products for SMEs
• The bank had developed two credit products for
  SMEs which are working capital loan and
  Investment loan
  
• Amount ranges from 1mn- 100mn
• Interest rates are charged on outstanding
  balance
  
• Repayment style is by instalments
• In working capital loan the minimum repayment
  period is 3months and maximum 12months
  
• In Investment loan , minimum repayment period is
  12months and maximum is 60months

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8.0 Initiatives of CRDB Bank to support SMEs

• Capacity building for CRDB staff and SME
  customers
  
• Capacity building for CRDB staff
• a) The bank had to recruit new staff who
  specifically
  
• deals with SMEs at branch level and head
  office level
  
• b) All recruited staff had to undergo an
  intensive training (class and field
  training)
  
• Account Managers have been trained to develop
  
  
• financial statements from the SME primary
  data.
  
• This has enabled the CRDB bank to relax the
  requirement of audited financial account when
  SME
  
• want to borrow between TZS 1,000,000 to
  TZS20,000,000

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8.0 Initiatives of CRDB Bank to support SMEs

• Capacity building for SMEs
• The bank is currently offering free business
  and loan management training to SMEs.
  
• All training materials are in Swahili language
• The training is comprised of modules such as
  legal policy context of SME, securing
  business for prosperity, record
  keeping, marketing, human resource
  management, costing , buying, stock taking
  and business planning.
• At the end of each training the trainees are
  issued with a book branded SME Toolkit for
  further reference

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8.0 Initiatives of CRDB Bank to support SMEs
Increase the range of collaterals accepted by the
bank Before implementation of SMEs concept, the b
ank used to require only traditional collateral.
Under SME scheme the bank has widened the range
of acceptable collaterals to include non
traditional collaterals such as Residential
Licence (Leseni za Makazi), properties with offer
letters, used motor vehicles and machines etc.
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8.0 Initiatives of CRDB Bank to support SMEs

• Introduction of Customer relationship concept at
  Branch level
  
• The relationship concept has been extended to
  branch level
  
• The new post of SME Account Manager has
• been introduced at branch level
• Account Managers are key responsible staff for
  any relationship between the Bank and SMEs
  
• All of the above initiatives, enabled the bank
  to create a strong relationship with its SMEs
  and the end result is justified by the
  current status of SME segment at the bank.

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9.0 Current Status of SMEs at CRDB Bank
The SME concept was implemented as a project in
year 2005 . The project has been a success with
tremendous growth in terms of portfolio and
number of customers. The status of the project b
y May 2007 was as follows
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10.0 Evaluation of Banks Initiatives

• Evaluation is done on individual customer to
  measure the impact on
  
• Training
• Loan extended
• The outcome shows that customers have
• Improved on business management
• Improved in loan management
• Increased their savings and banking culture
• Business growth hence increase their wealth
• Improvement on collateral (now formal)
• The above resulted in clean loan portfolio for
  the Bank
  

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11.0 Policy Environment

• The Government is playing a remarkable role in
  the market by making continuous reform on the
  following major area that leads to conducive
  market environment
• Developed SME policy which gives a definition
  of Tanzanian SMEs e.t.c.
  
• Reform on business licensing and registration by
  formulating BRELA which works faster than
  the old
  
• system
• Encouraging formalization of business and
  collateral through Mkurabita by making business
  formalization process and procedures easy
  
• Also recognition of squatters by issuing
  Residential Licence
  

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12.0. Lessons learned

• Lessons leaned from experience gained
• SME Segment is profitable, bankable loyal to
  banks supported them and SME customers are
  trainable to be good customers.
  
• SME customers have collaterals but not
  traditional
  
• SMEs segment requires relationship management
  concept

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12.0. Lessons learned

• Advice to financial Institutions
• This segment is profitable but investment to
  train staff and customers is of supreme
  importance to uphold the profitability
  
• Advice to Policy Makers
• 1) Communicate clearly to targeted audience
  prior and after reforms
  
• 2) Speed up roll out of projects such as Leseni
  za Makazi (Formalization of non traditional
  security)
  
• 3) Improve legal and regulatory framework that
  create conducive climate for SME lending

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12.0. Lessons learned

• Advice to Development Partner

Guarantee Funds
Capacity Building to Staff
Training of Customers
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THANK YOU FOR LISTENING
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