Title: Recent African experience in SME Financing A case of CRDB Bank LTD Tanzania
1- Recent African experience in SME Financing A
case of CRDB Bank LTD (Tanzania)
- Presented by Elibariki Masuke
2Presentation 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
31.0 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)
41.0 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
5 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.
63.0 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.
74.0 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
85.0 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.
96.0 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
107.0 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.
117.0 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
128.0 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
138.0 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
148.0 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
15 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.
16 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.
17 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
18 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
19 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
2012.0. 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
2112.0. 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
2212.0. Lessons learned
- Advice to Development Partner
-
Guarantee Funds
Capacity Building to Staff
Training of Customers
23THANK YOU FOR LISTENING
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