FINANCING AFRICAN SMEs: OPPORTUNITIES AND CHALLENGES : BANKERS PERSPECTIVES

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FINANCING AFRICAN SMEs OPPORTUNITIES AND
CHALLENGES BANKERS PERSPECTIVES

• Presented by
• ALBERT ESSIENEXECUTIVE DIRECTOR ECOBANK
  TRANSNATIONAL INCORPORATED

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Outline

• SMEs A Vital Link
• SME Challenges
• Bankers Perspective
• SME Inherent Constraints
• SME Financing Opportunities
• Support role
• Business Opportunities
• The Ecobank Model

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SMEs A Vital Link

• SMEs are central to the growth of our economies.
  They are considered to be principal driving force
  in economic development for several reasons.
  They
• Stimulate private ownership and entrepreneurial
  skills
• Are flexible and quickly adapt to changing market
  conditions
• Contribute significantly to employment generation
  in view of their labour intensive nature
• Facilitate domestic sourcing of raw materials for
  large MNCs
• Stimulate cross-border trade

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SMEs A Vital Link

• Despite the pivotal role they play in our
  economies there is a wide acceptance that they do
  not receive the required attention from banks
• In general, banks are accused of and often
  chastised for refusing to provide credit to
  SMEs because they are perceived as risky and
  unprofitable
• In reality, there is no shortage of finance as
  such for SMEs the problem is more of the risk
  aversion of banks and financial institutions

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SME FINANCING BANKERS CHALLENGES

• Banks admittedly have real challenges in
  financing SMEs
• Some of these are
• Insufficient understanding of SME market
• Inadequate competence in handling SME financing
  needs
• Need for customised solutions that take account
  of local knowledge and practices
• Need for extensive monitoring to avoid diversion
  of funds
• Lack of industry information

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SME FINANCING SME INHERENT DIFFICULTIES

• The structure and set up of SMEs also pose
  financing challenges to banks
• Lack of adequate structure and transparency
• Lack of proper business planning
• Improper record keeping and reliability of
  financial statements
• Inadequate capital
• Lack of collateral
• Difficulty in accessing markets for finished goods

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SME FINANCING - CHALLENGES

• Lending to SMEs thus requires greater due
  diligence
• Banks generally view this as a high-risk
  activity, especially given the likelihood of
  business failures in this segment
• Banks inevitably charge a higher premium
• Such lending is also likely to be short/medium
  term

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SME FINANCING - OPPORTUNITIES

• These challenges notwithstanding banks need to
  develop an entrepreneurial attitude that focuses
  on nurturing this client segment
• Most banks have made the switch and are
  increasingly becoming SME-friendly
• They are tailoring products and services to meet
  the needs of SMEs

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SME FINANCING OPPORTUNITIES FOR SUPPORT

• Banks can nurture SMEs through various schemes
  such as
• Offering non-financial business support
• Tutoring and mentoring packages
• Providing Customised Solutions
• Risk-Sharing partnerships with development
  agencies e.g. USAID

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SME FINANCING BUSINESS OPPORTUNITIES

• Banks also stand to benefit directly by focusing
  on the SME sector. Some of these benefits
  include
• Diversification of loan portfolio
• Locking in into the entire value-chain of large
  corporates
• Grooming pool of future large corporates
• Carving out a niche for SME banking and
  specializing in providing financial advisory
  services to clients
• Building staff capacity in SME finance

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SME FINANCING ECOBANK MODEL

• We at Ecobank recognize the critical role that
  SMEs play in developing economies
• We are convinced of the need to improve SME
  access to finance
• As a Group we have undertaken various initiatives
  to improve SME access to finance in countries
  where we operate
• Some of these initiatives include

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SME FINANCING ECOBANK MODEL

• Change in strategic focus from wholesale to
  retail banking
• Forging strategic alliances IFC, ACCION
• Development of regional trade improvement in
  market access
• Dedicated SME help desks
• Organising SME business support forums
• Innovative financing schemes

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SME FINANCING ECOBANK MODEL

• Various customized products with a local
  flavour have been designed to speed up credit
  delivery such as
• Pre-approved credit packages - Product programs
  e.g.
• - Lease financing
• - Inventory financing
• - Distributorship financing
• - Receivables financing
• - Contract financing
• Guarantees from government and other donor
  agencies in supporting SME credits
• Electronic products Card products, internet
  banking, e-alert, e-Collect

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CONCLUSION

• SMEs can be described as the engines of growth in
  our economies
• As bankers, instead of immediately saying NO to
  SME requests for financing we should as the
  questions
• Why not
• How can we?
• We at Ecobank acknowledge the importance of SMEs
  and are committed to working together with them
  and other partners to groom and strengthen them.

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• THANK YOU