In his monetary policy statement of January 13 2013, Reserve Bank of Zimbabwe (RBZ) governor Gideon Gono acknowledged the increasingly influential role of small to medium enterprises (SMEs) in economic growth, employment creation and as a nursery for the larger firms of tomorrow.
Financial Sector Spotlight with Omen Muza
The take-off of the SME sector, he added, required banking institutions to re-orient their portfolios such that loans to the sector should constitute at least 30% of the total loan book.
Effectively, it became a regulatory requirement for the banking sector to increase lending to SMES, but the state of the economy, in which over 90% of Zimbabweans now make a living in the informal sector (which has become the seedbed of SMEs) means that increasing exposure to SMEs has also become a strategic imperative.
While the jury is still out on the actual amount of money that is circulating outside the formal banking system, the fact that something (the RBZ governor recently put it at about $2 billion) is widely acknowledged to be available out there for the taking should be sufficient motive for banks to prioritise the development of appropriate products targeted at the SME sector.
Additionally, considering that the minimum threshold for listing on the proposed SME Exchange is likely to be around $1 million, banks will need to plug the funding gap faced by SMEs prior to listing.
In this way, banks can play a truly developmental role while complementing other sources of financing for SMEs such as microfinance institutions (MFIs), State entities such as SEDCO and various forms of private equity financing.
This instalment outlines some of the initiatives through which the banking sector is seeking higher exposure to the SME sector. While most banks have SME banking departments through which they push generic products to fulfil this need, some have specific financing initiatives which are clearly and publicly articulated as standalone products. It is these I focus on in this article.
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AfrAsia Kingdom Bank mainly serves the interests of SMEs through its sister company MicroKing, which, apart from providing microfinance loans, also provides information on how SMEs can run their businesses. In late 2012, the bank partnered with PTA Bank to establish a facility for $8 million specifically for SMEs, with MicroKing as the disbursing agent.
At CABS, an SME package was introduced in the last quarter of 2011, offering affordable loans bundled with employee benefits.
The package includes loans ranging from $5 000 to $50 000, payable within 36 months and available to companies with a minimum of five employees.
The employee benefits under this package are underwritten by Old Mutual, CABS’ major shareholder. CABS managing director Kevin Terry said the bank was offering loans to the sector because it appreciated that today’s SMEs could be tomorrow’s corporates.
“The SME sector is the cradle of enterprise and innovation. It is extremely vibrant and needs to be supported to allow it to continue making meaningful contribution to the creation of wealth in this country,” said Terry.
Presenting the group’s full-year results to December 2012, group chief executive officer John Mangudya said CBZ Holdings would focus on SMEs in 2013, aiming to grow its funding for the sector from the current 5% to 15% by end of 2013.
An example of the bank’s interventions in support of the SME sector is the CashPlus Business Savings Account which offers businesses in the informal sector the opportunity to save 40% or more towards working capital or capital expenditure needs, with CBZ providing 60% in the form of a business loan of at least $5 000 for a period ranging from 12 to 36 months.
FBC Bank has an SMES division which offers business loans, order finance, guarantees and overdraft products mainly from two SME centres in Harare and Bulawayo. At group level, FBC Bank has a sister company called Microplan Financial Services which offers microfinance products.
The Norwegian Investment Fund for Developing Countries (Norfund) recently issued a seven-year loan of $1,4 million to NMB Bank Limited for on-lending to SMEs. “SMEs are frequently too large to qualify for microfinance, and microfinance loan sizes are too small to meet SME capital needs.
“At the same time, SMEs are often considered by commercial banks and financial institutions to be risky and costly to serve.
“Norfund’s mandate is to seek to close this gap on the market and their investment in NMB Bank is an important part of this strategy,” said Ingebjorg Stofring, the Norwegian ambassador to Zimbabwe.
Lately Stanbic Bank has been advertising the Biz-Grow Account, an SME Account which comes with a business debit card, lower banking charges, and is meant to help SMEs manage their cash flows.
In April, ZB Bank launched the Informal Trader Account, touting it as “a secure and convenient account with no bank charges.”
Benefits of the account include no charges for cash withdrawals, no monthly account maintenance fee, secure savings, and access to over 50 ZB Bank branches across the country.
For its efforts, in April 2013, ZB Bank was, alongside CBZ Bank Limited, honoured at the Corporate Social Responsibility Awards for outstanding support to SMEs.
Going forward, as competitive pressures mount against the background of a deficit of confidence in the banking sector, the challenge for banks is not only to craft credible product offerings that ensure sustainable engagement with the SME sector, but also to sell them effectively to the target market, while sharpening the existing product offering for wider appeal.
Feedback: [email protected]. Omen N Muza writes in his personal capacity. You can view his LinkedIn profile at zw.linkedin.com/pub/omen-n-muza/30/641/3b8
