Credit Reference Bureaux (CRBs) are a prerequisite for the proper functioning of modern credit markets. Portcullis (Private) Limited, trading as Financial Clearing Bureau (FCB) has for over 25 years been on the forefront of building critical infrastructure for credit protection services in Zimbabwe.
FINANCIAL SECTOR SPOTLIGHT WITH OMEN MUZA
At a time when non-performing loans (NPLs) are above 15% and could top 25% by year end, Alan Goodrich (AG), FCB general manager talks to Newsday (ND)’s columnist Omen Muza about the SMEs Rating Programme, a business line the company recently launched partly to counter the problem of rising NPLs and mainly to improve SMEs’ access to credit. Below are excerpts of the interview.
ND: Judging by your positioning in this market, the SME demographic appears to be quite important to you. What’s the big idea behind SMEs, from a credit rating perspective?
AG: SMEs are the lifeblood of any economy, particularly a developing one such as we have in Zimbabwe. The 2012 FinScope SME survey revealed that the SME sector includes around 2,8 million owners who provide employment to over 2,9 million people and contributes around 60% to gross domestic product (GDP).
And yet, in almost the same breath, we’re told that loans and advances to SMEs constituted only 6,02% of the total banking sector loans as at February 2014.
The “big idea” is to address this asymmetry so that micro-SMEs can enjoy greater access to finance and so grow into bigger SMEs with a higher contribution economic growth, thereby simultaneously redressing the country’s liquidity challenges.
ND: Can you break down the concept of “financial identity” and outline how it gives one “visibility”?
AG: The term “financial identity” was coined to describe the process of creating a score or rating for an individual or SME, that is adapted to and promotes the process of financial inclusion. A financial identity arises from the process of using available data from various sources to establish the capacity of an individual or SME to make payments when due and the probability of missing a payment or defaulting.
ND: What else does financial identity open doors to apart from financial visibility? In other words, what sort of value-added services can SMEs expect to access by becoming members of the FCB?
AG: First, it is important to stress that the SME Rating is not a one-off event; it is just the first step of a programme hence the applicable fee is an annual fee.
The initial SME Rating is a process that will highlight areas where an SME can improve on in order to achieve a better rating in the future leading to greater access to finance.
FCB is also establishing a number of partner credit providers that will accept the FCB SME Rating report as an integral part of their decision-making process such that SMEs who are enrolled in the Rating Programme will potentially enjoy faster turnaround times, reduced collateral requirements and eventually even lower interest rates.
ND: Given your experience of working with SMEs, which key issues tend to stand in the way of a successful rating experience?
AG: Initial ratings of SMEs often highlight management of the company as unstructured and too informal with poor discipline.
This tends to manifest itself in lack of proper operating procedures and record keeping, the end result of which is that useful guides such as stock and sales records that would assist in producing financial statements are either not available or incomplete.
ND: Given the impediments you highlight, what sort of things would you advise SMEs to do in order smoothen the way towards attaining a rating.
AG: Any SME can always obtain a rating, but to attain a better rating the owner-managers need to introduce some relatively simple procedures and disciplines so that record keeping is improved. Some of our partner organisations can assist owner-managers to implement the necessary systems on a shared basis, thereby significantly reducing the costs and barriers to usage.
ND: While we are at that, please outline some of the important partnerships you have established and are nurturing in an effort to serve this (SME) demographic better.
AG: In order to enable the SME sector to fulfill its potential and therefore help the nation as a whole within the context of ZimAsset [Zimbabwe Agenda for Sustainable Socio-Economic Transformation], we are working with the likes of (in no particular order and not limited to) the SME Association of Zimbabwe (SMEAZ), the Ministry of SMEs and Co-operatives Development, the Ministry of Youth, Indigenisation and Economic Empowerment, the Ministry of Mines and Mining Development, the Zimbabwe Institute of Management, the Zimbabwe Farmers Union, as well as a number of NGOs.
ND: What are your rating fees like?
AG: As mentioned earlier, the fee is actually an annual membership fee, not a one-off service fee; and it ranges from as little as $50 per annum for micro-SMEs to $250 per annum for larger, more established SMEs.
ND: From which economic sectors do you tend to get the most interest for your rating services?
AG: The two largest economic sectors we would like to address as a priority are the smallholder-farmer agriculture value chain and the small-scale miner value chain; both of which we believe they have the potential to create the significant economic impact. In demographic terms, a common theme is certainly to empower the youths.
ND: Do SMEs first need belong to associations or they can approach you as individual companies?
AG: SMEs are welcome to approach us as individual entities.
ND: How do SMEs open a line of communication with you?
AG: They may do so either via email or by phone/WhatsApp to myself, Alan Goodrich at firstname.lastname@example.org and +263 779 043 180 or Afreda Ushe, our Principal SME Rating Analyst, at email@example.com and +263 772 704 048.
NB: If you want to read the full interview, send a request via -mail to firstname.lastname@example.org