The ManicaPost
Kudzanai Gerede Business Correspondent
Monetary authorities are wary of the poor lending ratio to the small and medium enterprises sector by local banks which was derailing financial inclusion strategies while slowing down SMEs growth prospects.
This was said by the Reserve Bank of Zimbabwe deputy governor Dr Charity Dhliwayo at the recently held SMEs International Expo in Harare last week where she revealed that only 3.75 percent of total banking sector loans were issued to the SMEs during the past year.
She said such levels of financial discrimination to a sector which was contributing 60 percent to Gross Domestic Product and employing 5.7 million people thus according to the last FinScope SMEs Survey of 2012 has grave economic consequence in the long term.
Most SMEs are finding it hard to access finance to recapitalise their operations as they are perceived high risk customers by most banks.
This has led to most SMEs getting credit from unregistered money lenders who charge exorbitant interest rates of around 25 percent per month, a situation that was chocking SMEs out of business.
“Only 18 percent of SMEs are served by formal finance institutions, 43 percent don’t have access to financial services and 39 percent are served by informal/unregistered financial service providers. Loans to the SMEs sector constituted only 3.75 percent of total banking sector loans.
“Majority of micro, small and medium enterprises rely heavily on informal sources of finance such as family, friends of unregistered money lenders which is not ideal for sustained growth of SMEs,” said Dr Dhliwayo.
She said the SMEs sector has become the mainstay of the economy urging banks to craft flexible and innovative products that attract small businesses instead of treating them the same way as large firms while acknowledging that most SMEs did not have credible business portfolios that guaranteed their capacity to repay loans.
“The profile of SMEs is a big challenge for us bankers.
“Before we even talk of collateral and other things most of our engagements with SMEs are frustrated by either poor bankable projects or informality.
“We also have an allocation challenge due to scarcity of resources so we then prioritise our lending,” Bankers Association of Zimbabwe, policy advocacy and marketing executive Mr Clive Mpambela noted.
This was also reiterated by FBC Bank Ltd SMEs Banking Manager Mr Lazarus Nyarusanga who told Post Business on the sidelines of the SMEs International Expo that most banks had opened departments that deal with specific SME needs but factored out financial ignorance as limiting SMEs from capitalising on such initiatives.
“We have a special branch for the SMEs which have significant resources available to lend but what we realise is that most of them are ignorant of the flexible products we have at offer to them,” he stated.
He said this was however complicated by the fact that most SMEs failed to meet some of the collateral requirements banks traditionally demand for lending.
To this end the Central Bank and the Ministry of Finance had finalised the country’s first ever collateral register set to be operational in December that will accommodate movable assets as security for those who would need borrowing without the conventional collateral assets.
The credit registry is a publicly available database of all collateral items registered as security with any formally registered finance institution that will be crucial in detecting double registration of the same asset.
This will be used to protect lenders by facilitating a platform that proves credit worthiness of potential borrowers.
“The collateral registry will improve credibility of small businesses to access financial support from banks as it will provides information that will inform the bankers on who to lend and who not to lend,” said Mr Nyarusanga.
