Banks: Open doors for SME to flourish

Many countries on the continent are grappling with chronic unemployment and soft economic growth rates that impede job creation by large corporates. However, statistics show that SMEs represent a significant part of the economy as they constitute about 90 per cent of private business, contribute more than 50 per cent of country employment rates, and make up as much as 4 per cent of Gross Domestic Product in most African countries.

Therefore, SMEs play a crucial role in stimulating growth, generating employment and contributing to poverty-alleviation and social development.

Starting and running an SME is always a daunting challenge, especially for those with no access to funding or without the business skills needed to successfully run an SME.

Not only is access to financial support important for SMEs, so also is market access, since more often than not, many entrepreneurs struggle to establish, let alone grow, their market presence.

We have adopted a three-pronged approach to supporting SMEs in the countries in Africa that we operate in: providing access to finance, access to markets and access to business development support.

However, providing financial support is easier said than done, mainly because of the challenges posed by adapting traditional lending methods to SMEs. We have found that some do not have financial records, some do not have adequate – if any – collateral security to access loans, and some have poor credit records.

Absa is working with governments and other corporates to innovate ways of providing funding to SMEs in a way that is not only commercially sustainable, but also considers the challenges already mentioned above.

Solutions
With time, such solutions not only improve access to finance, but also lower the cost of financing and optimise much-needed operating cash flow for SMEs.

In addition, we have created specialised non-traditional funding solutions to assist SMEs, and these include, among others:

The Women Empowerment Fundprovides finance to women entrepreneurs who have the skills, expertise and demonstrable potential relevant to the business and/or the industry or sector. The funding is available for all women SMEs who do not have sufficient security to start their own business or purchase an existing one in terms of normal bank lending criteria.

The Development Credit Fund is also offered to SMEs with insufficient security to obtain credit to start or purchase existing businesses. Clients/applicants need to provide an own contribution, which will be determined by the risk grading pertaining to the industry.

When it comes to access to markets, we have realised that many SMEs struggle to penetrate existing markets or establish new markets, particularly when they are competing against larger competitors.

Absa has committed itself to linking SMEs into the supply chains of big corporates, because major corporations spend billions in funding annually on procuring products and services from other companies.

By linking SMEs to these companies, there is a greater opportunity for small businesses to rapidly grow after being included in the supplier base of these large companies.

In South Africa, for example, we have developed, in partnership with a local fintech, the Absa Procurement Portal, which creates the linkages between buyers and suppliers. The portal verifies and validates SMEs, who are located using various searchable fields such as geographic location, size or black economic empowerment credentials.

To date, there are about 67,000 registered SMEs and almost 7,000 registered corporate buyers actively using the portal.

Develop skills
To develop the business skills of SMEs we have, through our business development support initiatives, already helped tens of thousands of SMEs to develop their businesses through training, business tools, seminars and networking. By offering non-traditional support, the bank hopes to bring more small businesses online and make it easier for entrepreneurs to establish and grow their businesses.

The writer is the head of SME, Enterprise and Supply Chain Development at Absa Group.