Banks admit neglecting SMEs

Banks have admitted to not prioritising small businesses as viable profitable customers. This is despite World Economic Forum findings that the SMEs sector now accounts for over 60 percent of Zimbabwe’s GDP and more than 80 percent of employment.

In a rare moment of self-chastisement, bankers meeting in Nyanga last week concurred they need to do more to provide financial, advisory and consultant services to budding enterprises.

“As bankers, we have not done enough to assist this sector,” Mr Lawrence Chidembo, who heads the business banking unit at CBZ, the country’s biggest, told the Institute of Bankers of Zimbabwe (IOBZ) Summer School 2017.

“These are now our clients and we need to train them so they can become big corporates too,” he said.

He said SMEs should be targeted in financial literacy, financial management, record keeping and business structure training.

“Right now we do not have enough products for them because we have not done enough consultancy work to see what SMEs really want and how we can assist them,” Mr Chidembo added.

At the Nyanga meeting, banking industry captains admitted there was a brutal shrinkage in corporate clients following the informalisation of the economy.

The SMEs sector, they said, is now the low hanging fruit for the banking sector, yet they are still marginalised on negative perception, as well as banks’ inability to come up with services that cater for the small business.

This has pushed SMEs to informal sources of funding.

A BAZ survey showed that 55 percent of SMEs find the loan application process too complicated while 13 percent said loan terms are not favourable.

Some cited lack of collateral while other enterprises were deemed not viable.

In countries like India, banks provide consultancy services to their SME clients as well as create market linkages for them through exhibiting their products and services in their lobbies.

IOBZ chairman and Standard Chartered Bank of Zimbabwe chief executive officer Mr Ralph Watungwa said banks still have a long way to go in fixing mutual relations with the SMEs sector.

He admitted the negative perception towards SMEs is problematic.

“The problem with banks is that we are looking down on anything informal. But if we can leverage on the movable assets as collateral, this may help,” he said.

A survey carried out by the Bankers Association of Zimbabwe in conjunction with the Zimbabwe Economic Policy and Research Unit (ZEPARU) showed that SMEs rely on informal sources of finance, which is usually risky.

The survey showed 28 percent of the SMEs have borrowed from friends and relatives in the past four years.

Only 23 percent borrowed from banks while 31 percent got loans from microfinance institutions.

BAZ senior economist Dr Sanderson Abel said SMEs have become the important shock absorbers for economies that cannot create enough jobs for their citizens, which creates an opportunity for banks.

“There has been a growing trend of informality in the country as the formal sector shrinks. This pattern depicts serious structural constraints for the country’s formal sector.

“There is therefore need to tap resources flowing into the informal sector for economic growth,” he said.

However, the BAZ survey has also shown SMEs face challenges in repaying loans due to high interest rates.