Bank lending to small and medium enterprises (SMEs) in Africa is notoriously low, largely because banks find it difficult to determine the risk profile of business owners with no financial statements, credit history and collateral.
Standard Bank, which has a presence in 17 African countries, however, introduced an innovative risk assessment solution that allows it to lend to Africa’s small and informal businesses. The SME Quick Loan facility uses a range of risk assessment tests, which is then used to assess willingness to repay the loan.
“We have tried to really deepen and expand our lending capability. And by way of an African solution and innovation, we have come up with a philosophy and an idea, which basically says [that] a person’s ability to repay a loan is not about whether he/she has a job, or has had bank account for five years. It is about whether he or she is a good person … So we have developed a [test] … which assesses: is this person likely to repay or not repay the loan? Is he or she a good or a bad person? On the strength of that we have dramatically increased our unsecured lending …” said Clive Tasker, CEO of Standard Bank Africa, at the recent Ernst & Young Strategic Growth Forum Africa in Cape Town.
According to Standard Bank, SMEs generally need short-term working capital facilities, and are mostly informal single-person businesses, involved in trading activities and generating income well below the minimum wage level or government defined poverty lines.
The SME Quick Loan facility offers unsecured loans of between US$300 and $30,000.
There are a number of differences that set the loan apart from other more traditional lending:
- it is a completely unsecured facility;
- the application process is significantly simpler and condensed;
- bank staff visit clients to circumvent the branch application process;
- it takes no longer than three days for applications to be approved;
- and the pricing is about half of what is charged for similar loans in the market.
SME Quick Loan was piloted and launched in Kenya, Ghana, Nigeria and Tanzania. During this year the bank plans to launch the credit solution into a further nine countries: Zambia, Uganda, Malawi, Botswana, Swaziland, Lesotho, Namibia, Mozambique and Zimbabwe.
“Standard Bank has made a strategic decision to advance SME Quick Loans to bankable and underserved wholesalers and retailers, especially female entrepreneurs. Trader markets provide unprecedented access to SMEs with thousands of consumers trading in a concentrated geographical area,” said Amrei Botha, Head of SME Banking Africa at Standard Bank in an earlier statement.
“The SME Quick Loan offers the greatest access to finance for all SMEs, allowing them to expand their businesses. Through this approach, Standard Bank is now able to move into the informal business sector and tap into this largely unbanked market. While we have seen that most financial institutions tend to cherry-pick certain businesses that are easy to finance and have higher and quicker returns, we are now providing unsecured loans to businesses across the entire SME spectrum,” Botha added.
So what has been the impact of the loan facility on SMEs? Standard Bank emailed the following case study to How we made it in Africa:
Victoria Itibi, a shoe trader at Gikomba Market in Nairobi’s downtown area, has been in the shoe business for over a decade now. The realisation for her that growth in the sector requires a convenient and flexible financier was a quick climb over the learning curve.
However, the search for a financier to support the growing needs of her business has not been easy. It took Itibi numerous knocks on many doors with few favourable responses before CfC Stanbic Bank (Standard Bank’s Kenyan unit) heeded her call.
“Most of the banks and micro-financiers I have talked to have not been willing to give me the kind of money I needed. Even with justifications on why I needed the money, nothing concrete came out of it,” she explains.
Itibi’s story is an all too familiar one among SMEs in Kenya. It is not until four years ago that lending institutions started taking interest in this previously ignored market segment.
The downside of this neglect for many SMEs was stifled growth and unrealised business objectives ironically in a business sphere considered the silver bullet to ending poverty in Africa.
It is this search that brought her to the door steps of CfC Stanbic branch in Gikomba. A thorough but simple documentation process and an assessment of her stores was all she needed to qualify for a Sh1 million advance from the bank.
Itibi now has two stores and the Glory Shop franchise is on the growth path. Stocks are on the steady increase and the working capital has provided a buffer to serve a growing clientele base.
She is able to comfortably import a whole container worth of stock into the country from China. This has ensured that her customers do not make orders and wait for the containers to arrive.
“Previously I could group up with other businesswomen to raise enough money to get a container to Mombasa from China. This was at times inconveniencing and led to delays in the business. Now I have no such fears since I can pull it all alone,” says Itibi.