How Standard Bank is tapping into the SME market in Africa
Bank lending to small and medium-sized enterprises (SMEs) in Africa is notoriously low, in large part because banks struggle to determine the risk profile of business owners without financial statements, credit history, and collateral.
Standard Bank, which is present in 17 African countries, has however introduced an innovative risk assessment solution that allows it to lend to small and informal African businesses. The SME Quick Loan facility uses a series of risk assessment tests, which are then used to assess willingness to repay the loan.
“We really tried to deepen and expand our lending capacity. And through an African solution and innovation, we came up with a philosophy and an idea, which basically says [that] A person’s ability to repay a loan is not whether they have had a job or have had a bank account for five years. It is a question of knowing if he is a good person… So we have developed a [test] … Who assesses: is this person likely to repay or not repay the loan? Is he or she a good or a bad person? Based on this, we have significantly increased our unsecured loans… ”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 and are mostly individual informal enterprises, involved in commercial activities and generating income well below the minimum wage or poverty lines defined by the government. .
The SME Quick Loan Facility offers unsecured loans ranging from US $ 300,000 to US $ 30,000.
There are a number of differences that distinguish the loan from other more traditional loans:
- this is a completely unsecured installation;
- the application process is much simpler and condensed;
- bank staff visit customers to bypass the branch application process;
- it does not take more than three days for applications to be approved;
- and the price is about half of what is charged for similar loans in the market.
SME Quick Loan was tested and launched in Kenya, Ghana, Nigeria and Tanzania. During this year, the bank plans to launch the credit solution in nine other countries: Zambia, Uganda, Malawi, Botswana, Swaziland, Lesotho, Namibia, Mozambique and Zimbabwe.
“Standard Bank has made the strategic decision to provide quick SME loans to bankable and underserved wholesalers and retailers, especially women entrepreneurs. Merchant markets provide unprecedented access to SMEs with thousands of consumers trading in a concentrated geographic area, ”said Amrei Botha, Africa SME Banking Manager at Standard Bank in a previous statement.
“The SME Quick Loan offers the best access to finance for all SMEs, allowing them to develop their activities. Thanks to this approach, Standard Bank is now able to enter the informal business sector and take advantage of this largely unbanked market. While we have seen that most financial institutions tend to select certain businesses that are easy to finance and have higher and faster returns, we are now offering unsecured loans to businesses across the SME spectrum, ”added Botha.
So what has been the impact of the loan facility on SMEs? Standard Bank sent the following case study to How we did it in Africa:
Victoria Itibi, a shoe seller at Gikomba Market in downtown Nairobi, has been in the shoe business for over a decade now. Realizing that growth in the sector requires practical and flexible finance has been a rapid climb on the learning curve.
However, finding a financier to meet the growing needs of his business has not been easy. It took many knocks on many doors with few favorable responses before CfC Stanbic Bank (the Kenyan unit of Standard Bank) heeded his call.
“Most of the banks and micro-financiers I spoke to were unwilling to give me the kind of money I needed. Even with justifications on why I needed this money, nothing concrete came out of it, ”she explains.
Itibi’s story is all too familiar among Kenyan SMEs. It was only four years ago that credit institutions began to take an interest in this hitherto ignored market segment.
The downside to this neglect for many SMEs was stifled growth and ironically unfulfilled business goals in a business sphere seen as the silver bullet to end poverty in Africa.
It was this research that brought her to the steps of the door of the CfC Stanbic branch in Gikomba. A complete but straightforward documentation process and an appraisal of her stores was all she needed to qualify for a 1 million shillings advance from the bank.
Itibi now has two stores and the Glory Shop franchise is on the path to growth. Inventories are steadily increasing and working capital has provided a buffer to serve a growing customer base.
It is able to comfortably import an entire container of stock into the country from China. This made it possible for its customers not to place orders and to wait for the arrival of the containers.
“Previously, I could band together with other businesswomen to collect enough money to ship a container to Mombasa from China. This was sometimes inconvenient and caused delays in the business. Now I no longer have such fears since I can pull it on my own, ”Itibi said.