Credit APPRAISAL & Risk Management for SMEs

HELD ON 3^rd – 7^th APRIL 2017  AT SIBANE HOTEL IN SWAZILAND

• SADC DFRC Secretariat Representatives present here today
• Our main facilitator for the workshop, a special welcome to Swaziland.
• Senior DFI Executives Present here Today.
• Distinguished visiting and local participants.
• A very Good Morning to you all.

1. It’s indeed an honour and a privilege for me to have been invited to be part of the official opening ceremony for this very important training course  which is at the center of the  daily activities Development Finance Institutions that finance SMEs.

2. Let me pay a special tribute to the SADC DFRC Secretariat for choosing the Kingdom of Swaziland to be the host country for this training course and at this point allow me to also extend a warm welcome to all our visiting participants from outside our borders namely Zambia; Zimbabwe; Tanzania; Malawi and Namibia.

3. The local DFIs namely FINCORP, SWAZIBANK and SIDC must be commended for taking up the membership of this very important regional network of SADC Development Finance Institutions in order to enhance learning and sharing of best practices in development finance and economic development in general. A fourth Development Finance Institution Namely; National Industrial Development Corporation of Swaziland (NIDCS) recently set up in Swaziland has also taken interest in the activities of the SADC DFI Network and we look forward to working with them in this very important and powerful DFI Network.

4. Many people may not be aware that the SADC DFI Network is actually a direct subsidiary institution of SADC Economic Block established under the SADC Finance and Investment Protocol (FIP) hence the network is ultimately accountable to the SADC Council of Ministers through the Integrated Committee of Ministers which at the end feeds to the Heads of State. 

5. The SADC DFI Network currently has 37 DFI member institutions from all the fourteen (14) SADC Countries.

6. Ladies & Gentleman. You will by now be well aware that the Chairmanship of the SADC Regional Economic Block was this year taken over by Swaziland in August 2016 during at the 36^th Ordinary SADC Summit of Heads of States and Governments.  Likewise, even the Chairmanship of the SADC Council of Ministers of Finance has been assumed by our own Minister of Finance here in Swaziland to steer forward among other responsibilities, the development finance movement.

7. On a personal note I also feel deeply honoured and humbled to have assumed the Chairmanship of the SADC DFI Network having officially taken over this responsibility early this year in 2017. I pledge my full commitment to the activities of the SADC DFI Network for the next two years whilst serving in the Chairmanship position. Let me also take this opportunity to congratulate the outgoing Chairman of the Network, Mr. Patrick Dlamini, who is the Chief Executive Officer of the Development Bank of Southern Africa (DBSA) for his illustrious leadership and developmental acumen over the last two years and it has been an honour and a rewarding experience for me to have served as his vice chairman during his tenure spanning two years up to end of 2016.

8. I also commend the SADC DFRC Secretariat for their commitment in building a sound skills base; body knowledge and expertise among regional DFIs through the technical training being offered which will ultimately lead to maximum effectiveness in the delivery of development to our respective nations.

9. Turning to the workshops for this week and next week, we all know that hosting such international training events bring about immense benefits for the host country. I therefore encourage the visitors to take some time to visit the various places of interest in the Kingdom of Swaziland.  Just nearby you will find one of the biggest handicraft market in Swaziland; the Mantenga water falls; the national cultural village and you are right in between the two biggest cities in Swaziland namely the capital Mababane and Manzini the commercial central hub.

10. There could have been no better time than now for us to have such a training programme on Credit Appraisal & Risk Management for SMEs in DFIs here in Swaziland as not long ago the Head of State, His Majesty King Mswati III, during the official opening of Parliament called for meaningful support of Small and Medium Enterprises Sector in Swaziland in order to create jobs.  Furthermore, the Hon Minister of Finance when presenting his budget speech galvanized all agencies in the country to support SMEs in order to ensure inclusive economic growth.

11. There is no doubt that Credit Appraisal & Risk Management is at the center of the activities of most DFIs financing small enterprises and directly speak to the long term sustainability of those DFIs and the SMEs that they serve.

12. I am therefore pleased to note that the workshop will cover the following:

• Thorough understanding of the complexity of the Credit Appraisal for SMEs.
• The overall complexity and interdependence of different areas affecting SMEs such as Market, Production and Finance
• Improving competencies in appraising and assessing business opportunities and Project Proposals for SMEs;
• Improving the ability of DFI Credit Officers to effectively and efficiently assist entrepreneurs in drawing up bankable Business Plans;
• To empower DFI staff to be able to offer enhanced support to entrepreneurs during the Project Implementation phase.

13.  You will be exposed to Lectures/ presentations, Case Studies, Group Discussions, and Presentations led by a team of experienced and highly knowledgeable facilitators with long standing practical experience in Credit Appraisal & Risk management & Post Loan Approval Monitoring Techniques.

14. In December last year at the SADC DFI Network held in Zimbabwe, Victoria Falls, a working group of SADC DFIs that have an SME Development mandate was formed wherein the Development Bank of South Africa (DBSA) assumed the role of convener whilst Namibia SME Bank assumed Chairmanship of the working group as part of the implementation of the Sustainable Development Goals (SDGs). The United Nation’s 193 member countries adopted 17 Sustainable Development Goals (SDGs) as a roadmap to end poverty and hunger, fight inequality over the next 15 years and SME Development is at the center of this call to action.  

15. SME Development can serve as a powerful tool to end poverty and hunger through the creation of self-employment opportunities for owner enterprise managers and employment of others. SMEs serve as the engine for economic growth in most emerging economies and developing nations hence the specific focus on this sector by the SADC DFI Network.

16. The African Development Bank has reported that although the entire continent has experienced consistent growth over the past decade with some countries achieving close to double digit economic growth, 120 million Africans still remain out of work especially the youth. A total of 42% of the population in Africa still live below the poverty line of USD $1.00 a day, and 1 in 4 people in Sub Saharan Africa remain undernourished with no access to clean water and sanitation. Inequality is also very high with 6 out of 10 countries being most poverty stricken and unequal in Africa largely affecting women and the youth. Our national economies remain highly polarized as a result of the big gap between the poor and the wealthy segments of our society. The AfDB also suggests that making growth inclusive will require broadening access to economic opportunities for more people at grassroots level.   SME Development immediately comes to mind as you think about these challenges.

17. Within SADC our leaders have promulgated the Finance & Investment Protocol (FIP) in line with its motto of “Towards a common future”.  SME Financing is also an integral element of this instrument. SADC is eager to promote industrialization throughout the region. 

18. One of the milestone initiatives of the SADC Economic Block is the desire to form a Regional Development Fund in order to increase access to funding for the member countries; the financial intermediation institutional framework and ultimately citizens of member countries with a view of increasing investment and industrialization of our economies.

19.  The DFRC aims to assist the DFI Network through supporting the development and financing of the small and medium enterprises (SME) sector capable of exploiting the vast business opportunities that the region’s scarcely tapped natural and other resources offer. In so doing, regional employment opportunities will expand and begin to address the challenges posed by underdevelopment and poverty. Through targeted business support strategies for SMEs, the DFRC aims to assure the DFI’s sustainability through a stronger client base.

20. The development of SMEs lies at the core of economic growth worldwide. Research has revealed that across the world the SME sector employs one-half to two thirds of the labour force in developing countries and that the sector contributes significantly towards national incomes.

21. SADC governments have adopted different policies, strategies and programmes to promote SMEs in their countries. On the whole, the policies and programmes have not been as effective as desired. The SADC-DFRC aims to play a pivotal and catalytic role in this area through specially designed SME institutional support programmes to enhance DFIs’ delivery capacity and SMEs support at enterprise level.

22. The greatest benefit of attending courses hosted under the auspices of the SADC DFI Network is the opportunity for all participants to share their experiences and enrich one another for the betterment of your respective institutions.   I therefore wish to encourage the workshop participants to engage in meaningful deliberations and robust debates in order the enhance the learning environment. 

23. I am a strong believer in that as DFIs we can only effectively and efficiently deliver meaningful results on our developmental mandate if we better equip our personnel with the relevant skills and I believe this training course is one of such initiatives.  In fact SME Development Practitioners of DFIs will only effectively serve SMEs if they better understand the needs and characteristics of the sector.

24. In Swaziland SME development is still seen as a vehicle to boost and address some of the economic challenges faced by the country. SMEs vary according to the scale of development, number of employees and nature of ownership. In Swaziland for instance the small scale business sector according to SME Policy employs about 4 to 10 people while micro employs 1 to 3 people but these businesses tend to remain small for prolonged periods and never graduate to become big businesses.

25. A national survey commissioned by the European Union under the Private Sector Support Programme in 2003 to research and provide a comprehensive understanding of the SME Sector in an effort to enhance the quality of decision making on matters related to the sector came up with the following key findings:

        Characteristics of SMEs

• There were over 70 000 SME businesses employing over 100 000 people.
• 80% of the businesses are were in the category of micro businesses.
• About 56% of the SMEs are owned by males whilst 44% is owned by women.
• 21% of the business are operated and managed by owners and immediate family members.
• Over 77% of the SMEs received at least secondary education.
• 82% of total SMEs are involved in retail and services, 11.6% in manufacturing and 7.1% in agriculture.
• Most SMEs were operating far below breakeven levels but were not aware of that basic fundamental business principle (A key challenge for Credit Appraisal).
• Most SMEs were primarily involved in business in order to support their families.
• Most SMEs recorded low turnover figures due to limited mass markets.

26. Other general and common challenges faced by SMEs in Swaziland include the following:

1. Lack of business linkages between large corporations and small & medium enterprises in order to enhance skills and technology transfers which will directly contribute to the sustainability of the small companies.  Furthermore such linkages tend to mitigate the incidence of credit risk and default.

2. Low business acumen and ability to innovate as most entrepreneurs tend to do what is already being done by others (copy cat syndrome) leading to market saturation and very low chances of survival.

3. Inability to separate business affairs from domestic affairs which often leads to failure of their enterprises.

4. Poor record keeping; financial management and strategic management.

5. Lack of access to long term funding for start-up businesses and for expansion of existing business.

6. Low levels of value addition, manufacturing and beneficiation.

7. High cost of doing business.

27. I am mentioning all these problems because they will be directly relevant to your training course over the next five days.

28. At this point please allow me to say a few words about the organization that I represent namely FINCORP. We are a Development Finance Institution owned by Swaziland Government and Tibiyo TakaNgwane holding 80% and 20% shareholding respectively. FINCORP is charged with the responsibility to provide access to credit for SMEs; create jobs; make a meaningful contribution to poverty alleviation  in Swaziland and lastly to facilitate access to business development support services.

29. In 2016 FINCORP attained twenty (20) years of existence having first opened its doors to the public in April 1996 and looking back at the humble beginnings of a capital base of E44.0 Million back then, to the present total balance sheet of E1.1 Billion and the formation of two subsidiary companies FIRST FINANCE and FINSURE Insurance Brokers, we are quite pleased with what we have achieved but of course there is still great room for improvement. The most rewarding experience has been the realization of meaningful economic and social impact in the communities that we serve.

30. FINCORP offers access to credit to SMEs across all economic sectors and as we speak a total of E1.1 Billion is in the hands of Swazi Citizens who are developing themselves in various ways and continue to make a meaningful contribution to the economic development of our country.  In the last five years our portfolio increased by 100% from E483.2 Million to 2012 to the current E1.1 Billion in 2017.

31. A recent study conducted by the University of Swaziland Consultancy & Training Center (CTC) disclosed that SMEs financed by FINCORP presently support about 15 100 jobs. They collectively contribute to National GDP just over E1.0 Billion in the form of production of goods and services.

32. FINCORP has in the last three years increased its branch network from 2 to 6 branches; increased the number of clients from 9 000 to 16 000; and finally increased its workforce from fifty-six (56) to one hundred and three (103). 

33. To date FINCORP has provided credit in excess of E4.9 Billion to more than                    80 000 Swazi Nationals who have improved their lives one way or the other and some are continuing to do so even today.  Feedback received from various independent sources suggest that FINCORP is the leading SME Development Agency in the country both by way of outreach and value of financial assistance offered solely to the SME Sector.

34.  Coming to a conclusion, let me take this opportunity to wish you successful and very rich deliberations during the next five days and I am confident that you will come out of this training course ready to make positive impact at your respective organisations.

35.  I thank you for your kind attention – and I leave you with a quote from Abraham Lincoln, 16th President of the United States who said “Planning in everything that you do is key for example “If I had eight (8) hours to chop down a tree I would spend six hours (6) sharpening my axe and just give it a few jabs and see it fall than use a blunt axe for months.” So I view your coming here as an initiative to sharpen your skills so that you can carry out your work responsibilities with greater confidence and knowledge.

36. Do enjoy the rest of the week.  I thank you.

Dumisani J. Msibi

Group Managing Director – FINCORP

&

Current Chairman of the SADC DFI Network