In the era of quick loans, banks are transforming into SME partners to compete, add value

As the business of lending increasingly gets ruffled by quick mobile and fintech loan products, banks are fast changing the way they finance small traders by offering advisory and training as after-sales services to their SME borrowers.

Banks are differentiating themselves from contemporary lenders by offering a holistic package to SMEs including training on how to manage cash flow, trade advisory, and technical support to ensure the loans are put into productive use and are repaid on time.

As an example, Absa Bank is supporting SME customers with business insights, and networks critical for growth, besides the necessary managerial expertise to transform their investments into success stories.

The Pan-African lender adopted a holistic approach towards SME empowerment where business owners are now sharpening their skills in business sustainability, funding, bookkeeping, and networking to ensure their entities remain profitable.

“We recognize that need to work together with our customers helping them to get things done and succeed.  We believe that when our customers succeed, we succeed. Today we are seeing more entrepreneurs looking for a partner for growth who will walk with them on the journey to recovery, hence our campaign tagline Pamoja Tunawiri,” explained Absa Bank’s Head of SME Banking, Susan Situma.

Following the economic fallout triggered by the Covid-19 pandemic, small businesses in Kenya continue finding it hard to access loans because banks remain cautious of their ability to repay.

For some lenders, the choice has been to ignore this segment of the industry altogether or limit their lending to where the government and or private entities are giving a guarantee to shoulder the burden of loan default in the event the SME fails.

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The move has meant that small businesses are starved of loans with the Central Bank of Kenya in 2020 estimating that a quarter of small businesses in the country seeking loans were turned away by lenders.

Consequently, investors in the small business sector are being forced to turn to their relatives and or fintech loans, which are small in ticket size and very expensive.

Strategic banks have, however, realized that there is a need to reconnect with their customers with a view to retaining their pre-Covid market share.

Lenders are understanding that they can de-risk borrowers in the SME segment by providing more than just cash through partnering with the investors and teaching them how to optimize returns on the bank loans through improved productivity and managing cash flows to repay loans in time.

Absa Bank, which offers women entrepreneurs unsecured lending of up to KES10 million, payable over five years for existing borrowers, and KES7 million for new customers payable in four years, has an elaborate business partnership under the SHE Business account.

Under trade deals with institutions such as the Kenya National Chamber of Commerce and Industry (KNCCI), GIZ, and ITC/She Trades is empowering women in business in Kenya with information, helping them succeed in their trade through new marketplace platforms besides addressing gaps in business, management, and latest leadership skills.

The lender is also offering mentorship and coaching to the women, equipping them with critical financial and non-financial best practice skills to plug fissures in their business, management, and leadership abilities.

Through Wezesha Biashara, which is Absa Bank’s bespoke product for SMEs and MSMEs, the lender hosts industry conversations with founders to identify relevant solutions that will yield fresh energy to drive their businesses to post good returns.

“Our focus is to empower business owners to start, run and grow their businesses profitably through personalized propositions, and products,” Mrs Situma said.

A World Bank study on 9,380 youth across 15 counties in Kenya showed that young entrepreneurs, who receive business grants or a combination of business grants and training are twice as likely to have an operational business as those left to their own means at the height of the pandemic.

In the survey, the Bretton Woods institution gave one group Kes40,000 grant, another unit received training, a third got both training and grants while the fourth was left to fend for themselves.

“Targeted support for entrepreneurs and small businesses can offer a crucial lifeline in times of crisis, with the potential for greater business viability, flexibility, and financial slack. In addition, such support can moderate the negative impacts on confidence, life satisfaction, and entrepreneurial aspirations that are undoubtedly at risk. Identifying which kinds of support are most useful and effective is therefore of great value to researchers and policymakers alike,” the World Bank said in the study Can Business Grants Mitigate a Crisis? Evidence from Youth Entrepreneurs in Kenya during COVID-19.

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