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Banks scramble for lucrative SMEs with juicy funding deals
Small and medium-sized enterprises (SMEs) in Kenya are entering a new era as financial institutions heighten the scramble for this lucrative sector with all manner of tactics and juicy deals.
The sector is the “engine room of growth” according to Aly Khan Satchu, chief executive at Rich Management, a financial advisory firm. The Business Daily spoke to several bank executives and they share this belief.
If anything, the recent proposal to set up a Sh30 billion, preferentially-rated SME fund as part of their push to divert a lending rates cap, goes to prove just how pivotal this sector is to the economy.
Financial experts say banks are increasingly turning to SMEs as they constitute perhaps the largest single of pool of bankable clients, as opposed to say corporate businesses, NGOs, or other niches whose numbers count much less.
Small businesses are also viewed as agile and fast in decision making, improving their attractiveness. Processes such as decision-making by SMEs are rapid and efficient, largely because many are owned and managed by sole proprietors, family or close associates.
Their operations, therefore, attract much less regulatory and compliance oversight relative to large corporates, thereby reducing process costs both for the SME and bank.
“Banks have increasingly seen this segment as an opportunity for growth. International institutions are also making funds available in order for banks to chase this opportunity,” said Mr Satchu.
It is for this reason that almost all lenders have turned their attention to setting up a departments tailored for SMEs.
Equity Bank, KCB Group, Cooperative Bank of Kenya, Barclays Bank, Family Bank are just a few of the lenders that have extended the service scope for SMEs to trade services, financial services and cash management.
The Co-op Bank, for instance, has a client base of more than 1.8 million MSMEs countrywide, for whom it has set up a business division to take care of their banking needs.
The bank has a loan book to this particular class of borrowers in excess of Sh36 billion advanced to 35,000 borrowers and a deposit base of Sh55 billion from this customer segment.
Biashara Club
“We don’t measure success of our SME offering purely on the returns we make, but also on the growth our clients have been able to achieve,” said Maurice Matumo, Co-op Bank director for retail and business banking.
In addition to having a dedicated SME unit, the KCB operates Biashara Club, a networking platform for entrepreneurs in the seven markets that the lender operates.
Through such initiatives, the lender aims to increase the contribution of MSMEs to a fifth of its loan book in two years. Its loan book is currently in excess of Sh347.4 billion.
In March, KCB launched a five-year Sh50 billion youth entrepreneurship programme to nurture and support small businesses, with an eye at creating at least 2.5 million jobs in the next five years.
“In our approach to serve SMEs better, we have tailored a wide range of products and services for the segment, specifically to address their needs,” said Annastacia Kimtai, KCB’s retail director in the country.
“This range from business accounts, working capital loans, trade finance and supplier financing facilities among others. This is also informed by our conviction that today’s SMEs are Africa’s conglomerates of the future.”
Sidian Bank CEO Titus Karanja says the lender has restrategised from being an SME-focused bank to introducing units that will cater to these business when they expand.
“SMEs of today are the large corporates of tomorrow. So a bank that builds a wide client base of solid SMEs will be in good business with large corporates in the future,” he said.
“Many banks have leaving us after transition into big corporates. With our reorganisation, we will be able to nurture them young but still be with them as they become corporates.”
Barclays Bank of Kenya has not been left behind either. The lender has set aside close to Sh30 billion to offer existing and new enterprises cheap loans through a campaign dubbed Wezesha Biashara, Swahili for ‘Enable Business.’
The lender targets more than 10,000 new and existing businesses nationwide. Equity Bank too plans to lend SMEs up to Sh100 million to expand their businesses.
Housing Finance Group has also adopted training sessions as a way of empowering its SME clientele and engaging these business at their places of work, however remote.
“By visiting the business and understanding their concept, we are able to finance them from as little as Sh10,000 to as high as Sh2 million before graduating the customer to SME for higher funding,” said HF managing director Sam Waweru.
Given the fact that SMEs are a “sellers’ market”, banks, which have pricing power over them, will continue targeting this sector as one of their key growth opportunities.
