ECONOMY-SENEGAL: Small and Medium-sized Businesses Cannot Access Bank Credit

• by Koffigan E. Adigbli (dakar)
• Thursday, March 18, 2010
• Inter Press Service

Boosting SMBs in Senegal would require more than 600 billion CFA francs (about 1.2 billion dollars), Ibrahima Diouf, director of SMBs, said.

Diouf told IPS that the high rejection rate of SMB applications is due to the loan applicants' lack of familiarity with financial reporting. This weakness is compounded by the fact that the country’s banks lack staff that can analyse and understand SMB growth profiles.

'A small company that's launching doesn't have the same needs as one that is restructuring. But also, applications aren't assembled in a way that reassures creditors,' he added. This is due to the lack of financial information and reliable financial statements from the applicants. But also, applications fail to provide the guarantees required by creditors, Diouf said.

Despite the diversification of supply and the presence of new players in the banking and finance fields, there are not enough personnel who know the SMB profile, says Diouf.

According to a survey funded by German aid, involving over 703 companies in Dakar between November 2008 and January 2009 and published in February 2010, the informal sector is virtually absent from the SMB sector. This means that the informal sector is not taken into account by banks financing SMBs.

The report also highlights the fact that sectors such as fisheries, agriculture and textiles, which are dominant, lack a sound development strategy.

'There are discrepancies between the economic structure and the SMB framework. Due to difficult market conditions and sluggish business, financial institutions invest only five percent of their funds in SMBs,' Vincent Akué, team leader of economic consultants in Dakar, explained to IPS. 'For loans, the collateral accepted by the institutions is structured for SMBs, 35 percent consist of personal guarantees, while for informal sector enterprises, 39 percent of loans use mortgages as guarantees.'

According to Akué, because of the limited access to bank credit, businesses entrepreneurs are often forced to seek loans from their circle of friends and family. He added that some microfinance institutions use methods he deems nearly abusive to put maximum pressure on borrowers and to recover distressed debt very quickly.

'About 60 percent of businesses surveyed want to expand. The investments planned for this purpose are mainly land and buildings, capital expenditures and purchase of raw materials. Thus, lack of funding for investment and increasing inventory is a major bottleneck,' he told IPS. 'When formal structures commit funding, in 65 percent of the cases it is for businesses that are in a consolidation phase,' he adds.

According Ndeye Lo, a promoter of products made from local cereals, the conditions have not yet come together for increased financing of SMBs. 'If SMBs have difficulties getting loans its due firstly to a lack of training, secondly to microfinance entrepreneurs' unawareness of bank financing. The training is didactic because it gives entrepreneurs better tools and better business management skills,' she told IPS.

Aminata Ndione, member of the Syndicat des femmes pour la transformation des poissons (Women's Fish Processing Union), told IPS that the lack of credit dramatically slows her business. 'When we apply for funding, they do not even consider us. This year we put together another very good file, but it was dismissed simply because they do not trust us. But in the media banks are constantly advertising credit for SMBs,' she said.

Ndione believes that in Senegal, only the rich get loans. 'You know, in the fish business, if I told you that we make millions of CFA francs every month, you wouldn't believe me. Dried fish is sent to Togo, Benin and Mali. But we want funding to upgrade the furnace so that smoking and drying fish is faster and less exhausting, but it is not easy,' she lamented.

Fatou Sankaré, treasurer of the Association des femmes pour la transformation des céréales (Women's Cereal Processing Association), also faces financing difficulties that slows the growth of her business.

'With corn, we made a kind of paste to sell, we make sorrel (hibiscus) and ginger juice. We still do all of this by hand, yet there are machines to do it, and we ask for loans, but it is useless,' she told IPS. 'What we found is that sometimes the interest rate was too high, other times the repayment schedule is too short compared to our forecasts.'

Sankaré acknowledges that illiteracy is a major obstacle to business growth. 'You know, amongst all the women you see here, almost none have a solid understanding of financial matters, and it causes problems for us. I wish the government would organise training sessions for us women entrepreneurs. This would help us manage our businesses better,' she says.

© Inter Press Service (2010) — All Rights ReservedOriginal source: Inter Press Service

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