BusinessCompaniesSetting the standard for lending to African SMEs


Posted on Tuesday, 02 October 2012 15:50

Setting the standard for lending to African SMEs

Getting over traditional barriers like lack of credit history is critical to the scheme/Photo©ReutersSME Quick Loan provides up to $30,000 to small firms to be repaid over a maximum 12-month period.


One leg of Standard Bank's retail rollout across sub-Saharan Africa is its pioneering loan facility for small and medium enterprises (SMEs), which by the end of August will be available in 11 countries.

SME Quick Loan, launched just under two years ago, is a short-term unsecured working-capital facility that is tailor-made for unbanked and underserved SMEs.

Amrei Botha, head of SME banking for Africa, explains that the product is aimed mainly at businesses with a fast turnover cycle and that the more than 12,000 loans made thus far have been predominantly to businesses in the wholesale and retail trade.

"SME Quick Loan has been a catalyst for our entry into new market areas and has set the standard for SME lending in many of the countries in which we operate.

While this is important from a banking perspective, there is also a broader significance: giving entrepreneurs access to finance creates employment and income opportunities that will have a substantial impact on African economies."

Unconventional Approach

Since many SMEs in Africa cannot provide collateral, financial statements or a ready credit history, servicing the needs of this market requires a smart and unconventional approach to risk assessment.

"Prospective clients are asked to fill in a business questionnaire, which gives us an indication of their willingness to repay debt. We also assess their ability to repay by evaluating sales turnover, gleaned from banking records. Unbanked entrepreneurs are asked to transact with us for a month, to make this information available," Botha says.

Fraud-prevention measures are put into place, too.

Loans are capped at $30,000 and are repayable over three, six or twelve months. Botha believes the high take- up rate – 70% of approved applicants become clients – confirms that the terms are fair.

She measures the success of SME Quick Loan by clients' eagerness to engage in follow-up financing.

"In some markets about two-thirds of our clients take second and third rounds of financing. In fact, we completely underestimated the sophistication of the market and discovered that the average client buys four to five business solutions from us, ranging from insurance to international payments services."

The loan product, which is already profitable in its own right, has been extended to more than 12,000 businesses in markets ranging from Nigeria and Ghana to Zambia and Kenya●

This article was first published in the September, 2012 Special Finance Edition of The Africa Report, on sale at newsstands, via our print subscription or our digital edition.

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