Speaking the SME language: Absa attracts more enterprises with revamped products

Absa Bank Kenya has lent over Ksh35 billion through the Wezesha Biashara Programme, thereby enabling the growth of small and micro-enterprises (SMEs).

The bank’s Head of SME Banking, Mrs Susan Situma, says the holistic proposition, which covers both financial and non-financial bits, including capacity building and mentoring, has attracted high demand from the sector.

The bank has been aggressive in launching business and corporate banking products while revamping the existing SME packages. This is amid increasing competition among banks, for a greater share of the SME market segment.

“We have had a good run with SMEs since we started our Wezesha Biashara focus over four years ago. We have seen good gains on how we have repositioned, and our staff across our branch network are now speaking the SMEs language,” Mrs Situma says.

“We have seen a good growth despite the effects of the pandemic on SMEs. Some sectors were affected, others did better. We saw a lot of the businesses coming for non-financial support through the period, to understand how to establish themselves as stable businesses.’’

Wezesha Biashara campaign was launched in 2016, targeting SMEs to help reduce their cash flow troubles.

SMEs compose 98 percent of all registered businesses in the country. They contribute about 33 percent of GDP. The need for the provision of financing solutions in this space cannot be ignored.

Absa Bank Kenya revamped the product to include unsecured loans of up to Ksh10 million, repayable in five years, and local purchase order (LPO) financing of up to Ksh12 million. The product also includes unsecured invoice discounting of up to Ksh50 million and unsecured bid bonds of up to Ksh10 million. It further offers insurance services.

The programme has trained more than 16,000 SMEs and 6,500 women since the start.

“Looking at the effect of the pandemic, some of the businesses recorded lost revenues, while others shut down. The insurance protects the entrepreneur,” she adds.

Loan growth

The bank had issued moratoriums to over 4,000 SMEs last year, but with SMEs resilience, the moratoriums have reduced. 

The restructured loans for SMEs amounted to Ksh5 billion last year with double loss digits. Now the bank has reported a double growth in demand for credit, in both volumes and value, since the beginning of the year, compared to the same period last year. 

“Most of the customers and SMEs who were on moratoriums are not anymore. We are seeing better uptake of credit compared to the same time last year when we were dealing with restructures and moratoriums,” Mrs Situma says.

“We are definitely on a good trajectory, compared to the same time last year. We may have already surpassed our best month for credit last month, compared to the period between March and December last year. This tells you that last year was very depressed and that we are now making better progress.”

The resumption of repayments by SMEs on the loans that were on moratorium has helped improve the loan loss ratios for the quarter to March, compared to a similar period last year. This also helped the bank to post a 5.9 percent growth in interest income to Ksh5.96 billion on the back of increased lending.

Net loan book grew by 7.5 percent to Ksh218.26 billion, driven by the bank’s focus products, namely general lending, trade loans, mortgage and scheme loans that recorded strong growth year-on-year.

“SMEs want to pay their loans if they have the cash to pay it. So, many prefer not to be on the moratorium, as this just delays the eventuality of paying the loan,” Mrs Situma says.

The growth has been supported by increased top-ups of existing loans, where customers retain monthly repayment amounts which are manageable at the previous levels. This is coupled with requests to assist in restocking and diversification of businesses with the partial reopening of the economy.

“Businesses are looking for some flexibility around their working capital requirements, while schools are also coming for support to conform to Covid-19 protocols. SMEs are known to be resilient and we see them come back repositioning themselves. If the hotel was just dine-in, for instance, we’ve seen them come to ask for vehicles to do deliveries and do outside catering for smaller events.’’

Credit guarantee scheme

Absa Bank Kenya is among the seven lenders on the Ksh10 billion Credit Guarantee Scheme launched by the government last year to cushion the SME sector against the impact of the Covid-19 pandemic. The government is covering up to 25 percent of the loan portfolio under the scheme.

To access the fund, an entity should have a turnover below Ksh100 million and should have been affected by Covid-19 as reflected in sales. The maximum amount that a customer can borrow is Ksh5 million, and the enterprises are not allowed to top up on existing facilities, but take out fresh loans under the scheme to support them in rebuilding their business. They should also be tax-compliant and registered.

The facility is running for the next three years, hence, loans will be issued until the end of December this year. This means participating institutions have one year to disburse the funds for working capital or asset financing, but be repaid within a three-year period.

Some of the requirements like business registration have hindered fast uptake, as a majority of the SMEs in Kenya are not formerly registered.

Data from the Kenya National Bureau of Statistics released in 2016 showed that there were 7.4 million medium, small and micro enterprises, but only 1.56 million were registered.

Absa Bank Kenya is offering loans under the credit guarantee facility at a discounted rate of up to 12 percent, and a one-off two percent processing fee. Normal loans at the bank are offered at 14 percent, and the processing fee is three percent.

“We are confident of a good uptake on this guarantee scheme. We ask SMEs to visit any of our branches or call us to access these discounted facilities,” says Mrs Situma.