Defaulting in repaying loans has led to financial institutions having difficulty in issuing new loans even under the small scale loan guarantee scheme.
First National Bank Credit Manager Beauty Mavuso said they had reported the high default rates to the Central Bank of Eswatini (CBE).
She said the micro, small and medium enterprises (MSMEs) also did not communicate when they face challenges in their business operations that lead to the default in repayments.
She was reacting to submissions during the consultation for the Citizens Economic Empowerment Act regulations, where stakeholders from the business community shared their views on how the regulations could be structured.
The Economic Citizens Empowerment Act is aimed at boosting the economic participation of local citizens, particularly in government procurement and the micro, small and medium enterprises (MSMEs) sector.
The Act also addresses historical economic imbalances and fosters inclusive growth through various measures, including preferential procurement, access to finance and capacity development for citizens engaged in business.
The Act is also a significant step towards promoting inclusive economic growth by empowering businesses and the nation to participate in the economy.
Mavuso advised that when people seek loans from the bank, they should have all their paperwork in order, including registration documents; before anything they should have trading licenses and a business plan. She said if these documents were not available, they as financial institutions turn the business proprietors back. She said the notion of self-service in this regard did not work, and people should get qualified assistance like the Small Enterprises Development Company (SEDCO) that registered trading licenses and makes proper business plans at a minimal charge.
She added that they had observed that they were faced with a disbursement challenge as they could not give someone a E1 million start-up capital from the onset.
As a result, she said as banks they devised strategies to disburse according to submitted invoices so that money is not lost. “SMEs do not communicate well when they face challenges because of lack of training on how to run businesses. We have also observed that some businesses are formed solely for the bank loans, which is wrong and leads to many failures.
Business people should reconsider and introspect if they are still on the right track, do cash projections and do not manage the businesses well. They often fail to match the loan repayment until they default, which could have been prevented,” Mavuso stated. Adding, she said when the business was viable, the owners start spending on luxurious things instead of reinvesting in delaying gratification, which damages the cash flow.
She emphasised the need for training entrepreneurs.
Mavuso also suggested a pool of resources that would help support the entrepreneurs at grassroots level that did not have to access to financial institutions yet.
Meanwhile, FNB Head of SME Nombuso Mndzebele said the empowerment discussions could not be made from a funding perspective only because it was an entire ecosystem looking at discipline, support and accountability. As FNB, she said they had a loan that looked into inflows into account conduct using certain algorithms without asking for information or financials from clients.
However, she said currently they wanted to increase the loans but could not because of what was currently happening with the defaults. “We loan MSMEs and they disappear on us, hence am saying we need to look at this not from the funding perspective only because the funding is there and we can improve it. we have to look at the other structures post the funding, how do we support businesses,” Mdzebele added.
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