Africa-Press – Eswatini. As a result of the pandemic among other factors, FINCORP has said that a budget allocation for similar agencies from government is necessary to ensure lower interest rates for emaSwati.
This was said by FINCORP Group Managing Director (GMD) Dumisani Msibi. He said it was unfortunate that interest rates were a function of the cost of funds. Msibi said financial resources raised from the open financial markets like the Eswatini Stock Exchange (ESE), pension funds, banks, investment houses, and depositor’s savings, came at a cost since those economic agents were looking for a return on investment. “Unfortunately, that is currently our major source of funding wherein we then extend loans to the general population,” he said.
The group managing director said the best arrangement under which they could reduce interest rates charged to Small and Medium Enterprises (SMEs) would be by agencies like FINCORP making sure that they did not raise money from commercial markets, but by receiving budget allocations from the State. He said another option would be for the State to provide soft loans to their institutions at very low interest rates or alternatively through government guarantees and referrals.
“The local development finance institutions should be supported to access financial resources from regional and international development partners at very low subsidised interest rates so that the benefit was then passed on to the citizens,” said the GMD. “We must watch development finance with development sources of capital instead of going to commercial markets,” he added. Msibi said they had observed some stagnation in terms of new loan uptake and growth in the last three years. He said the total loan portfolio had remained relatively at the same level of E1.4 billion, however from the year 2020 to 2021, there had been a slight decline of one per cent to E1.424 billion as a result of contraction in economic activity. According to the GMD new business uptake depended on several factors but most importantly general economic activity, growth and future outlook.
Demand
“When the economy grows, the demand for business loans increases as entrepreneurship loans increases as entrepreneurs look at taking advantage of the emerging opportunities,” said Msibi. He said the period from 2019 up to 2021 had been marred by uncertainty emanating from general sluggish economic growth which was exacerbated by the outbreak of COVID-19 and later the unrest. One of the other apparent setbacks according to Msibi said had been general climate change which had affected the farming industry. “Last year in December, sugar cane farmers could not finish their harvesting operations due to torrential rains which made sugar cane fields inaccessible, as a result, last year’s cane was carried over to this year which comes at a very low cost,” he added. He said these factors had resulted in most entrepreneurs taking a cautionary stance in as far as making new investments is concerned. He added that a significant proportion of loan approvals particularly in the last two years, were in respect of repeat borrowers and mostly farmers who required financial assistance for annual seasonal loans for farm inputs, which ran into hundreds of millions on a yearly basis.
Msibi went on to mention that like in any other business, environmental factors had a direct or indirect effect on business operations. He said the outbreak of COVID-19 which culminated into partial lockdown, resulted in economic activity disruptions which was later exacerbated by the national unrest. “Many businesses are still struggling even today to overcome the effects of these two unfortunate unprecedented tragedies thus reducing the capacity among SMEs to honour their obligations,” said Msibi. He further said that they had for a prolonged period remained open to respond appropriately, and based on merit to the influx of requests for restructuring of existing debts and where practical, even considering refinancing the SMEs in order to get their businesses up and running again. “We are working hard to keep our hand on the pulse of the changing funding needs of SMEs. Currently, FINCORP has a wide range of diversified products which include working capital loans, agricultural loans, order finance, asset lease finance, line of credit, and long-term contract finance and business acquisition on title deed land,” he said.
Msibi said they were in the process of concluding their new five-year strategic plan as their current strategic plan was coming to an end. He said they would prefer not to jump the gun or pre-empt the contents of the new strategy at this point before they concluded all the formal process or protocols with regards to its adoption and formal launch. “To give a view, it speaks to up scaling our operations on key focus areas that we have identified, that will enable us to further improve our efficiencies, customer service and funding sustainability,” said Msibi.
He said alongside this strategy they would continue to ensure the relevance of their products and responding to the changing needs of SMEs funding. “We strongly believe that this will enable us to further deepen our mandate to provide meaningful access to credit, job creation and poverty alleviation,” he added.
Funding
Msibi said in recent months, they had partnered with the Central Bank of Eswatini under their flagship Small Scale Enterprise Loan Guarantee Scheme (SSELGS) wherein borrowers accessed funding at reduced interest rates and minimal deposit requirements. “For new businesses, only five per cent loan amount was required as a deposit, while existing businesses only contributed 15 per cent and the rest is secured by credit guarantee scheme which is capitalised by government,” he added. According to Msibi, since the financial year 2019/2020, their loan book stood at just above E1.3 billion and in the 2020/21 financial year their loan portfolio slightly increased to E1.4 billion. Since 1996, Msibi said they had disbursed E6.2 billion to more than 80 000 people and at least E1.4 billion was currently in the hands of emaSwati in the form of loans. “At least 151 000 job opportunities are currently supported by businesses financed by FINCORP. There has been a visible impact of these businesses both in the rural and urban communities, as they are estimated to contribute E1.5 billion towards the gross domestic product (GDP) and this in our view represents our meaningful contribution to the national economic activity,” he said. Msibi added that they remained committed to the mandate bestowed in FINCORP to provide access to credit, job creation and poverty alleviation in an effort to leave a long lasting economic impact in the country. “We have strengthened our lending operations by setting a business development support department, in order to increase the chances of survival for our clients,” he added.
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