Chief Executive Officers (CEOs) of various Saccos have revealed why they are averse to lending to Small and Medium Enterprises (SMEs), top among the reasons being their lack of verifiable information.
During this year’s National Cooperatives CEO’s Workshop in Mombasa organized by the Co-operative Bank, the Sacco heads decried lack of adequate information about SMEs as a hindrance to getting loans as their inability to keep records pushed them away from investing.
In addition, most SMEs have a poor saving culture, denying them the banking history that can be examined to build confidence and trust so that investments can flow into them.
Loan defaulting was another drawback. The CEOs see SMEs as not keen to repay the loans advanced to them; most of them having a predominant ‘don’t care’ attitude and an average unwillingness to pay.
This ushers along with the danger that has been posed by many people masquerading as SMEs, only to turn out to be fraudsters who vanish upon borrowing money.
The societies on the other hand lack the capacity, systems and manpower to carry out monitoring and evaluation of the SMEs before and after loaning them. Instrumentally, there is little support from the government to pursue these cons in the name of SMEs.
Most SMEs, they added, were not experienced enough to run businesses and lack understanding of their businesses and how to steer them to success. If the SMEs could access regular adequate training, they would be in a better position to do business with Saccos.
Another reason cited as an obstacle to giving loans was the absence of proper laid down structures for SMEs. Government policies touching on SMEs made it hard for Saccos to freely lend out money to people in this sector.
The economic environment has an immense impact on most SMEs, especially in times when it is not performing well. When the economy is down, SMEs are forced to close down, start another business they think will do well, or move to a different location because of how flexible most of them are.
They advised SMEs to join Sacco societies and establish a history with them through consistent saving. And when sourcing for security when they want loans, especially title deeds, SMEs should ensure the deeds had no issues.
SMEs, they stated, should first put their own money in business before seeking loans from Saccos as this will establish trust and spread the risks involved between the partners.
SMEs were also discovered to be over-borrowing from different financial institutions. Borrowing from multiple sources drain and stretch SMEs, making it hard for them to perform as much of the money they get go to repaying outstanding loans elsewhere.
Lastly, the CEOs established that there was conflict of interest as most of the societies’ by-laws do not put into account SMEs, and therefore there is need to amend them to accommodate the entities.
By George Otieno
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