Home Opinion Special Reports New study says banks prefer business with East African SMEs

New study says banks prefer business with East African SMEs


A survey released on Monday says banks prefer to do business with small and medium-sized enterprises (SMES) which are more profitable in Kenya.

According to the study by the African Development Bank (AfDB), SMEs are also a strategic priority for banks in the region.

The survey done in Kenya, Tanzania, Uganda and Zambia also notes the lack of a more proactive government attitude towards the SME sector, some areas of prudential regulation and some bank- specific factors.

“There are obstacles, however, to the banks doing more business with SMEs. They include not just factors related to the nature of SMEs, but also macro-economic and regulatory factors and the legal and contractual environment,” it said.

The report also notes certain similarities among the four countries where the survey took place.  Kenya, Tanzania, Uganda and Zambia are all growing, emerging economies, and they have put in place various financial reforms over recent years, with their banking systems becoming increasingly integrated.

The report titled, Bank Financing to SMEs in East Africa: ‘Findings of a survey in Kenya, Tanzania, Uganda and Zambia’ published by AfDB said the SMEs are also important providers of employment in the region.

“SMEs are considered a profitable business prospect and provide an important opportunity for cross-selling. The banks view the lending market to SMEs as large, not saturated and with a very positive outlook,” the study says.

However, banks have learned to adapt to their environment and have adapted through innovation and differentiation. The AfDB concludes that “this trend should be encouraged through reforms to soften the negative impact of those obstacles which are hindering the further involvement of banks with SMEs.”

“Encouraging SMEs is important for employment. The report notes earlier research which found that SMES on average contributed 60 percent of total formal employment in the manufacturing sector in various countries,” it says.

It finds “that the SME segment is a strategic priority for the banks in the region.”

According to this earlier research “taking into account the contribution of the SME sector to job opportunities is even more important in African countries, SMEs account for about three- quarters of total employment in manufacturing.”

However, the report says SMEs in Africa are lagging behind other parts of the world when it comes to access to finance.


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