Business Daily (Nairobi)
Stephen Maina
2 July 2009
Small and medium enterprises have been lauded as the key to economic growth and job creation. Yet their access to finance, particularly trade finance, is sometimes cumbersome and too bureaucratic.
In a recent forum organised by the Export Promotion Council for SME Exporters, it was observed that SMEs face quite a number of hurdles in accessing trade finance and sometimes end up losing export orders as a result.
According to one commercial banker, the problem they face with SMEs is that some of them do not have audited accounts, track record or a history of operation, which makes it difficult to assess them for loans.
"We have no money of our own to dish out. It belongs to shareholders and depositors. It behooves on us to lend it prudently".
More innovative
While the position of banks may be understood in that respect, there are a myriad SMEs particularly those specialising in exports that feel banks need to be more innovative.
According to one SME Chief Executive, banks should be thinking of accounts receivables as a basis for lending to the sector, which is a financing strategy that does not tie up funds like a Letter of Credit (LC), as they are popularly called.
He also feels that banks are more comfortable lending to well-established companies with popular brand names.
Such companies can also issue their own Commercial Paper in the capital markets to finance exports whenever necessary as they meet the issuance benchmarks, which is not the case for SMEs.
In his view, SMEs are viewed as being a little more risky and tend to get loans at a much higher interest, which makes their products very uncompetitive.
In the view of Mr. Murigu, the Executive Director at Metropol East Africa Limited, the most logical way out for SMEs is to obtain a credit rating which would enhance and expedite access to trade finance.
He revealed that they are working closely with banks on a number of rating projects and one of them is intended to enhance access to credit by SME exporters.
A trading expert, while embracing the idea of rating for SME exporters and other businesses, is of the view that the government should provide an impetus to exporters by establishing a Export Revolving Fund to finance export development and trade.
While he observes that the Export Promotion Council has so far done a commendable job in helping exporters with information on export markets, requirements, standards and even assistance on product development, the Exporter is left to source funding from financial institutions of his choice.
This arrangement works quite well for big time exporters in coffee, tea, oil re-exports, horticulture and other products.
As a strategy to enhance Kenya's export drive, it is perhaps opportune to consider the establishment of such a Fund that would operate on lines similar to the Youth and Women Funds.
While The Youth and Women funds are largely geared towards empowerment, job creation and income generation, the Export Revolving Fund should be geared towards enhancing our export drive by providing finance for export development and trade finance, which would not only augment what is provided by banks but would also give a lease of life to those venturing in the export market.
According to one financier, such a Fund, while laudable, would best be entrusted with those with adequate experience on trade finance or be placed under the Export Promotion Council as a special department.
It may also be worth considering the establishment of a Venture Capital Fund dedicated to export development.
In the view of an international trade expert, SMEs should not expect subsidized credit from such a Fund or to be shielded from such vagaries like exchange rate losses since the World Trade Organization, WTO does not permit it.
While admitting that the overall world trade is projected to decline by two per cent due to the current global economic crisis, he opines that it may also be opportune for Kenya to assess the possibility of establishing an Export-Import Bank whose sole function would be to finance and facilitate the export drive while ensuring efficiency and timely financing of imports, particularly intermediary inputs.
In the view of one handcraft and textile exporter, there is a general consensus that a deliberate strategy should be adopted to enhance Kenya's export drive.
He however recommends that a study be initiated to assess the potential and viability for the establishment of the Export Revolving Fund, a Venture Capital Fund dedicated to export development or the much awaited Export-Import Bank.
Maina is the executive director of Sembast Capital Advisors and former head of research and corporate affairs at the CMA.
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