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A new survey conducted by the African Development Bank on East Africa’s banking sector has revealed that banks in the region find it easier to do business with small and medium enterprises.
The surveyed conducted among Uganda, Kenya, Tanzania, and Zambian banks, views SMEs as ‘highly profitable’ and important providers of employment in the region.
The report, titled “Bank financing to small and medium enterprises in East Africa’, found that the SME segment is a strategic partner in the growth of the region’s banking sector.
“SMEs are considered as profitable business prospect and provide an important opportunity for cross-selling. The lending market to SMEs are large, not saturated and with a very positive outlook,” the report reads in part.
The report said banks in the region have studied factors related to the nature of SMEs, enabling them to do business with them.
Factors such as macro-economic environment, regulatory and the legal and contractual factors have also been supportive in growing the relationship between the two sectors.
The report notes that the trend should be encouraged through reforms to soften the negative impact of those obstacles which are hindering further involvement of banks with SMEs.
It encourages that SMEs are important for employment contributing an average of 60 percent of total formal employment in the manufacturing sector.
According an earlier research; ‘Taking into account the contribution of SME sector to job opportunities’, SME contribution is even more important accounting for about three-quarters of total employment in manufacturing.
However, SMEs in Africa are lagging behind compared to other parts of the world when it comes to accessing credit.
The survey reveals that only 20 per cent of SMEs in sub-Saharan Africa can access credit from a financial institution compared, to 44 per cent in Latin America and the Caribbean.’
The report also notes certain similarities among the four countries where the survey was conducted. Kenya, Tanzania, Uganda and Zambia are all growing, thus they have put in place various financial reforms over recent years, with their banking systems becoming increasingly integrated.
In fact, the survey is part of a wider regional project from the AfDB with the objective of identifying best SME lending practices as well as constraints that impede growth in the SME finance market and draw relevant policies.
Exposure by banks in the region to SMEs as measured by the proportion of SME loans to total lending is 37 per cent on average.
Kenya, according to the report, has the highest SME exposure at 50 per cent, followed by Uganda with 42 per cent, Tanzania with 37 per cent and Zambia with only 18 per cent.
By Dorothy Nakaweesi : The Monitor Newspaper
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