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Enabling SME’s to Access formal Finance. By Sam Omukoko Managing Director Metropol Corporation Limited. In the beginning….Baseline Survey. A Survey carried out in 1999 in Kenya by : USAID GOK K-Rep

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enabling sme s to access formal finance

Enabling SME’s to Access formal Finance.

By Sam Omukoko

Managing Director

Metropol Corporation Limited.

in the beginning baseline survey
In the beginning….Baseline Survey
  • A Survey carried out in 1999 in Kenya by:
        • USAID
        • GOK
        • K-Rep
  • Established that out of the estimated 1.3 Million Micro and Small enterprises, less than 5 % had access to formal finance.
  • SME’s Contributed nearly 75% of the employment and about 18.5 % to GDP.
metropol s initiative
Metropol’s Initiative
  • Metropol undertook a Mini survey on lenders and SME businesses in 2003.
  • In 2004, we put a proposal to Pro-Invest of the European Union to assist us to develop a Credit scoring tool that Lenders could use in a low data environment.
  • APDF- A program of IFC also later joined on board and provided funding as well as expertise in scoring development.
  • Metropol Worked with a team consisting of : the Kenya Institute of Bankers; Uganda Institute of Bankers and Tanzania Institute of bankers together with 40 banks from Kenya , Uganda and Tanzania.
results of metropol s mini survey
Results of Metropol’s mini Survey.

This is what they said…………

Lenders.

SME Businesses.

They are unable to access long term funding.

Most support is short term.

High Cost of Capital.

Interest rate charged is too high.

Stringent Appraisal Mechanisms.

Too many documents required leading to lengthy waiting periods and stringent terms.

Lenders don’t understand their businesses.

Lenders emphasize too much on collateral and never analyze their business models.

Lack of capacity.

SME’s lack the capacity to provide complicated business plans and cash flow analyses.

  • High mortality rates;
      • Most SMEs don’t survive to the third year.
  • Lack of business data;
      • Scanty and unreliable data.
  • Small transaction values.
      • Higher cost/income ratios.
  • Diverse sources of income.
      • The source of repayment may not be the one initially appraised.
  • Lack of collateral.
      • No brick and Mortar support.
slide5

Metropol’s INITIATIVE to develop the SME scoring tool.

The entire project took 18 Months….. From 2004 to 2006.

Involved a lot of shuttling between Nairobi. Kampala and Dar es salaam.

The central hypothesis of the project was that SME businesses are largely owner managed

and their success depends on his character and business acumen.

slide7

Case Study 1: A MAJOR LARGE BANK CLIENT.

Sample size: 88 Customers.

Total Customers:504

Period : 2010- 2011

slide8

Case Study 1: Of the 4 Companies that defaulted…

  • None of them defaulted with the Bank doing the Site Verification but defaults happened with their other lenders.
  • Company 1 and 2 were listed with dormant accounts whose defaulted amount <1,000 suggesting the proprietors may have just assumed they finished paying off the loans.
  • Company 3 and 4 had both a loan and overdraft facility with other institutions. The loans appears to have been taken around the same period the application to the Bank was made.
  • Additionally, the defaults for 3 and 4 started 2 years after the site verification highlighting the need for regular monitoring.
slide9

Case Study 2: A MAJOR REGIONAL HOTEL.

Sample size: 74

Total Customers :504

Period 2010- 2011.

slide10

OUR NEW AND EXPANDED INITIATIVE;;;;;;;;;;;

To Develop the market through the Proactive Model.

SMEBS

Partner &Membership Program.

slide11

The objective of the SMEBS

Membership Program :

  • The SMEBS process is designed to accommodate the needs of lenders offering credit to the various different sizes of small business from entry-level, through micro and very small, up to full SME size.
  • This ensures appropriate:
  • SMEBS fees for the SME
  • Amount of data to be collected and verified for SMEBS
  • Tier of SMEBS membership based primarily on data availability and credit risk, i.e. SMEBS score
  • Costs of SMEBS processing
  • Costs for inquiries to MCRB for SMEBS Reports
slide12

SMEBS Membership program for SMEs:

SMEBS Credit Score

750

550

650

1,000

Rich

High

Platinum

SMEBS

00010001000

SME Ltd

SMEBS Tier Level

Gold

SMEBS

00010001000

SME Ltd

SMEBS Quantitative data

Silver

SMEBS

00010001000

SME Ltd

Data Composition &

SMEBS Report content

SMEBS Costs & Fees

SMEBS Qualitative data

Bronze

SMEBS

00010001000

SME Ltd

SMEBS Site Verification data + MCRB Alternative data*

Basic KYC and MCRB SME bureau credit report inquiry data

Basic

Low

Entry-level

Micro

Very small

Full SME

Typical SME Size#

slide13

Data and Rating Composition FOR:

BRONZE.

  • Data is acquired by the analyst / agent using a questionnaire structured to ensure that information is gathered incrementally as required in order to perform a rating appropriate to each level of membership.

SMEBS

00010001000

SME Ltd

Bronze– SMEBS credit score range 0 to 500

Basic contact information [sufficient to pass KYC and to make an MCRB Report inquiry]

slide14

Data and Rating Composition FOR:

Silver

SMEBS

00010001000

SME Ltd

Silver – SMEBS credit score range 550 to 650

Bronze data

Site Verification Data. This includes All the 17 predictive factors that were established in the Regression Analysis.

*NNN = score cut-off point(s)

slide15

Data and Rating Composition FOR:

GOLD

SMEBS

00010001000

SME Ltd

Gold – SMEBS credit score range 650 to 750

  • Bronze data + Silver data
  • Qualitative data
    • Owner manager characteristics.
    • Psychometric factors.
slide16

Data and Rating Composition FOR:

Platinum

SMEBS

00010001000

SME Ltd

Platinum – SMEBS credit score over 750

  • Bronze data + Silver data + Gold data
  • Quantitative data.
  • Statutory Compliance.
smebs on boarding process
SMEBS ON BOARDING PROCESS.
  • A 2 hour training is provided to cover:
  • CIS awareness
  • How CRB’s will help in Access to credit
  • How to improve their credit ratings
  • Tips on business credit management