Head of African SME association advocates for ‘Afro-centric’ credit facilities

The President of the All Africa Association for Small and Medium Enterprises has urged banks to abandon what he calls outdated and “colonial” templates for credit facilities in favour of ones that are tailored to the needs of African small and medium enterprises (SMEs). Jasper Ebiekure Eradiri raised the issue of barriers to finance for SMEs on Thursday, October 10, at the African Continental Free Trade Area (AfCFTA) business forum known as Biashara Afrika, in Kigali. ALSO READ: Focus on supporting SMEs, Kagame tells African leaders Recent estimates by the International Finance Corporation (IFC) indicate a trade finance gap for SMEs in Africa, exceeding $330 billion annually. Eradiri said that outdated financial credit templates used by banks present a major challenge for SME growth. “The financial institutions are operating with templates and platforms that are colonial, more than 200 years old and predominantly Western-based. They do not fit an Afro-centric approach to SMEs financing,” Eradiri stated. A large portion of SMEs in Africa lack to access necessary finance facilities needed to expand their businesses and engage effectively in regional trade. Currently, only 20 per cent of African SMEs can secure formal credit. ALSO READ: Rwanda to benefit from new agri SMEs de-risking fund He said the credit templates used by banks today fail to recognise that many SMEs in Africa operate informally. “SMEs in Africa are not only informal; they are resilient in their informal nature. We need a new approach to redesign these templates,” he said. “We are talking about engaging a hundred million SMEs across the continent. You can imagine what we need to provide for them to grow. Importantly, we must offer the critical ingredient for their development, which is finance,” he continued. ALSO READ: What listing of SMEs on local bourse means for the market Eradiri proposed suggested reforms in collateral-based financing which would find “African solutions to African problems.” “If institutions wish to maintain financial flow and empower SMEs, the criteria for collateral must be reformed. A business idea, for instance, should be considered as collateral, as well as degree certificates. We need to introduce new forms of collateral beyond the traditional systems,” he said in an interview with The New Times. ALSO READ: RSSB to launch Rwf30bn equity investment facility for SMEs Biashara Africa forum, which concludes on Friday, October 11, brought together African businesspeople, policymakers and trade experts, among other stakeholders. Risk of losing talent Susan Auma Mang’eni, Principal Secretary of the State Department of Micro, Small and Medium Enterprises Development in Kenya, highlighted the implications of neglecting the African SME sector, which is primarily composed of young people and women. She said the continent, which has a vast marketof 1.4 billion people, risked losing innovative ideas to other parts of the world with less barriers to finance. “Every time our young people interact in the digital space – in this world that has become a global village – they are sharing ideas that are then drained away due to our neglect. They sell these ideas,” Mang’eni said. “They are desperately seeking someone to support them, and often find that someone is facilitating their ideas elsewhere, only to return and sell them back to the continent.” Other emerging challenges for SMEs identified during the discussions included a lack of information, technical assistance, and market development, all of which are essential for SMEs to operate effectively.

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Head of African SME association advocates for ‘Afro-centric’ credit facilities