Lack of capital and skills are the main barriers most small and medium-size enterprises (SMEs) face in Africa. How can Business Development Services help SMEs to overcome these barriers? We ask Allert Mentink, CEO of SME Impact Fund in Tanzania.
Which challenges face SMEs to their business growth?
“ Limited financial resources (working capital) and a lack of skills (professionalism) are the most critical challenges SMEs in Africa face” explains Allert Mentink, CEO of SME Impact Fund. “Especially in the early stages of entrepreneurship, SMEs need to invest to be able to grow. Often the profit of one operating cycle is insufficient to fund the extra working capital required for the next operating cycle. A difficult step for most SMEs is the transformation from informal to a formal professional business. It takes management skills, knowledge, focus, strategy and good procedures. To become less vulnerable, it is important SMEs learn to tackle the challenges proactively rather than regarding it defensively.”
Why is it so difficult for SMEs in Africa to get access to finance?
“Banks require (audited) financial statements before granting credit, while most of the SMEs do not have proper accounting statements records or solid business plans”, clarifies Allert. “It makes is difficult to judge the creditworthiness of SMEs. Also their businesses are often not compliant with legal, regulatory, accounting, and disclosure requirements of banks. You can say only few SMEs have the securities required for conventional collateral based bank lending.” Investing in SMEs takes time, energy and patience. “As SME Impact Fund we get funding for BDS support. It allows us to spend time with the SME and to get a good insight in the financial records and capability of the entrepreneur and enterprise” continues Allert. “And of course time to coach the SMEs on the long run, to help them improve their performance even further. Moreover we are prepared to take a higher risk and our requirements are less demanding.”
How can Business Development Services help SMEs?
Business Development Services are non-financial services and products offered to entrepreneurs at various stages of their business needs. These services are primarily aimed at skills transfer or business advice. For example: bookkeeping, business formalization, financial planning, projections and investment decisions. “Shortly, BDS has two key roles”, Allert emphasizes. “It can act as an enhancer of access to finance and assist entrepreneurs to run their business more effectively and become sustainable. This way SMEs can realize their full potential, create jobs and increase the growth of the economy.”
Why is it so important to combine BDS-support and financial services?
“BDS can help SMEs to perform at a higher level and run their business formally”, says Allert. “They can also identify if a SME is able to pay back the loan. This way financial institutions are more likely to approve loans to SMEs. And the best guarantee for loan repayment is a successful SME. So BDS is a win-win situation, both for SMEs and financial institutions.”
So getting access to finance is the key for SMEs to become successful, and to get the key, you need BDS?
Allert: “Adequate financial means are indeed very important for SMEs to grow and BDS can act as an enhancer to finance. But I think it takes much more than only financial resources to become successful on the long run. You can have the money, but without skills, knowledge, focus and strategy etc…it will not bring you success. Finance can increase economic growth and impact, but if SMEs really want to improve their performances and make their company more sustainable, they need BDS.”
