How Tanzanian enterprises can solve financing puzzles

Monday February 08 2021
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By Josephine Christopher

Dar es Salaam. If you operate a Micro, Small or Medium Enterprises (MSME), then you have to start keeping your business records without much fuss.

At a time when MSME operators say lack of financing options was laying heavily on their operations, lenders say poor record keeping, business management skills and lack of securities are some of the factors that deter their interest in lending to the sector.

“Credit information is also a challenge. For example, some micro-loans and individual lenders to MSMEs are not available on the credit bureau. A lack or limited know-how on the business is also partly to blame,” said the Tanzania Bankers Association (TBA) chairman, Mr Abdulmajid Nsekela.

It is estimated that in Sub-Saharan Africa more than 60 percent of MSMEs need a loan and cannot access one.

MSME startups in Tanzania say the task of accessing financing for their projects was a daunting task.

Tanzania Start-Ups Association (TSA) say with the Covid-19 pandemic effects on businesses, a good number of startups will collapse if they do not get additional financing within the first half of 2021, according to TSA’s chief executive officer Mr Zahoro Muhaji.


He said TSA’s survey, which sampled some 1,000 startups in Tanzania on the impact that the Covid-19 pandemic, revealed that in 2020, operations of 42 percent of startups were in what they call “red zone”. They were left with four months or less of cash runway.

“This means that out of every 10 startups, 4 will die in the next four months if they do not raise additional capital and their revenue and expenses remain unchanged,” TSA states in its report.

“One of the propositions that the association thinks will help in addressing the financing challenges is, establishment of a state-backed Venture Capital Investment that can work with other financial institutions to provide funding to deserving and potential startups in Tanzania,” he said.

Mr Nsekela, who doubles as CRDB Bank Plc chief executive officer, said in meeting the SME financing demand many banks were open to reviewing maximum loans to a customer based on the size of the SME, project size, experience and capital among others.

“It should be noted, banks have access to finance in multiple option, so the maximum amount could be based on risk appetite especially to avoid over-financing,” he said.

He however noted that it was all was not lost for MSMEs.

“The risk is moderate and can be mitigated. I personally feel it is the duty of banks to assist MSMEs to conduct their businesses profitably. This is possible if we put in place proper policies and personnel with right skills and knowledge,” added Mr Nsekela.

He said MSMEs must also improve quality of their businesses and make gradual investments in some fixed assets. This would see them building up collateral without affecting their working capital and business operations.

MSMEs must also up their investment in business management skills to improve productivity and business/financial know how.

In its National Baseline Survey Report for MSMEs - which was published in December 2012 - the Financial Sector Deepening Trust (FSDT) stated that nearly 66.4 percent of the MSME’s were excluded from access to financial services.

FSDT also stated that about 10.6 percent of small business owners had access to formal financial services providers, about 10.9 percent to semi-formal providers and 12.1 percent to informal providers.

“Most small business owners who had a bank account had a savings account and ATM or debit cards. Small business owners did not apply for credit and loans in anticipation of refusal although the actual refusal rate was not very high,” the report asserted.

The government has also recognized the challenges that SME’s face in accessing funds and that this has limits their capacity to survive, increase capacity, upgrade its technologies and even in many cases, expand their markets and improve management or raise productivity and eventually increase incomes.

Its 2020/21 budget the government highlighted that it has plans to strengthen domestic resource mobilisation by undertaking several policy and administrative measures.

Former minister for Industry and Trade Innocent Bashungwa told Parliament during the tabling of the 2020/21 budget last year that the government will up its efforts in supporting MSMEs in the country by addressing several factors.

“The mobilisation has been carried out through the facilitation of capital financing for entrepreneurs by providing loans through the SME Credit Guarantee Scheme (CGS) which is jointly managed by Sido and CRDB Bank Plc,” he said.