CBZ Holdings has announced that it is arranging to increase loans to Small to Medium Enterprises(SMEs) to the tune of $10million so that it can propel the growth of this sector. CBZ is reported to have increased their SME business by 28%.
CBZ is showing its commitment to SME’s by hosting this year’s SMEs Indaba which is running under the theme “Enhancing SME Growth through Smart Partnerships”.
The announcement by CBZ comes at a time when CABS announced last week that it received a $25 million loan facility from African Development Bank that is going to be channeled towards the SMEs sector.
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Why this sudden interest in SMEs by banks?
In the past, banks indiscriminately loaned to commercial enterprises (no matter the size) without paying attention to a particular sector. However, as some mature sectors(big companies) started struggling paying back their huge loans maybe because of reduced revenues, banks sought small and medium companies that venture in sectors that are not yet mature which could have room for expansion and generate enough revenue to pay back the loans.
Also, since SMEs require relatively small amounts compared to large companies, banks are seeking to reduce their loan default exposure by loans to SMEs. Remember that banks had a high percentage of non-performing loans (NPL) not so long ago and had to be bailed out by the government through RBZ.
Most lending these days is short term and that, in turn, is causing banks to charge high-interest rates to SMEs. Since SMEs are desperate to finance their activities, these high-interest rates are taking a toll on SMEs hence banks are now starting to design loan books that are catered for SMEs need of low-interest rates.
But it’s just my own analysis anyway
But CABS is now solving the issue of short-term loans
The loan facility availed to CABS by the Africa Development Bank is going to change the landscape in terms of the time for SMEs to repay loans. CABS loans to SMEs will be long-term as opposed to the short-term loans SMEs are currently getting from other banks.
Although the time which is regarded as a long term by CABS could be debatable in comparison to the time considered long term in other countries.