ECGC in SMEs deal

RYAN CHIGOCHE

The Export Credit Guarantee Corporation (ECGC) is set to conclude a deal with  the country’s small to medium enterprises (SMEs) which will see the short-term insurer guaranteeing small entities’ loans from the financial institutions, Business Times can report.

SMEs have been battling to access funding from local financial institutions largely due to lack of collateral.

The development was revealed by Sekai Chirume, the managing director  of ECGC, which is a subsidiary of the Reserve Bank of Zimbabwe (RBZ).

Chirume told Business Times  that ECGC was  currently engaging with SMEs associations  such as the Small and Medium Enterprises Association of Zimbabwe (SMEAZ), ZimTrade and the Zimbabwe Association of Dairy Farmers, (ZADF), to come up with a programme for 2022.

“As ECGC we have also noted some SMEs are still failing to access finance due to various reasons and we continue to encourage banks, the micro finance institutions to extend credit facilities to SMEs at the back of our guarantee,” Chirume said.

She added: “As a result, we are having discussions with associations that have direct contact with SMEs such as SMEAZ, ZimTrade and ZADF.

“With their guidance, we are going to identify SMEs that are running viable businesses but are facing challenges in accessing finance due to a lack of collateral security.

“We will then take them to selected  banks or micro finance institutions and encourage them to extend credit to the SMEs at the back of our guarantee. This direct approach is still a work in progress and we expect to launch it in 2022.’’

In 2018 ECGC launched a product specifically to bridge the finance gap between SMEs after the Reserve Bank of Zimbabwe (RBZ) had noted that SMEs were facing challenges in accessing finance emanating from lack of collateral security.

RBZ then gave ECGC a mandate to come up with a product, the SMEs Credit Guarantee scheme, which seeks to address that gap.

Under this scheme, ECGC is targeting all lending institutions in Zimbabwe  such as banks and microfinance institutions.

To date, they have managed to sign agreements with 13 banks and 21  microfinance institutions and efforts are being made to increase the number of  lenders  participating under this scheme, according to Chirume.

Under the SME Credit Guarantee scheme, the entity approaches the financial institutions with a request for a credit facility.

The financial institutions will do its usual credit assessment and once they are satisfied with the project they usually ask for collateral security.

However, if the SME does not have collateral security or adequate collateral security but has a viable project, the financial institution  will then engage ECGC applying for a credit guarantee.

The SME must satisfy the minimum requirements of the financial institutions except for collateral security and as a result, the MSME might not end up qualifying for a loan despite having a viable business.

With the new direct approach program to be launched in 2022, it is vice versa.

Having made direct contact with the SMEs, ECGC will then assess and then approach the bank to extend credit facilities to a business on the back of their guarantee but also on the condition that the bank is willing to extend the credit.

Chirume said ECGC will keep supporting the financial inclusion agenda to support the SMEs since they are key to economic growth.

“We value the contribution and the impact of SMEs towards the growth of our economy and the role played by the financial institutions in supporting the financial inclusion agenda,” Chirume said.