While only 15% of small and medium enterprises in Botswana are unbanked, 90% of SMEs pay their staff in cash.
┬áThese are the findings of research, co-funded by the FinMark Trust and the Enterprise Banking Group, into the banking needs of SMEs in Botswana.
┬áThe research, based on a survey of 180 small businesses in five urban areas in Botswana, was designed to determine the banking requirements of small businesses and their employees and to verify whether these needs were being met.
The resulting report, Botswana Small and Medium Enterprise Under-Banked Market Research, states that more than two thirds of SME owners would not recommend their bank to a good friend. Also, a typical SME will, in 73% of instances, use cash to pay suppliers.
“Access to finance is a problem for Botswana SMEs, and the lack of access is holding back smaller firms from reaching their potential,” says Peter Hinton of Enterprise Banking Group.
“Improving SMEs access to finance could increase the growth potential of small businesses in Botswana.”
SMEs account for half of private sector employment in Botswana, employing about 220 500 people.
Almost half the enterprises surveyed were involved in trading and the rest came from all economic sectors, including manufacturing, construction, services and hospitality and catering. Businesses interviewed ranged from tire-repair shops to food and other retail outlets, beauty parlors, clothing factories, event management firms and farmers.
Almost three quarters of these businesses were started with personal savings or loans from family and friends. Only 13% were started with loans from commercial banks, and only 9% used money from government small business initiatives such as the Citizen Entrepreneurship Development Agency (CEDA).
Another problem identified by the report is the kind of products offered by the private financial institutions in Botswana. These are not tailored for the local market and tend to be watered-down versions of products that are predominantly development and targeted at South African conditions.
“This research provides a valuable insight into the depth of financial markets in Botswana,” says Mark Napier of FinMark Trust. “It shows that there is a tendency for the banks to shun the lower end of the market in favour of government and big business and it also points to ways in which government can serve the interests of small businesses more effectively,’
The research found that SMEs need a range of affordable banking products – from transaction banking to electronic payment of wages – as well as access to all types of credit, from short to long term. They also need to extend trading hours and clearly defined bank charges.
It recommends that several SME banking service products be offered: interest-attracting cheque accounts, easy-to-access and affordable bank cheque and drafts; term loans; staff accounts; and business mentoring services.
The report finds that, since having some kind of banking facility is a pre-requisite for credit, most SME employees, who do not operate bank accounts at all, do not qualify for access to credit.
The report also suggests that ATM-only transmission accounts could be offered, as well as electronic funds transfers, at an ATM or on a mobile phone, to third party accounts.
Other products could be employer-guaranteed loan schemes, personal loans against tangible security, and an Mzansi-type account. The promotion of an Mzansi-type account, such as that developed in South Africa, could serve the Botswana market well in areas of high density, such as along the eastern corridor where most of the population lives.
However, such an account would not work well in the rural areas, where there are no bank branches.
The report also identified a poor entrepreneurial culture as inhibiting the growth of this important sector, as well as a regulatory environment that made setting up a small business unnecessarily costly, resulting in more entrepreneurs choosing to operate outside of the formal economy.