Tuesday, June 2, 2020

LEA’s equivalent in USA also acts as loan guarantor to SMEs

BY VICTOR BAATWENG

WASHINGTON, USA – Globally, the scale and depth of the challenges facing small businesses vary but the root cause of the problem appears to be similar: the funding simply does not go the same direction as the business needs.

However, some 66 years ago, one of the countries that lead the world in development of entrepreneurs – the United States of America (USA) established U.S. Small Business Administration (SBA) which helps Americans start, build, and grow businesses.

Allen Gutierrez ÔÇô Associate administrator of the Entrepreneurial Development, Small Business Development in Washington D.C, said during a visit Washington, D.C by Sunday Standard that his office’s mission is to help small businesses start, grow and compete in global markets by providing quality training and counselling needs of small business.

In Botswana the equivalent of US’s SBA is the Local Entrepreneurial Authority (LEA) whose mission is also similar to that of the latter. The big difference between the state owned organisations is that the American one can   guarantee loans made to small business by commercial banks and other leading financial institutions while LEA currently doesn’t.

The SBA provides an array of financing for small businesses from the smallest needs in micro lending to substantial debt and equity investment capital.

“While SBA itself does not make loans, it does guarantee loans made to small businesses by private and other institutions’, said Gutierrez last week.

Back in Botswana, small businesses while some have benefited from LEA’s incubation programmes, they at the same time continue to face serious challenges with the regard to access to finance.

The country’s central bank governor ÔÇô Moses Pelaelo recently told a group of journalists in the capital Gaborone that limited access to finance remains one of the key constraints to business growth in the domestic economy.

He also pointed out that the country’s Development Financial Institutions including LEA are of small size of their portfolios and they also face challenges in raising funding.

Still at the economic briefing, BOB Director of the Department of Research and Financial Stability at – Dr Tshokologo Kganetsano called on government to “let go” of the governance at the FDIs.

He stated that in general autonomous institutions are more successful compared to those that are run with active government involvement in governance.

Kganetsano said that to be effective and have the desired impact, the scale of operations and resources availed to FDIs should be much larger than current levels.

“A higher level of funding is needed to support large scale industrial projects and businesses, which might also involve infrastructure development”, Kganetsano says.

In Botswana DFIs include the Citizen Entrepreneurial Development Agency – CEDA, Botswana Development Corporation ÔÇô BDC and the National Development Bank ÔÇô NDB. The central bank has since recommended that the government should outsource development and industrialisation funds to commercial banks, where there is better project evaluation, monitoring and loan recovery.

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