Banks consider construction high risk

MBABANE – Construction firms are struggling to get loans from financial institutions, because they are considered high risk.

This was revealed during the CIC stakeholders’ forum. The CIC CEO, Machawe Mnisi, highlighted that among the challenges that were affecting local construction firms was limited access to funding.

He mentioned that local firms did not have credibility, according to assessment by financial institutions, thus limiting them from accessing funding.

He said this had crippled the firms’ ability to grow and participate in construction tenders.

Several associations in the construction industry also voiced out the issue of performance bonds that they were unable to obtain through local banks. Performance bonds are a subset of contract bonds and guarantee that a contractor will fulfil the terms of the contract.

The contractors asked for government’s support in the issue of financial banks. They mulled the option to enter into a partnership with government, in terms of availing a supporting document, that would aid them to get the loans from the financial institution.

Risk

“Let us make sessional bonds through the assistance of government, because banks at least would warm up to the construction industry. Banks cannot give us money, because the industry is classified under risk industries. We end up using loan sharks to get money.

You might need to form a construction bank, because it might understand the operations of the industry. There is too much red-tape in banks,” said one of the contractors.

The Principal Secretary (PS) in the Ministry of Public Works and Transport, Thulani Mkhaliphi, said they had tried to form a tripartite transaction between government, contractors and banks.

Willing

He shared that there were some banks willing to assist the local contractors.

“The banks have spoken to us and there were contracts that we had signed in the tripartite agreement,” the PS said. Mkhaliphi explained that banks were always managing risk.

“They understand the business very

well, but they say it is high risk,” he said. The PS told the forum that the banks gave them profiles of the individuals who operated in the sector and classified them as high risk and presented to them how they classified them as such.

By signing the tripartite agreement, the PS said it meant the banks were going to use government as surety, therefore, they needed to know the activities of these businesspeople’s special accounts, basically the transacting account for that particular project.

“All the contractors that were engaged in the tripartite ran away and government and the banks were left wondering,” Mkhaliphi said.

The PS said government was willing to form policies that would address the issues that were raised but they needed to be convinced that the contractors were trained in vigorous financial management systems.