Sur­vey re­veals fi­nan­cial in­clu­sion gap

Lesotho Times - - Business - Bereng Mpaki

LACK of fi­nan­cial in­clu­sion, cap­i­tal and lit­er­acy are among the main con­straints to the de­vel­op­ment of mi­cro, small and medium en­ter­prises (MSMES) in Le­sotho.

This is ac­cord­ing to the Fin­scope MSME Sur­vey Le­sotho 2015 that was con­ducted by the Fin­mark Trust (FMT) in con­junc­tion with the Min­istry of Small Busi­ness De­vel­op­ment, Co­op­er­a­tives and Mar­ket­ing and the Min­istry of Fi­nance.

De­vel­oped by FMT, the Fin­scope MSME Sur­vey is a re­search tool to as­sess fi­nan­cial ac­cess in a coun­try and to iden­tify the con­straints that pre­vent fi­nan­cial ser­vice providers from reach­ing the fi­nan­cially un­der- and un-served MSME own­ers.

The sur­vey was meant to as­sess the na­ture and scope of MSMES in Le­sotho and to iden­tify the most bind­ing con­straints to their de­vel­op­ment and growth with a fo­cus on ac­cess to fi­nance, in­fra­struc­ture, busi­ness de­vel­op­ment ser­vices and tech­nol­ogy.

It was also meant to find frame­works for the pro­vi­sion of fi­nan­cial as­sis­tance and poli­cies to sup­port small scale en­ter­prises.

Data col­lec­tion for the sur­vey was con­ducted from Septem­ber 2015 to Fe­bru­ary this year, with 2 182 adult busi­ness own­ers in­ter­viewed from 336 enu­mer­a­tion ar­eas around the coun­try.

The sur­vey de­fined mi­cro en­ter­prises as busi­nesses with less than six staff mem­bers; small en­ter­prises as busi­nesses with six to 20 staff mem­bers, while medium en­ter­prises were busi­nesses with 21 to 50 staff mem­bers.

At the time the sur­vey was con­ducted, there were about 76 000 busi­ness own­ers in Le­sotho, em­ploy­ing 118 000 peo­ple in­clud­ing the own­ers.

The sur­vey re­vealed the MSME sec­tor was largely (52 per­cent) driven by whole­sale, re­tail and agri­cul­ture.

It noted an over­all lack of busi­ness so­phis­ti­ca­tion in the MSME sec­tor with 45 per­cent of busi­nesses — around 35 000 of busi­nesses — clas­si­fied as least so­phis­ti­cated fol­lowed by 31 000 (41 per­cent) emerg­ing busi­nesses. Only 11 000 (14 per­cent) busi­nesses were found to have char­ac­ter­is­tics of a most so­phis­ti­cated busi­ness.

The sur­vey in­di­cated that about two-thirds of busi­ness own­ers were fi­nan­cially in­cluded while 35 per­cent of busi­ness own­ers (28 000) were fi­nan­cially ex­cluded; mean­ing they didn’t use any fi­nan­cial prod­ucts or ser­vices (nei­ther for­mal nor in­for­mal) to man­age their busi­ness fi­nances. Only 41 per­cent (31 0000) of busi­ness own­ers were banked and 12 per­cent (9 000) have/use other for­mal non-bank prod­ucts and ser­vices.

Three in five busi­ness own­ers did not have a bank ac­count. Of those us­ing bank ac­counts for busi­ness pur­poses, 71 per­cent used their per­sonal bank ac­count to man­age their busi­nesses’ fi­nan­cial needs. Only 15 per­cent made use of a busi­ness ac­count in the name of the busi­ness.

The main bar­ri­ers re­lated to bank­ing were af­ford­abil­ity with 65 per­cent of busi­ness own­ers in­di­cat­ing they were not banked due to mone­tary rea­sons. About 41 per­cent re­ported low in­come and 24 per­cent re­ported not mak­ing enough money from the busi­nesses while four per­cent did not know any­thing about bank­ing.

Ac­cord­ing to the sur­vey re­sults, 36 per­cent of busi­ness own­ers saved mainly with in­for­mal groups and only 29 per­cent saved with com­mer­cial banks. Around 40 per­cent of busi­ness own­ers did not save.

It in­di­cated that 91 per­cent of busi­ness own­ers did not bor­row or did not bor­row money for busi­ness pur­poses in the past 12 months prior to the sur­vey.

“This is at the back of the find­ings that show that there are three broad cat­e­gories of busi­ness con­straints; ob­sta­cles in­hibit­ing start­ing a busi­ness, ob­sta­cles in­hibit­ing smooth oper­a­tions, and ob­sta­cles in­hibit­ing grow­ing the busi­ness,” the sur­vey noted.

“The com­mon thread across the board is ac­cess to fi­nance. About 49 per­cent of busi­ness own­ers re­ported ac­cess to fi­nance as the lead­ing ob­sta­cle in start­ing a busi­ness, 35 per­cent of own­ers re­ported ac­cess to fi­nance lim­it­ing oper­a­tions while 20 per­cent at­trib­uted it to in­hibit­ing growth. Fur­ther anal­y­sis showed that only 2 per­cent of busi­nesses ac­cess credit from the com­mer­cial bank­ing sec­tor.”

The sur­vey par­tic­i­pants also in­di­cated the main con­straints to start­ing up a busi­ness was ac­cess to fi­nance (49 per­cent).

In pre­sent­ing the find­ings of the sur­vey this past week, FMT Chief Ex­ec­u­tive Prega Ram­samy in­di­cated ac­cess to fi­nance was an es­sen­tial com­po­nent to the MSME sec­tor’s de­vel­op­ment.

“Ac­cess to fi­nance is es­sen­tial for tap­ping the full po­ten­tial of an economy, thus boost­ing eco­nomic growth, im­prov­ing op­por­tu­ni­ties and in­come distri­bu­tion as well as re­duc­ing poverty,” he said.

“In the ab­sence of the avail­able ser­vices, the ben­e­fit of fi­nan­cial de­vel­op­ment is likely to elude many in­di­vid­u­als and en­ter­prises, leav­ing much of the pop­u­la­tion in ab­so­lute poverty.”

Mr Ram­samy added: “In many coun­tries, ac­cess to fi­nan­cial prod­ucts and ser­vices, amongst other con­straints, im­pinge on the growth of MSMES. This sur­vey, at­tempts to un­der­stand these fac­tors and pro­vide ap­pro­pri­ate in­for­ma­tion to pol­icy mak­ers and fi­nan­cial ser­vice providers so that they can ad­dress the sit­u­a­tion.

“Fur­ther­more, many busi­ness en­trepreneurs lack ba­sic busi­ness man­age­ment skills, and most im­por­tantly cap­i­tal to sup­port their busi­nesses. Other con­straints are lim­ited ac­cess to re­sources and com­pe­ten­cies nec­es­sary to meet chal­lenges of the busi­ness environment which al­to­gether pose se­ri­ous chal­lenges to the sus­tain­abil­ity and growth of the sec­tor.”

He also ex­pressed hope the sur­vey’s find­ings would be used to in­crease the MSME sec­tor’s ac­cess to fi­nance.

For his part, for­mer Small Busi­ness De­vel­op­ment min­is­ter Thabiso Litšiba said the find­ings called for in­creased in­ter­ven­tion by the gov­ern­ment in the MSME sec­tor’s de­vel­op­ment.

“The un­der­ly­ing mes­sage from these find­ings is that gov­ern­ment needs to scale up its in­ter­ven­tions. The num­ber of busi­nesses in the sec­tor is es­ti­mated at tens of thou­sands. But we seem to be only reach­ing out to a small frac­tion of them. This is the big­gest chal­lenge,” said Mr Litšiba who has since been fired from cab­i­net.

He said while Le­sotho’s fi­nan­cial in­clu­sion lev­els were com­par­a­tively high in the re­gion, there was need for im­prove­ment on ac­cess to credit and in­sur­ance prod­ucts.

“In­clu­sion lev­els for credit and in­sur­ance prod­ucts are very low, recorded at nine per­cent and two per­cent re­spec­tively. This pic­ture in­di­cates very lit­tle hope for this sec­tor to en­hance cre­ativ­ity and im­prove pro­duc­tiv­ity,” Mr Litšiba said.

“It fur­ther lim­its the po­ten­tial of the sec­tor to have the de­sired im­pact on em­ploy­ment as well as to en­cour­age tran­si­tion from the in­for­mal sec­tor to the for­mal sec­tor.”

He added: “Dis­turb­ing as these fig­ures may be, they are nev­er­the­less in­struc­tive in that they pro­vide feed­back to the gov­ern­ment, and our de­vel­op­ment part­ners, on the im­pact of the re­forms that have been em­barked upon to date. There­fore, the find­ings of this study should con­trib­ute to a deeper as­sess­ment of the im­pact of all in­ter­ven­tions. They also should point ar­eas for im­prove­ment.”

THE sur­vey noted an over­all lack of busi­ness so­phis­ti­ca­tion in the MSME sec­tor.

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