Opening the door for African exporters
Estelle Ahoyo is the chief executive officer of Ets Estella & Fils, a small enterprise in Benin that is involved in the production and export of fruit and vegetables. Her company has been growing steadily since it was established two years ago. Today, Ahoyo aims to avoid intermediaries and export products directly to Nigeria, Burkina Faso, Mali, Senegal and Niger. Looking forward, she would like to export to North African countries and eventually to European Union countries and the United States of America. The company has already identified potential clients, but lacks finance to increase production, buy appropriate packaging and comply with regional and international standards, which means these export plans have so far been just a dream. All attempts to get bank loans have been unsuccessful.
The problem faced by Ets Estella & Fils is common to many small- and medium-sized enterprises (SMEs) in developing countries. According to Cyprian Bangirana, chairperson of the Kagango Coffee Farmers’ Association in Uganda, lack of trust between financial institutions and micro-, small- and medium-sized enterprises (MSMEs), farmers and cooperatives has worsened since the 2008 financial crisis. That said, he also recognizes that reluctance from the banking sector is justified as many MSMEs, especially in Africa, are not well managed, have no accounting systems, no collateral and are not sustainable.
SMEs play a major role in economic development, particularly in developing countries where studies by the World Bank indicate that formal SMEs contribute up to 45% of employment and up to 33% of GDP. However, SMEs struggle to grow as they face various obstacles, the largest being lack of access to finance.
In 2008, ITC responded to this problem with an Access to Finance for SMEs programme designed to bridge the gap between SMEs and financial institutions. The programme builds the capacity of SME managers in financial management, in particular strengthening their financial soundness and ability to submit bankable projects. The programme also helps financial institutions enhance their ability to understand the needs of SMEs, evaluate the potential and risks of projects and monitor the performance of loan recipients. When required, it can facilitate a line of credit or guarantee funds with a development bank or agency.
Access to finance for small- and medium-sized pineapple enterprises in Benin
The Access to Finance programme is supporting the Agon Project – agon is the word for pineapple in Fon, a Beninese language – an initiative that runs from 2010 to 2012 and is funded by the Government of Finland. The programme’s objective is to help export-ready and exporting MSMEs, cooperatives and associations gain access to finance. The project is in line with the Benin Government’s development strategy and aims to develop the pineapple sector in Benin by promoting South-South trade and cooperation, thus improving the livelihoods of more than 3,000 people in the value chain. This is being done through increased access to finance and the use of mobile solutions to enhance exports to neighbouring countries and the Maghreb region.
In Benin, the pineapple industry has encountered several difficulties, mainly the high price of freight, deficient refrigeration capacity and packaging of the fruit. Before the project started, the local pineapple value chain was poorly organized. Pineapples from Benin were informally exported to neighbouring countries that exported the fruit to Europe, denying the country a crucial marketing and branding opportunity. Poor organization also meant growers and SMEs could not secure loans from local financial institutions to enhance production and marketing. Viable business opportunities were not receiving the credit they needed because poor financial record keeping by SMEs made it difficult for financial institutions to judge the viability of entrepreneurs’ businesses.
The ITC Access to Finance programme has been working since 2010 to address these barriers to trade and facilitate access to finance. Milestones in the programme include:
• Organizing two training sessions for 36 financial management counsellors, 30 of whom have been certified;
• Coaching 70 pineapple sector SMEs in financial management and development of business plans;
• Improving SME and risk mitigation knowledge of Bank of Africa (BOA) and Banque Régionale de Solidarité (BRS);
• Providing the Loancom credit scoring tool to BOA;
• Facilitating two guarantee funds with the French Development Agency (AFD) and Fonds GARI, a West African development bank;
• Negotiating a line of credit with Fonds National de Microfinance (FNM) to help microfinance institutions support SMEs.
Aminatou Bagoudou, chairperson of an association of women processors, is one of the beneficiaries of the project. ‘I am very thankful to ITC and ABEPEC (the Benin agency for the promotion of commercial trade – Agence Béninoise de Promotion des Echanges Commerciaux) for their valued support. The Agon Project, through its Access to Finance programme, assigned us a financial management counsellor, Fructueux Agbo, who has helped us for more than six months to improve the financial management of our association and to develop a business plan. The bank has approved our loan application for FCFA 25 million (US$ 50,000) after visiting our premises and interviewing us. The loan will be used to update processing equipment and buy more appropriate packaging with the objective of exporting processed pineapple juice to Burkina Faso and Niger where ITC and ABEPEC have helped us to close deals with some clients.’
The project partnered with BOA, BRS and FNM, three banks that expressed interest in increasing their SME portfolios and engaging in the pineapple sector. To enhance their appreciation of the potential and risks related to SMEs, a training session was organized for the lending officers of the financial institutions. Loancom, a tailored credit scoring tool that takes into account the financial and non-financial parameters of the SMEs and associations, was provided to BOA. This software will help the lending officers better assess the loan applications made by SMEs and associations.
The Benin project has also facilitated two guarantee funds with the AFD and Fonds GARI that can be used by BOA and BRS for the benefit of those in the Beninese pineapple value chain.
To ensure a multiplier effect and sustainability, ABEPEC has worked with ITC to implement all the project activities and has been provided with online financial management tools, essentially self-checkers, for its members. Léon Agba, a certified financial management counsellor and Agon Project project coordinator at ABEPEC, says, ‘The Agon Project is the first of its kind in Benin to address the needs of the agricultural sector in such an inclusive and holistic way. Having been actively involved in all the activities since the beginning of the project, ABEPEC has been empowered to sustain the achievements of the project and replicate them with other SMEs or in other sectors. As a financial management counsellor, the project has taught me a new methodology on how to coach SMEs effectively in risky sectors like the pineapple sector. Like the other financial management counsellors, I have built a long-term relationship with two SMEs and will continue to provide them with coaching and monitoring. As a staff member of ABEPEC, the project has been very beneficial both for me and my institution. The multiplier effect and sustainability are surely guaranteed.’
Access to finance in Zambia and Uganda
In Zambia, supported by funding from the United States Agency for International Development and the Government of Japan, ITC is implementing a project coordinated by the African Management Services Company that seeks to complement the African Development Bank’s lines of credit with similar arrangements at Zanaco and Investrust, two banks in Zambia that are committed to increasing their SME lending portfolios. During this project, ITC has trained 16 Zambian financial management counsellors to provide coaching to 70 MSMEs.
Eben Sibbuku, Senior Enterprise Development Officer at the Zambia Development Agency, says the agency has gained from the project. It has partnered with ITC to implement Access to Finance activities and has received three financial management self-checkers to upload to its website for the use of its members. ‘These self-assessment tools will help our member MSMEs better manage their accounting systems and make them more bankable when they apply for bank loans,’ Sibbuku says. According to Sebastian Kapalu, a financial management counsellor, the project is unique as it will not only change the way he works with SMEs, but also improve the distrustful relationships between financial institutions and SMEs.
In Uganda, as part of the Netherlands Trust Fund project, ITC is building the capacity of the National Union of Coffee Agribusinesses and Farm Enterprises to access finance for its coffee farmer associations. Bangirana, from the Kagango Coffee Farmers’ Association, has many expectations of the ‘great project that will help us get stock financing to pre-finance our production.’ He hopes ITC will help his association become financially sustainable and a real business. This entails aiding the association to diagnose its current financial management system and find durable solutions. The project is also expected to empower the association to provide efficient financial management and services solutions to its farmers.