SME Financing

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• SME Financing A case of CRDB Bank PLC
  (Tanzania)
• Rehema Mhina Shambwe
• Senior Relationship Manager -SME
• DANIDA Development Day , Copenhagen
• 8-9 June

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Presentation Outline

• CRDB Bank Ownership
• Banks Mission and Vision
• CRDB Bank Plc Branch network
• CRDB Banks Performance
• Challenges faced by SMEs in Tanzania
• Why SME Lending
• SME Lending at CRDB Bank Plc
• Enabling Factors
• Status of SME Portfolio at the Bank
• Internal Evaluation on SME Lending
• Challenges faced by the Bank
• Lesson Learned

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1.0 CRDB Bank Ownership

• CRDB BANK Plc is a private commercial bank
  established in July 1996.
• The Bank is owned by over 11,000 shareholders

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2.0 Mission and Vision of CRDB Bank

• The Bank aspires to be a leading bank, that is
  customer need driven, with competitive returns to
  shareholders.
• The banks mission is to provide quality and
  competitive financial services with a strong
  focus on retail banking and customized corporate
  and institutional services while ensuring
  confidence and trust from stakeholders.

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3.0 CRDB Bank Plc Branch Network/Coverage

• Currently operating 56 full and mini branches all
  linked via satellite for real time communication
  and 376 MFIs

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4.0 CRDB Banks performance

• Overview of Banks performance by end of Year
  2008

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5.0 Challenges faced by SMEs in Tanzania

• CRDB Bank conducted a survey before engaging in
  SME lending to find out what hinders SMEs from
  accessing finance, major outcomes were
• SME segment perceived as a high risk one
• Inability of SMEs to provide collateral
  especially women and youth
• Some banks operates in limited geographical area
• Lack of tailor made products for SMEs
• Lack of adequate guarantee schemes
• Poor record keeping, lack of transparency in SMEs
  financial records
• Inability of borrowers to prepare and present
  applications/ Business plan that meet bank
  requirements
• Poor knowledge on business and operating law

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6.0 Why SME Lending at CRDB Bank

• SMEs play a significant role in employment
  creation, income generation and poverty
  alleviation.
• The Bank decided to complement their efforts by
  increasing their access to finance.
• The Bank aims at grooming its own corporate
  customers from micro entrepreneurs in 3 stages
• i) Micro entrepreneurs supported by CRDB
• Microfinance Company
• ii) SMEs supported by Banks SME programme
• iii) Corporate customers supported by Corporate
  banking department

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7.0 SME Lending at CRDB Bank Plc
Basically the survey revealed that SME segment is
a risk one however profitable. CRDB Bank under
DANIDA BSPS II support established SME operations
in March 2005 that resulted in 7.1 Customer
Segmentation
Before 2003 to March 2005
March 2005 To date
SME
Others
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7.0 SME Lending at CRDB Bank Plc
7.1 Customer Segmentation SME Definition at the
Bank
Income Sales Turnover
USD 15,000 740,000
Capital Invested
USD 3,700 370,000
No. of Employees
1 100 people including family members
Loan Amount
USD 750 150,000
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7.0 SME Lending at CRDB Bank Plc

• 7.2 Capacity building
• 7.2.1 Capacity building for CRDB staff
• The Bank recruits new staff
• All recruited staff are trained intensively
• 7.2.2 Capacity building for SMEs
• The Bank is currently offering free business
  and loan management training to SMEs
• Trainees are issued with a book branded SME
  Toolkit

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7.0 SME Lending at CRDB Bank Plc

• 7.2.2 Capacity building for SMEs
• Toolkit training session

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7.0 SME Lending at CRDB Bank Plc

• 3.2.2 Capacity building to SMEs

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7.0 SME Lending at CRDB Bank Plc

• 7.3 Customised products for SMEs
• The bank has two credit products for SMEs a
  Working capital loan and Investment loan
• Loan amount from USD 750 to 150,000
• Interest rates charged on outstanding balance
• Repayment is by instalments
• For working capital loan minimum repayment
  period is 3 months and maximum 12 months
• For investment loan , minimum repayment period
  is 12months and maximum is 60months
• No business plan and audited financials required
  for loan of USD750 to USD 37,000

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7.0 SME Lending at CRDB Bank Plc7.4 Increased
range of collateral acceptance

• Before 2005
• Traditional collateral only
• After 2005
• Traditional collateral
• Non traditional collateral

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7.0 SME Lending at CRDB Bank Plc

• 7.4 Increased range of collateral acceptance

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8.0 Enabling Factors

ENABLING FACTORS
Capacity Building to Staff and SMEs (BDS)
Guarantee Funds
DANIDA BSPS II
The above initiatives, enabled the bank to create
a strong relationship with its SMEs and the end
result is justified by the current status of SME
segment at the bank.
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9.0 Status of SME loan portfolio since 2006

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10.0 Internal evaluation on Banks SME Lending

• Continuous evaluation is done on individual
  customer to measure the impact on
• Training
• Loan extended
• Outcome
• Improved on business management
• Improved in loan management
• More women have been accommodated
• Increased in savings and improved banking culture
• Business growth hence increasing personal wealth
• Improvement on collateral

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11.0 Challenges to CRDB Bank

• High cost of screening and administering small
  loans spread over big areas
• Inadequate auditing and accounting framework
• Limited staff knowledge on specific and technical
  SME operating sectors
• Increasing training costs
• Versatility of SME segment
• Increasing need for support on start-ups for
  youth
• Limited guarantee schemes to support SMEs

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12.0 Lessons learned

• SME customers are trainable
• Each SME loan application is unique
• BDS given by financial institution motivates both
  staff and SMEs
• Customer capacity building done by financial
  institutions (BDS is more focused on increase
  access to finance) do create trust and loyalty
• The segment is profitable and bankable
• Character lending is possible

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12.0 Lessons learned

• SME development require complete model of support
  with these components

Capacity building SMEs and staff
Guarantee fund especially for women, youth and
start-ups
ICT development financial institutions and SMEs
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THANK YOU
THE END