"Assessment of an entrepreneur is neither transparent nor objective. There is the absence of professional competence in the assessment of the business plan\feasibility study
IKE THOLO | SME SOUTH AFRICA
The report was prepared based on surveys and interviews, an MoF official said quoting an ADB official.
The report has said banks and financial institutions provide less than required loans to borrowers resulting in slow development of the sector than its actual potential.
1. Mortgage of land is a major problem and often acts as a barrier to SME financing, the ADB has said.
2. "Getting a fault-free chain of ownership titles is difficult or takes a long time to establish and in most cases the value of the mortgage is higher than the loan sought," said the report.
Besides, the provision for guarantor deters the financing opportunity.
"While it is tough enough to find one guarantor to underwrite the loan, banks and financial institutions often require more than one guarantor," reads the report.
3. High interest rates of banks often hurt the growth and prospect of SMEs, the report has
pointed out, saying that the interest rates start to hurt business interests, particularly in situations where the interest rate is topped up with a service charge.
4. The process of bank loan repayment is not borrower-friendly for a number of reasons.
5. Excessive demand for documentations by banks discourages potential SME owners to rush to banks for loans, says the ADB.
6. "Lending institutions demand photographs of the business enterprise and the mortgages land. While this seems reasonable from the lender's point of view, for the borrower it gives rise to apprehensions about attracting undesirable attention from the municipal trade licence authority," reads the report.
The authority's compliance inspectors have been known to harass SME entrepreneurs for minor violations, indulging in rent-seeking behaviour, the report has added.
Furthermore, the ADB in its report has highlighted the challenges faced by Greenfield Enterprises.
"Assessment of an entrepreneur is neither transparent nor objective. There is the absence of professional competence in the assessment of the business plan\feasibility study. Greenfield ventures find it difficult to proffer evidence related to bank accounts, transaction records and bank balance," elaborated the report.
Asked, officials in the MoF said they had asked the BB authority to go throughthe report of the ADB on SME financing and address the genuine problems of borrowers in line with the findings of the ADB.