Non-Banking Financial Services: A Success Factor for Viable and Bankable SMEs in Africa

A Case Study of SME Support Agencies in the West African Economic and Monetary Union (WAEMU) Region

MFW4A organized a side event on 10 October 2017 on the sidelines of the Semaine Africaine de la Microfinance (SAM) / African Microfinance Week (AMW 2017) to advocate the importance of non-financial services in strengthening SMEs and facilitating their access to credit services. SME support agencies provide a variety of non-banking services such as coaching SMEs on how to set up and improve their organizational and management systems. They also assist SMEs develop and disseminate tools that help reduce information asymmetries such as rating systems with a view to improving SME legibility. The side event showcased the experiences of the Centre de Promotion et d'Encadrement des Petites Entreprises (CEPEPE) from Benin and the Agence de Développement et l'Encadrement des Petites et Moyennes Entreprises (ADEPME) of Senegal. Both entities are members of the SME Support Agencies Network (SA-PME/UEMOA) established by MFW4A. The CEPEPE assists SMEs to conduct feasibility studies and develop business plans. It also trains SME Managers in a variety of management functions tailored for specific sectors such as agriculture, water, renewable energies among others. In 2015, the 'FONAGA' fund, which CEPEPE runs on behalf of the Benin Government, helped mobilize more than USD 8 million from banks, the bulk of which were short-term loans. CEPEPE operates on a cost-recovery basis because it is privately owned and therefore has limited outreach to SMEs. As a state agency, the ADEPME offers more affordable services to SMEs. The services are usually rendered free-of-charge or on a cost-sharing basis with up to 75% of costs subsidized. ADEPME has also developed and implemented a rating methodology to assess the robustness and viability of SMEs. In 2014, ADEPME launched the "Labellisation" program, which seeks to select and rate approximately 400 performing SMEs. Since the programme began, the results have been exceptional. SMEs which qualified for the program have received remarkable positive responses on their loan applications - 45% in 2015 and 68% in 2016. The results illustrate the robustness of using the rating method to vouch for SME creditworthiness. The ADEPME has since signed agreements with the Banque Nationale de Development Economique (BNDE) and more recently with Ecobank-Senegal. The latter agreement encourages new SME clients to adhere to the rating methodology. ADEPME showcases the success of a cost-sharing service delivery model and the role of non-banking services in catalyzing loans for SMEs. Going forward there is need to: - (i) sensitize more lending institutions on the effectiveness of the rating methodology for clients of SMEs - (ii) mobilize additional grant resources to cover assessment costs for more SMEs in Senegal. - (iii) advocate for the other SME support agencies in the WAEMU region to receive subsidies and build their capacity to enable them implement the rating methodology. MFW4A will continue to emphasize the importance of providing non-banking financial services to strengthen SMEs and reduce information asymmetries to enhance SMEs' creditworthiness as well as promote the expansion of non-banking financial services such as leasing, warehouse receipts and factoring activities. The SAM was jointly organized by the Appui au Développment Autonome (ADA), a Luxembourg NGO, the AEMFI, the Association of Ethiopian Microfinance Finance Institutions (AEMFI) and major African microfinance networks, namely MAIN, AFRACA and AMT in Addis Ababa, Ethiopia from 09-13 October on the theme " Creating Value for SME's : A New Frontier for Inclusive Finance ".