Co-op Bank ramps up support to SMEs

The fourth edition of the Banker Africa- East African Banking Awards 2018 were hosted on the 10 May 2018 in Nairobi to recognise outstanding performance and excellence in the financial services industry. Co-operative Bank was a big winner, scooping key awards notably The Best Retail Bank in Kenya and Best SME Bank in Kenya.

Commenting on the awards, the Group Managing Director and CEO Co-operative Bank Dr. Gideon Muriuki said,

“We have over the years worked hard to build a model that enables us to stay close to the customer, listen to their needs and glean insights on their long-term goals that we can confidently say we are offering the most competitive value proposition that SMEs and Retail clients can expect to ever get in this market.”

Co-op Bank already enjoys significant presence in the SME and Retail banking space. It is the recognition of the unique funding needs of SMEs that the bank negotiated and secured long-term funding from international development finance institutions essentially to fund SMEs.

Most lately, the bank recently secured a substantial US$150 Million (approx. Ksh 15.2 Billion) line of credit from the International Finance Corporation (IFC) for on-lending mostly to SMEs and favourable terms.

The lines of credit offer great support to SMEs in the following ways;

1. Flexible, long-term loan tenure, as the loans are offered to the bank with a long repayment period, the bank is able to extend the same benefit of long-term repayment period to SME customers.
2. Currency choice of loan facility, which allows SMEs to borrow in the currency of their choice, including US Dollars especially for SMEs engaged in international trade.
3. Competitive pricing, as the bank is able to extend the benefit of affordable pricing of the credit lines to customers, as opposed to higher pricing of locally-sourced funding.

Our practice in the SME space has served both the customers and the bank well, to wide acclaim both in Kenya and across the world.

Q 1.  SME financing

Is funding and support of small and medium-sized enterprises in the form of either bank loans, overdrafts, leasing and hire-purchase arrangements, asset-based finance, invoice discounting. The SMEs will basically have two needs namely:-

1. Working capital – The day to day expenses like stocking, salaries & wages, rent and others.
2. Investment capital– asset purchase like machinery, motor vehicles, business premises purchase

 Q 2.  What interests Co-op Bank about SME financing?

• MSME is a key growth area and the backbone of the Kenyan economy with over 30% GDP contribution and 87% jobs creation in the country.
• The strong projected growth in the Kenyan economy would drive growth in the MSME banking market, across all sectors
• Kenya’s status as a regional hub for technological innovation, especially in the mobile money realm, offers opportunities to leverage technology to improve efficiency, increase product offerings and reach the unbanked MSME customers
• The Kenyan government’s ambitious plans in the big four agenda and vision 2030 to improve infrastructure, especially in roads, railways, ports and power generation would generate MSME growth opportunities
• Cooperative Bank being in the fore-front of the major players in this category are keen on increasing our share by delivering unprecedented services and products to SMEs and position ourselves as the go to bank
• The existence of the opportunities in the value chains within MSME is enormous and if tapped efficiently provides a platform for growth in this key segment thus supporting the government agenda in growing this sector for economic expansion.

Q 3.  Can you mention some of the financing solutions you target with this group?

1. Working capital- Short term loans and overdrafts
2. Investment capital– Mortgage financing, asset Financing/hire purchase
3. Leasing
4. Supply Chain Financing – Potential to better leverage value chains of corporate customers through supply chain financing—more effective customer acquisition, better risk management
5. Mobile loans through developing more sophisticated credit scoring models that utilize diverse information sources to better access and manage risk associated with MSME customers
6. Trade Finance Solution- Tenders & performance bonds, Letters of credit & Guarantees, import guarantees
7. Insurance premium financing

Q 4.  What do you think are the impacts of your financial solutions to SMEs?

•  Cash flow injections boost –to cushion against any working capital dents
• Buying products or supplies at a one off price – enjoying available discounts(economies of scale)
• Funding expansion plans – finance for new products, services, extending your offices
• Delivering diversification – entering a new market so need finance for new equipment or machinery, staff, hardware and marketing
• Relocation – to fund new premises, IT, fitting out costs
• For property professionals, buying new property to grow a portfolio to increase yields or to convert property or change its use
• Purchasing land for future development – to build premises or a property scheme
• Tapping of the available business opportunities in the market
• Trade facilitation-ensuring smooth flow of goods either locally ,bilateral or international

Q 5. What do you think are the roles played by SMEs in social and economic prosperity of this nation?

• SMEs have ability to fuel economic growth  by expanding the tax base
• They are the primary vehicles by which new entrepreneurs provide the economy with a continuous supply of ideas, skills, and innovations+
• Growth avenue for Food security and health
• potential avenues for job creation, especially among the youthful & women population
• help the country address the imbalance between imports and exports through exportation and importation of products
• SMEs contribute to economic development by virtue of their sheer numbers and increasing share in employment and Gross Domestic Product
• SMES empowers and ensures the spread of financial literacy that helps to spur growth within the economy

Q 6. Are there current trends you see in this space? If so how have they impacted on your operations?

• Technology- Embracing use of Technology has led to reduction of cost especially operational costs
• Social media advertising-awareness and accessibility of information leading to more innovations and improved customer experience
• Fintechs and aggregators-Need for more collaboration and open intergrations to facilitate business transactions

Q 7. What future prospects can we look forward to in your relationships with SMEs?

• Artificial intelligence- data will be very key in devising new ways of serving these clientele
• Financial literacy and relationship management deepening
• Provision of linkages and networking opportunities
• Digital apps, e commerce, accounting application and ERPs intergrations