The Finance and Private Sector Development Specialist at the World Bank, Chrispen Mawadza has said that taking international lessons of the Credit Guarantee Scheme (CGS) design into account will be critical in ensuring success as the Reserve Bank of Zimbabwe ( RBZ) progresses with the plan.
Credit Guarantee Scheme is a Government initiative that is set up to encourage additional lending to commercially viable Small and Medium Enterprises (SMEs) which, under normal lending criteria, are unable to obtain new or additional facilities from their bank.
“As the Reserve Bank of Zimbabwe progresses with the design of its own Credit Guarantee Scheme – taking these international lessons of scheme design into account will be critical in ensuring success – while recognizing that it will take time and training to ensure the necessary familiarity with the scheme, by both banks and customers.” said Mawadza on the World Bank website.
In May, the Vice President of Zimbabwe Emmerson Dambudzo Mnangagwa said that the establishment of a CGS would facilitate access to finance by SMEs without collateral through credit risk sharing between the RBZ and financial institutions.
Mawadza discusses CGS as experts from India, Malaysia Korea and the United States participate in a three-day conference in Harare under the theme “Reigniting SME Development in Zimbabwe – Learning from Global Experiences”. The following are some of the cases of successful CGSSs and SMEs implementations according to Mawadza.
Malaysia
In Malaysia, 645,136 SMEs represent 97.3% of the entire enterprise sector. Their Credit Guarantee Corporation was designed in the early 1970s to help diversify the economy away from a very heavy reliance upon tin and rubber – as well as to move beyond the agricultural sector according to Mawadza. Since its establishment in 1972, it has provided 445,217 guarantees for a cumulative amount of $14.8 billion.
Korea
Emerging from a severe post conflict environment in the 1950s, Korea saw the importance of supporting its SME sector to help the economy recover and grow. Currently, Korea’s 3.4 million SMEs account for 99.9% of all registered businesses; 87.5% of total employment; and 47.6% of production. Their development has been supported since 1976 by KODIT which has been funded (mainly) by the government but also by the banking sector and by large enterprises. In 2017 it had outstanding guarantees of $41.1 billion – making it one of the largest credit guarantee agencies in the world.
United States of America
The Small Business Administration (SBA) of the United States, established in 1953, has a range of tools to support American SMEs including the Small Business Investment Company (SBIC) to provide equity for innovative SMEs, defined as “Ideas Rich but Capital Poor” enterprises. The SBA also provides a guarantee instrument for SMEs to encourage banks to lend to this sector. In 2016 – 69,264 guarantees were issued with a guaranteed value of $29.4 billion. Research undertaken over the period 1976 to 2009 indicates that 216, 203 guarantees had been issued – creating direct jobs at a cost of $31,932 per job.
Many in Zimbabwe are venturing into SMEs as unemployment persists in the country. This has resulted in the government taking steps like opening funds for the enterprises in order to curb the unemployment rate.
The World Bank Group, the Reserve Bank of Zimbabwe, and the Zimbabwe Reconstruction Fund are having a three-day conference on Small and Medium Enterprise Finance in Zimbabwe, as part of Zimbabwe’s National Financial Inclusion Strategy initiated in 2016.
