By John Molanda, Head: Transactional Banking Sales (Business Banking), Absa Corporate and investment Banking and Preshan Rambridge, Regional Segment Head: SME, Relationship Banking, Absa Group

$110bn per year.

This is not only the annual Trade Finance gap on the African continent, it is also the size of opportunity that exists in the small and medium-sized enterprise (SME) sector. With this in mind, it is vital for us as a bank to truly understand the needs of SMEs and how we can help them respond to the challenging operating environment.

It has been an incredibly trying couple of years for SME owners and entrepreneurs who have not only had to navigate the COVID-19 lockdowns but are now having to cope with disrupted global supply chains, uncertainty around electricity supply and a rising interest rate environment.

Despite these challenges, we have been surprised by the resilience of the entrepreneurs we work with. Our close relationship with these SMEs gives us the opportunity to respond with tools that equip them to continue being the engine of the SA economy.

What are the biggest challenges SMEs are facing and how are we supporting them?

Access to finance probably remains one of the biggest challenges for SMEs and yet how often does somebody raise the analogy of a bank only offering you an umbrella when it is sunny? 

The Trade Finance gap on the continent is well documented. A scenario we often find is that our clients are running good businesses but don’t necessarily have the financial controls in place that we look for when allocating funding. 

Maybe there is some added complexity because these businesses have had to rebuild their balance sheet having had to navigate COVID-19.

If we simply assess this business through an automated system, it is likely that we would be unsuccessful in seeing its real potential. If we purely look at the financial statements as the “rear-view mirror” of financial performance, then we could be missing out on an opportunity to unlock value for this entrepreneur.

As part of our Relationship Banking offering, a Relationship Banker can step in, supported by Sector and Industry Specialists that can provide insights and knowledge into the SME’s short to medium term plans and at the same time come up with fit-for-purpose solutions.

Absa recently acquired a minority stake in in the agri-tech start-up, Khula! which has built an ecosystem of three platforms that addresses challenges across the agricultural value chain.

This includes a Fresh Produce Marketplace that connects small-scale farmers, commercial farmers or distributors of fresh produce with retail, wholesale and export buyers and an Input Marketplace where farmers can buy products and services including seed, plant health, plant protection and animal health products, from leading industry suppliers. The acquired stake in Khula! shows that we are investing in relationships where we can match our funding ability to the specific requirements of SMEs to support sustainable solutions.

If we zero in on specific requirements for SMEs, an unstable electricity supply situation makes it very challenging to do business. To this end, Absa has taken to market its “Green Energy Subsidy Grant” as a tool to assist entrepreneurs in overcoming the high costs associated with alternative energy solutions such as solar. This solution has proven popular with our clients who are now able to save up to 10% on a solar installation as well as accessing other tax breaks including the recovery on the VAT.

The SME ecosystem is critical to the growth of South Africa and the African Continent. As a bank, we are cognisant that the operating environment is challenging. While technology has enhanced our ability to engage with our clients, we have recognised the value of a strong focus on Relationship Banking which has meant we can be responsive to the challenges that SMEs face and deliver appropriate solutions that keep our economy moving forward.