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Towards enhanced access to finance for MSMEs

 …banks urged to have representation in all districts

Liapeng Raliengoane

MASERU – In effort to discuss and reflect on the rationale and implications of Lesotho Partial Credit Guarantee (PCG) Schemes, the Lesotho National Development Centre (LNDC) in partnership with the World Bank Competitiveness and Financial Inclusion program (CAFI) held a forum with stakeholders I Maseru.

It was at this forum that a consultant who was engaged with various MSMEs from all districts to get their views and challenges in meeting the requirements to be eligible for funding, disclosed that MSMEs list lack of bank representation in other districts as a challenge on their side of meeting requirements to be eligible for funding.

This was the first Partial Credit Guarantee forum and it went under the theme “The effectiveness of Partial Credit Guarantees as a public sector response to supporting enhanced access to finance for Micro, Small and Medium Enterprises (MSMEs).

Delving on LNDC Partial Credit Guarantee Scheme, LNDC Interim Chief Executive Officer Advocate Molise Ramaili said the LNDC PCG Scheme was developed to respond to the finance gap necessary to stimulate much needed growth in the private sector. “LNDC has successfully implemented the PCG scheme from 2011. However, due to the devastating effects that emanated from Covid-19 in 2020, the scheme was modified to mitigate those effects.”

On behalf of the Minister of Trade, Industry, Business development and Tourism, Principal Secretary Hon Thabo Moleko remarked that the event marked yet another milestone. That LNDC was established by an Act of Parliament known as Act No. 20 of 1967. It was amended as Order No. 13 of 1990 and again as Amendment Act No. 7 of 2000 which became effective on 25th October, 2000.

He said the role of the Corporation is to promote Lesotho as an attractive investment location for both foreign and indigenous investors while the ministry of trade is charged with the mission to create and maintain an enabling environment for business development, trade, investment, tourism, cooperatives, and Industrialization for private sector led job creation and poverty reduction.

“PCG is one of the mechanisms through which the government of Lesotho seeks to boost projects in production sector to fill the economic gap and provide the much needed financial muscle,” Hon. Moleko highlighted. 

The World Bank Group Senior Financial Sector Specialist Ayanda Mokgolo pointed out that Partial Credit Guarantee is a third party credit risk mitigation to lenders with objective of increasing access to credit for SMEs through the absorption of a portion of lender’s assets on the loans made to SMEs in the event of default in return for a fee.

That Partial Credit Guarantees are the most preferred instrument to address elevated credit risk and become a prominent policy response worldwide to support SME financing needs.

To achieve such objectives, an effective design of the PCG is crucial. “The World Bank Group 2015 principles for public credit guarantee schemes for SMEs present a generally accepted act of good practices for the design, execution and evaluation of public PCGs.” 

Mokgolo listed the following as key lessons and experiences in operationalizing PCG: strong regulatory and supervisory framework, capitalization, leverage ratio, coverage ratio, product mix, guarantee type and pricing model.

A consultant Molemo Motseki listed the key learnings as to why MSMEs struggle to achieve all requirements to be eligible for funding as the following: highlands communities say representation of banks in all districts will come in handy in a quest of helping them secure funding for their businesses.

Sustainability is also a challenge as businesses collapse. Business registration is not smooth. Retailers also do not practice collaborations they work in silos, market access issues are also not addressed. The solution is for businesses to be provided funding and support for them to become sustainable.

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