Access to finance programme
Facilitation of access to Finance for MSMEs
The role of MSMEs globally is significant as it offers economic health and diverse opportunities to the development of the economies. Lesotho’s small businesses’ market is growing, albeit slowly (Index Mundi, 2013). According to the Ministry of Trade and Industry (2012), unsuccessful MSMEs are forced to exit the market due to harsh environmental factors and this has affected the economy negatively, more so because MSMEs are the biggest employers who contribute 9.1% to GDP and absorbs up to 20% of employment of the labor force. Furthermore, MSMEs sector employs nearly 10% of the total population of Lesotho over the age of 17 years (FinScope MSME Lesotho, 2015). The major factor leading to the slow growth and failure of the MSME sector is lack of access to finance. This does not only affect the performance of MSMEs, it also affects performance of Business Development services, BEDCO in particular.
As enterprise development agency, BEDCO has made concerted efforts to address problems of access through a number of ways not limited to Corporate Social Responsibility, leveraging on partner’s financial resources, MOUs with financial institutions etc. Notwithstanding this fact, only a small portion of SMEs have benefitted, and the approaches used have not been inclusive to accommodate even the informal and marginalized groups. BEDCO therefore, continues to improve and come up with inclusive and innovative financing models for small businesses.
Despite the important role the SMEs sector play in Lesotho’s economic growth, they continue to face myriad challenges towards accessing funding. This hinders progress and success in many ways in terms of innovation, diversification and expansion to mention a few. With adequate financial support enterprises are likely to succeed but they fail to grow and contribute little to the economic growth as a result of funding constraints. The current financing streams used by MSMEs are traditional channels such as banks. This has posed to be a hindrance since banks do not consider peculiar characteristics of MSMEs and thus those who are potential start up fail to establish businesses. A significant number of MSMEs are informal hence they are not supported by financial institutions due to their legal status. According to Fin Mark Trust (2017), 58% of MSMEs in Lesotho use own funds as a source of capital, while 21% use informal means, only 3 % use formal channels such as banks to get funding while 4% uses other means.
One other factor that determine financing of MSMEs is the life-cycle stage of a business. If the business is a start-up, they have great difficulty accessing financing because of their failure to meet the requirements of suppliers of finance. In this situation, it is the responsibility of BEDCO and other BDS to formulate and implement inclusive strategies that will enhance access to finance for SMEs sector.
To this end, BEDCO is implementing a new Access to Finance project which will explore nontraditional methods of financing for MSMEs. These models will benefit all MSMEs ranging from Micro to Medium Enterprises. The methods adopted include:
- BEDCO seeking Venture Capital firms who wish to invest in our MSMEs and linking such to local businesses through linkage platforms,
- BEDCO establishing an Angel Investment Network within the country.
- Asset Based Financing
- Factoring (Invoice buying).
- Purchase Order Financing.
- BEDCO working as a fundraiser for local MSMEs,
BEDCO also has annual business proposals competitions whereby MSMEs, Youth and Women compete for seed capital or expansion grant of their businesses, the following programs are currently running:
- Bacha Enterprises Project; this project is a collaborative effort of BEDCO, Standard Lesotho Bank and Lesotho Revenue Authority, whereby youth between the ages of 21-35, having completed their high school certificate can enter to win their share of M700 000.00 currently, a minimum of four (4) businesses are awarded annually.
- Business Plan competitions; this project with support of the African Development Bank under the EDSP currently awarded 10 MSMEs sharing a lump sum of M 1 000 000.00 as either seed capital or for business expansion.