N’Guenor Codioro Haroune: “between banks and SMEs, I love you, neither do I.”

Accused of despising small and medium-sized enterprises by asking them for excessive guarantees, the banks defend themselves by highlighting the lack of transparency and the undercapitalization of these companies. Nothing is irreversible, explains N’Guenor Codioro Haroune, co-founder of the audit and consulting firm N&A Global Consulting Business & Advisors based in Nouakchott. This experienced consultant, with a PhD in management science, worked for nearly 20 years at Deloitte Morocco, where he accompanied prestigious clients in Morocco and Mauritania.

How do you explain that SMEs find it so difficult to access credit and that the interest rates charged to them are so high?

Before answering your question, let me remind you of the importance of this category of companies in the African productive fabric. In fact, the contribution of SMEs to competitiveness, economic development and employment is recognized worldwide, and SMEs, which make up 95% of the continent’s companies, continue to suffer from poor investment and financing capacity. Often undercapitalized, they do not have sufficient guarantees to present to banks, while bank financing is the main source of external financing. The financing of SMEs represents a decisive problem for African banks, which cite the lack of transparency of small and medium-sized enterprises in terms of governance and financial communication as the main obstacle to the extension of credit to these structures. The cost of bank credit is also a real obstacle. In fact, during the seed, start-up or expansion phases, young companies with high potential are unable to meet the monthly installments of their bank loans. Therefore, for better control of banking risks, credit institutions require more guarantees from new and small businesses that are vulnerable to market fluctuations. As a result, several projects obtain high-cost credit and other viable projects are discarded by the bank and do not access the necessary funding to start their own businesses, preventing the emergence of citizens’ initiatives or encouraging innovation.

From your experience as an auditor, what should be improved on the side of SMEs and banks?

In Mauritania, for example, the external environment of SMEs appears to be a source of threats and constraints for them. The financial aspect of the bankruptcy of SMEs is not the exclusive consequence of the presence of the bankruptcy of these, but is the result of the reciprocal interaction between all its aspects. If the transformation of the nature of the relationship between bank and company is necessary, it must be carried out in the context of a global approach that prepares the conditions for the establishment of a lasting relationship of trust between lender and borrower.

From our experience, the way out of the crisis of the bank-SME relationship is divided into two axes: the first axis arises from the financial aspects. The search for a lasting relationship of trust between the bank and the company requires greater transparency between the two parties. The second axis is the result of a comprehensive system of support for SMEs. These are all measures and support structures aimed at overcoming and overcoming the many difficulties that the company is facing. The reluctance of banks must turn into support for the development of SMEs to avoid a difficult situation. To do this, the support must be part of a global and coherent approach, which presupposes favoring an ecosystem of SMEs that requires the full participation of these companies, taking into account their characteristics, their needs and the specific means they have at their disposal. The involvement of the latter allows not only to highlight the success factors but also to anticipate and control crisis situations.

How does the atomization of banking supply and the low number of critical mass banks on the continent hinder the financing of the economy?

The atomization of bank supply and the low number of critical-sized banks on the continent are holding back the financing of the economy. Limited, fragmented and characterized by strong disparities, the banking sectors in Africa are unable to meet the financing needs of the private sector. Indeed, in the first place, the small size of many economies on the continent does not allow banks to take advantage of economies of scale. Clients wishing to carry out small transactions, including working-class and middle-class households and small businesses, are therefore excluded from traditional financial services. The highly dispersed population in many African countries further limits the effective size of the market. Providing financial services outside of urban centers is rarely profitable within the traditional business models of banking systems. Second, a large number of economic agents operate in the informal sector, which increases the costs and risks for banks and, consequently, excludes a large part of the population from traditional financial services. Thirdly, volatility – both at the individual level, linked to fluctuations in the income flows of a large number of firms and households, and at the aggregate level, linked to the dependence of many African economies on raw material exports – further increases costs. and risks for banks. Finally, governance issues continue to undermine many banks across the continent and are not just about market-based service delivery. In short, the banking sector needs to harmonize and work together to achieve a critical mass that allows it to focus on the radar of the international market and to be able to present a homogeneous area and collect the long-term resources that could finance the continent’s development.

Does a consolidation move in the banking sector seem plausible to you?

It would be difficult to answer in the affirmative, due to the strong regional disparities in the banking sectors in Africa. It is clear that the continent’s banking sector is not very efficient and needs to be restructured to increase the level of competition by creating banks of sufficient size to meet the needs of the entire local private sector. The Covid-19 crisis highlighted the urgency to strengthen the banking sector, make it more resilient and innovative, increase banks and bring out national champions. Already heavily involved, development finance institutions (DFI) can encourage consolidation processes, support the emergence of Pan-African champions and promote access to long-term resources. To date, however, few countries have committed to restructuring their banking sector; those who have succeeded remain the exception. Nigeria is one of them and this restructuring is now starting to pay off, with several banks having reached a size large enough to generate real returns to scale and finance large local private sector operations. The banking sector of Central Africa and, to a lesser extent, that of West Africa are still mostly at the beginning of their maturation phase. The superficiality of financial systems is obviously an obstacle to the development of the local economy, and in particular of the private sector. In general, the transversal positioning of FDIs allows them to bring together banks capable of developing synergies and, in so doing, to promote regional banking integration and the dissemination of know-how between different markets and thus allow the emergence of resilient and innovative. This type of support would allow banks to learn about neighboring markets by gradually moving beyond their borders and thus helping to strengthen the capacity of African banking systems.

What are the main concerns of investors who come to consult you in your office?

The main concerns of investors who come to consult us are mainly tax, legal, judicial and administrative. To these difficulties are added those relating to human capital.

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