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Economic Review: Challenges To SME Financing In Cameroon 

By Kennedy M. Abang* — From individuals, households, one-man-owned and managed kiosks/boutiques to medium-size family-owned businesses, human enterprise knows no bounds.

Its potential is infitessimal. Business law reforms and, consequently, reforms to industry, trade and commerce are central to tapping the enormous potential of human enterprise. The private sector remains the largest employer in Africa (Cameroon, public sector = 196,000 in 19 million; Zimbabwe = 230,000 in14million).

There is massive social, economic and political mileage to be gained from developing the private sector, especially the small, medium and micro enterprise sector, SME. Its contribution to nominal GDP may be marginal, but it employs close to 80 percent of the employable population. Medium and long-term strategic policy blueprints (Rwanda-vision 2020, Botswana-vision 2016, Cameroon-vision 2035, Nigeria-vision 2020) all hinges on developing the private sector.

There is strong empirical evidence to the effect that lack of managerial expertise and capital are the major problems inhibiting the development of small businesses in most underdeveloped and emerging economies. Fiscal and monetary policy constraints notwithstanding, the problem of access to capital should be addressed by government as part of the medium to long-term private sector development kick-off. Low income levels and an ever increasing cost of living have resulted in dwindling disposable income for most families. The amount of capital that can be mobilised through personal and household savings has been highly compromised.

Cameroonians are inherently entrepreneurial. Cultural and social stereotype associated with borrowing, means many entrepreneurs shy away from procuring loans to develop otherwise viable ventures. Two factors contribute to this:

Africa is essentially a cash economy, we consume only what has been earned. The credit market is underdeveloped. Prevailing monetary policy regimes (especially in francophone Africa) encourages low monetarisation. Monetary indicators – M3, M2, M1 as a percentage of the total population still falls far short of what is obtaining globally. Because citizens cannot tap into the credit market and cannot have access to the limited amount of currency in circulation, leads to economic exclusion. While it can be argued that the low rate of monetarisation and the small credit market has afforded African economies monetary stability, it has come at the expense of growth and jobs creation. It is a trade-off that requires a very delicate balancing act, namely; Credit market expansion, jobs/growth and relative monetary instability or limited monetarisation, monetary stability and retarded growth.

In Cameroon and other parts of Africa, debt is seen to be inextricably tied to the persona of the entrepreneur. The “concept” or project is rarely seen in isolation. Even without the legal protection of incorporation, if properly and judiciously managed, the business and, by extension, its assets should, in theory, remain different from its promoters.

Globally, the absence of the separate legal persona is a challenge to accessing financing for SMEs. But variations do exist. Social and cultural differences make some communities more attune to the scientific management of businesses and consequently the respect for the sanctity or irreducibility of business capital. Education and business training is a major differentiator in this regard. Bookkeeping skills and data-based management decision-making are necessary.

The problem is further exacerbated by the lack of security/guarantee to obtain loans. Because they have little or no credit history, the requirement for a security further restricts business growth because of the onerous requirements placed by the State on the issuance of title. The process is riddled with administrative bottlenecks, corruption is rife and delays are endemic.

The recent decentralisation of the process has helped in reducing delays. Further simplication and stream-lining is necessary. Rwanda has been exemplary in this regard. Late last year, the State issued land titles free of charge to all those with rights over native, state or communal land.

While the recent development of the capital market is a welcome boost to the Cameroonian economy with regards to financing, it still falls far short of addressing the specific financing concerns of SMEs. For one thing, the listing requirements of the secondary board of the Douala Stock Exchange does not address the specific financing needs of a majority of Cameroonian SMEs, especially with regards to profit history and minimum capital base.

Most medium size businesses are family owned with a patriarchal management structure based on family lineage, tribal, cultural or other social affinities. These entities are void of a corporate culture and have deeply entrenched patronage that seeks to preserve the cult-like status around their founders. To leverage their absolute decision-making powers against public capital is something they shudder to contemplate.

The solution to the financing challenges faced by SMEs should be part of an integrated financial sector reform. Such reforms should target the development of the credit/debt market, investors’ education, strengthening institutional capacity to regulate and supervise financial services providers, increased automation and the full range of Information and communication technology, reduction in transaction cost, increased financial sector liberalisation and the development of innovative financing products tailored to the specific financing needs of a myriad of business promoters.

First published in The Post print edition no. 01338

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