1. SME Financing – A case of CRDB Bank PLC (Tanzania) Rehema Mhina Shambwe Senior Relationship Manager -SME DANIDA Development Day, Copenhagen 8-9 June

2. Presentation Outline 1.CRDB Bank Ownership 2.Bank’s Mission and Vision 3.CRDB Bank Plc Branch network 4.CRDB Bank’s Performance 5.Challenges faced by SMEs in Tanzania 6.Why SME Lending 7.SME Lending at CRDB Bank Plc 8.Enabling Factors 9.Status of SME Portfolio at the Bank 10.Internal Evaluation on SME Lending 11.Challenges faced by the Bank 12.Lesson Learned

3. 1.0 CRDB Bank Ownership CRDB BANK Plc is a private commercial bank established in July 1996. The Bank is owned by over 11,000 shareholders

4. 2.0 Mission and Vision of CRDB Bank The Bank aspires to be a leading bank, that is customer need driven, with competitive returns to shareholders. The bank’s mission is to provide quality and competitive financial services with a strong focus on retail banking and customized corporate and institutional services while ensuring confidence and trust from stakeholders.

5. 3.0 CRDB Bank Plc Branch Network/Coverage Currently operating 56 full and mini branches all linked via satellite for real time communication and 376 MFIs

6. 4.0 CRDB Bank’s performance Overview of Bank’s performance by end of Year 2008; S/nDetailsTZSUSD 1Total deposits1,275 bn980 mn 2Total assets1,447 bn1,110 mn 3Total loans837 bn644 mn 4Total Profit before tax60 bn46 mn 5Total tax paid19.5 bn15 mn

7. 5.0 Challenges faced by SMEs in Tanzania CRDB Bank conducted a survey before engaging in SME lending to find out what hinders SMEs from accessing finance, major outcomes were: SME segment perceived as a high risk one Inability of SMEs to provide collateral especially women and youth Some banks operates in limited geographical area Lack of tailor made products for SMEs Lack of adequate guarantee schemes Poor record keeping, lack of transparency in SMEs financial records Inability of borrowers to prepare and present applications/ Business plan that meet bank requirements Poor knowledge on business and operating law

8. 6.0 Why SME Lending at CRDB Bank SMEs play a significant role in employment creation, income generation and poverty alleviation. The Bank decided to complement their efforts by increasing their access to finance. The Bank aims at grooming its own corporate customers from micro entrepreneurs in 3 stages: i) Micro entrepreneurs supported by CRDB Microfinance Company ii) SMEs supported by Bank’s SME programme iii) Corporate customers supported by Corporate banking department

9. 7.0 SME Lending at CRDB Bank Plc Basically the survey revealed that SME segment is a risk one however profitable. CRDB Bank under DANIDA BSPS II support established SME operations in March 2005 that resulted in: 7.1 Customer Segmentation Before 2003 to March 2005 SME March 2005 To date Others

10. 7.0 SME Lending at CRDB Bank Plc… 7.1 Customer Segmentation… SME Definition at the Bank Income Sales Turnover Capital Invested No. of Employees Loan Amount USD 15,000 –740,000 USD 3,700 – 370,000 1 – 100 people including family members USD 750 – 150,000

11. 7.0 SME Lending at CRDB Bank Plc… 7.2 Capacity building 7.2.1 Capacity building for CRDB staff The Bank recruits new staff All recruited staff are trained intensively 7.2.2 Capacity building for SMEs The Bank is currently offering free business and loan management training to SMEs Trainees are issued with a book branded “SME Toolkit”

12. 7.0 SME Lending at CRDB Bank Plc… 7.2.2 Capacity building for SMEs… Toolkit training session

13. 7.0 SME Lending at CRDB Bank Plc… 3.2.2 Capacity building to SMEs…

14. 7.0 SME Lending at CRDB Bank Plc… 7.3 C ustomised products for SMEs The bank has two credit products for SMEs a Working capital loan and Investment loan: Loan amount from USD 750 to 150,000 Interest rates charged on outstanding balance Repayment is by instalments For working capital loan minimum repayment period is 3 months and maximum 12 months For investment loan, minimum repayment period is 12months and maximum is 60months No business plan and audited financials required for loan of USD750 to USD 37,000

15. 7.0 SME Lending at CRDB Bank Plc… 7.4 Increased range of collateral acceptance Before 2005 Traditional collateral only After 2005 Traditional collateral Non traditional collateral

16. 7.0 SME Lending at CRDB Bank Plc… 7.4 Increased range of collateral acceptance…

17. 8.0 Enabling Factors ENABLING FACTORS Capacity Building to Staff and SMEs (BDS) Guarantee Funds DANIDA BSPS II The above initiatives, enabled the bank to create a strong relationship with its SMEs and the end result is justified by the current status of SME segment at the bank.

18. 9.0 Status of SME loan portfolio since 2006 Details Year 200620072008 April 2009 No. of Loans processed 4401,4202,4633,136 Approved Loans (USD) 5.6mn22.3mn44.5mn50.7mn Customers trained5559501,4531,533 Portfolio at Risk (PAR) 00.83%0.88%1.6% Branches Rolled out202528

19. 10.0 Internal evaluation on Bank’s SME Lending Continuous evaluation is done on individual customer to measure the impact on: Training Loan extended Outcome: I mproved on business management Improved in loan management More women have been accommodated Increased in savings and improved banking culture Business growth hence increasing personal wealth Improvement on collateral

20. 11.0 Challenges to CRDB Bank High cost of screening and administering small loans spread over big areas Inadequate auditing and accounting framework Limited staff knowledge on specific and technical SME operating sectors Increasing training costs Versatility of SME segment Increasing need for support on start-ups for youth Limited guarantee schemes to support SMEs

21. 12.0 Lessons learned SME customers are trainable Each SME loan application is unique BDS given by financial institution motivates both staff and SMEs Customer capacity building done by financial institutions (BDS is more focused on increase access to finance) do create trust and loyalty The segment is profitable and bankable Character lending is possible

22. 12.0 Lessons learned… SME development require complete model of support with these components: Capacity building SMEs and staff Guarantee fund especially for women, youth and start-ups ICT development financial institutions and SMEs

23. THANK YOU THE END