An SME Lending Toolkit pilot programme led by the World Council of Credit Unions (Woccu) has led to the distribution of 1,767 loans worth US$41m to small and medium enterprises (SMEs) in four countries.
The Technology and Innovation for Financial Inclusion (TIFI) Project is funded by the United States Agency for International Development (Usaid) and it involves five credit union associations, 23 individual credit unions and one credit union service organisation in Kenya, Burkina Faso, Senegal and Guatemala.
Woccu collaborated with credit unions to develop an SME Lending Toolkit, a set of tested tools and templates designed to prepare credit unions to sustainably serve SMEs. The toolkits were tailored to each country, taking into consideration credit union maturity, SME experience, and local market conditions.
“Many of these credit unions had experimented with SME finance in the past,” said Eileen Miamidian, Woccu’s technical director of inclusive financial services, “but the high portfolio risk drove them to reduce or stop that lending altogether.
“The SME Lending Toolkit took a holistic approach by supporting credit unions to leverage the strengths of the co-operative model while adjusting their strategies, staff capacity and operations to the needs of SMEs. It has allowed them to increase their SME portfolios and better manage their risk.”
Woccu says the average loan ranged from $11,000 in Kenya to over $102,000 in Guatemala, with a 1.53% portfolio at risk.
The programme’s implementation generates some important lessons, says Woccu. One of the main takeaways is that credit unions can play an important role in financing SMEs. Furthermore, Woccu argues that credit unions’ market presence and large member base give them an edge in identifying and serving SMEs in need of finance.
However, the apex warns that many credit unions require a change of mindset to make the adjustments needed to offer market-responsive SME products while managing risk. According to Woccu, comprehensive capacity building can enable the board of directors and senior management to lead this change. Credit unions also need to boost digitalisation and innovation to meet the financial needs of SMEs, it adds.
Woccu plans to continue the work of the TIFI Project as well as expand on it through another five-year USAID-funded project targeting the same four countries.
