By Ntokozo Nkambule
The Construction Industry Council (CIC) has conducted a study on access to credit for construction companies in the country.
The Report which is titled “Eswatini Construction Access To Credit Report” has revealed interesting insights, such as that some financial institutions in the country consider the construction industry to be high-risk.
“About 36% of construction companies find it difficult to access loans/credit from financing institutions. Of those who were observed to have difficulties in accessing credit, most complained of their credit risk (about 21%); their inability to have security/collateral (about 18%); and the banks’ long documentation (about 11%) which can be time-consuming for contractors (about 11%), respectively. Thirty-nine percent (39%) of contractors found no difficulties in accessing credit” notes the report.
The report has also unearthed that financing challenges are mostly encountered by small or fairly new business enterprises including those in lower grades.
The report adds that banks have stringent requirements that do not take into consideration that small businesses at their early stages are high risk and are often requested to open call accounts.
“Most of these construction companies have no security in terms of fixed assets and also have incurred some unsettled credits/debts. The unsettled debts are a result of the financial sector not understanding the construction industry operations and what would work as payment terms/obligations instead of the red tape (stalling process that comes from the uncertainty of how to handle the construction industry) they experience in the banking sector.”
Challenges of funding from commercial banks on the other hand include; contractors seeking loans that are worth more than E1.0 million, contractors underestimating project costs, and most contractors owing taxes.
Development financiers on the other hand state that they require more transparency and knowledge of the construction space, and most contractors are not credit-worthy or bankable.
Financial Institutions also noted that they require the CIC to consider building a CIC fund which would be from money obtained by contractors when they are awarded a job.
The institutions added that the CIC must assist in the following; assist contractors with business documentation, assist in capability and quality of service delivery, assist in the screening of contractors, and capacitate contractors in financial management and trade testing of artisan skills.
Objectives of the report entail tackling issues faced by the construction industry when attempting to access finance from banks and non-financial institutions, issues faced by banks when seeking to lend money to the construction industry; issues encountered by banks and non-bank financial institutions upon funding the construction industry.
Additional objectives include; banks’ and non-bank financial institutions’ expectations from the construction industry that would enable smooth access to credit facilitation and the construction industry’s expectations from banks and non-bank financial institutions to enable ease of access to finance.
In its methodology, the CIC targeted financing institutions approved by the Central Bank of Eswatini and the Financial Services Regulatory Authority (FSRA). They include Standard Bank Eswatini, Nedbank Eswatini, First National Bank Eswatini, and Eswatini Bank. Non-bank Financial Institutions included: Eswatini Development Finance Corporation (FINCORP), Youth Enterprise Revolving Fund (YERF), Industrial Development Company of Eswatini (IDCE), and Eswatini National Industrial Development Corporation (ENIDC).
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