Some Construction Companies Access Credit From Shylocks

By Ntokozo Nkambule

The Construction Industry Council’s (CIC) Eswatini Construction Industry Access To Credit Report has revealed that up to 36% of construction companies in the country access credit from Standard Bank Eswatini.

“The construction industry accesses loans through various banks which include mainly Standard Bank which stands at 36% of contractors, Nedbank Eswatini at 20%, Eswatini Bank and, First National Bank both stand at 14%. About 8% of contractors borrow from FINCORP and Private Lenders which consist of shylocks (non-regulated private lenders). According to the findings, construction companies have no borrowing history with the Industrial Development Company of Eswatini (IDCE), the Eswatini National Industrial Development Corporation (ENIDC), and the Youth Enterprise Revolving Fund (YERF)” notes the report.

Furthermore, the report by the regulator notes that a majority (93%) of contractors aren’t aware of the Credit Guarantee Scheme. Only 7% of contractors have borrowed from this scheme.

The Central Bank of Eswatini (CBE) manages two Credit Guarantee Schemes under the Development Finance Division (DFD); namely Export Credit Guarantee Scheme (ECGS) and Small Scale Enterprise Loan Guarantee Scheme (SSELGS).  The CIC in its report focused on the latter.

According to the CBE, the maximum loan under SSELGS is E1,000,000. The guarantee covers 95% for start-up businesses and 85% for existing businesses, with the applicant required to contribute 5% and 15% for start-up and existing businesses respectively.

The CIC states that the 93% of construction firms that aren’t aware of the credit guarantee scheme need to be sensitized on it in order for them to utilize the scheme fully. “It can be observed that contractors who have borrowed are ones who are aware of such an initiative, as there is a high correlation assumption between sensitization and the act of borrowing”

Worth noting as well is that from the 7% who utilize the Credit Guarantee Scheme, Standard Bank Eswatini once again had the most lending followed by Nedbank Eswatini, and First National Bank respectively.

Apart from financing institutions contractors also fund projects in a number of various ways, which include using company reserves.

Above and beyond the formal contractors’ sources of credit, it was observed that about 29% of contractors fund tender-awarded projects through company reserves, 25% by themselves, and 13% through company savings and clients/project owners, respectively.

The majority of contractors also prefer short-term loans when applying for credit from financial institutions.

“29% of the contractors recommend short-term loans for the construction industry, 18% of contractors suggest for long-term loans that the project duration should determine the loan payment terms, 18% say that banks should allow for both long-term loans whilst about 14% of contractors prefer having either an overdraft, order finance or revenue-based loan terms, respectively. Only 14% of contractors opt for working capital loans.”

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