KBA CEO CHAT - Building Capacity of SMEs

CEO | Tim Gitonga, Equatorial Commercial Bank Limted, CEO
MONTH | May 2016
Collins Cheruiyot
Hi everyone
Chat Admin
Good morning everyone
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Welcome to this morning's My chat with a bank CEO session
Donald Kogai
Morning everyone, I am looking forward to today's chat.
Isaac Mwaro
Looking forward to today's chat...
Chat Admin
Our topic this morning is Building capacity of SMEs and our host is Mr. Tim Gitonga CEO Equitorial Commercial Bank
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We look forward to an engaging session this morning and we are glad you could join us
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As we get ready for the official start at 10am, you may take some time to update your profile and update your profile picture. We'd like to get to know you
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Also, you may start posting your comments and questions so that we can hit the ground running promptly at 10am
nuru mugambi
Good morning all
Chat Admin
Morning Collins, glad you could join the chat
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Morning Sumanrai, thanks for logging in
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Good morning Nuru
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Hello Hawkins, Patrick and Isaac, thanks for joining in.
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We look forward to your input and insights. You are welcome to start posting your questions and comments on today's topic - Building Capacity of SMEs
Chat Admin
Hi Shilda, welcome to the chat
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Skim through the details page available at http://chat.kba.co.ke/index.php?r=chat/details&id=44 for some quick info and focus areas on today's topic
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Shelley, Lawrence and Jacinta, we are glad you could join us. Feel free to start posting your comments and questions on the topic
Chat Admin
Ladies and gentlemen, help me welcome Mr. Tim Gitonga to this morning's chat on Building Capacity of SMEs
Hawkins Tosi
For SMEs tp grow they need access to markets and access to finance. what are the banks doing to help SMEs expand their markets.
Tim Gitonga
Hi everyone welcome to this very important session regarding how we can build capacity for our SMEs to positively contribute towards development of our country.
enock Ngeno
Hello and thanks for this chance .
Tim Gitonga
Good morning Hawkins, thank you for your question which is very important in terms of SMEs and how they fund their businesses...and how they are supported to get their final products to the market.
Shelley Viehweber
Welcome Mr. Gitonga, I look forward to today's session
Joyce Waweru
Good morning, I look forward to learning alot more on SME capacity building.
Collins Cheruiyot
Welcome Mr Gitonga, I look forward to learning alot more on SME capacity building
Jacinta Awuor
Welcome Mr. Gitonga
Tim Gitonga
In terms of accessing finance, the most important point is the right financing structure -- this means that the product that you take from any bank must match the need at hand...to ensure that you don't incur unnecessary costs. That is where capacity building actually begins.
Tim Gitonga
In terms of accessing the markets, the banks have a role to play in terms of helping SME customers match demand and supply side of the equation. Which means that probably within the setup, if you are producing x commodity and there is a buyer, the two are matched. but then also there are aspects that are critical for you to ensure that you access the market -- 1, the quality of the produce that you deliver...and 2, how do you package the product. 3, when do you get it to the market. Bringing these dynamics back to banking, banks must help SMEs through capacity building to achieve this ultimate goal.
Tim Gitonga
Good morning Collins, Jacinta...welcome to this session...i hope you find it useful
Tim Gitonga
I see a question on Twitter about how are banks helping SMEs from a non-financial stanpoint
Tim Gitonga
There are three or so things we can talk about
Mackenzie Kazungu
Good Morning Sir. To what extent has bank leveraged the use technology in managing fraud both “internal and external” as it has been big concern global and recently locally with SME’s now wondering where to go..
Shelley Viehweber
In the context of accessing the markets; what criteria do banks place on the customer besides showing bank statements for small scale entrepreneurs which is the biggest hindrance in accessing financing
Tim Gitonga
1. Helping SMEs develop the right governance structure...this means helping customers see that the founder is not the begining and the end of the firm and hence the need for succession planning. Why this is important from a banks perspective is because it creates an entity in perpetuity in the sense that the organisation can go on producing goods and services...contributing positively to the economy of the country. Secondly, banks can continue providing the customer with finance irrespective of if the owner is there.
GEORGE KINYANJUI
GOODMORNING MR GITONGA . Kindly elaborate how the Govenment can support the smes in order to reduce unemployment in this country .
Tim Gitonga
The second point on non-financial support of SMEs is helping customers improve their efficiency to ensure that the least cost mode of production is achieved. Thirdly, helping SMEs see the need to hire the right people / staff to drive the organisation.
Isaac Mwaro
Banks mostly focus on financing part and ensuring the finance they give is secured and cannot be lost, as entrepreneurs we would like to see banks focusing more on business continuity and growth. What are banks doing to help SMEs in market reach, product, service improvement and business continuity.
Tim Gitonga
Hello Shelley. The criteria that banks use to determine how to lend to SMEs is basically on the ability to repay the loan; and is a reflection of both historical financial performance and the current engagement that the customer plans for the capital/finance. For example, the questions would be, what engagement do you have? how much does it require to deliver the results? when will the engagement generate income? who will pay you? In answering these questions, the customer is able to help the bank assess the source of repayment; assess the risk of repayment; and the customers ability to deliver on their business plan.
Tim Gitonga
Welcome George.
enock Ngeno
MR Gitonga . Nice points noted . if at some point something when wrong in passed engagement with a creditor (bank) and you got listed with CRB , can one re-engage and clear up his or her Name . and what’s the procedure
Tim Gitonga
I think the Government has in the past dedicated a portion of its business to certain sectors of the economy, which is a commitment in terms of supporting SMEs. But most importantly, is Government committing to deliver specific payments, for example on contracts, that are due to SMEs.
Tim Gitonga
Isaac, that's an important point. As noted earlier, banks have a role to play to help SMEs in terms of improving the quality of their products; minimising the cost of delivering that product to the ultimate consumer; and generally improving the governance of the entity to ensure that the business survives into the long term.
Samo Bryton
Mr. Gitonga, what does the future look like for ECB? What role do you envision ECB playing within the tiers and beyond?
Lawrence Njuguna
Good Morning Mr Gitonga, banks have embraced the use of CRB reports in the approval of SME loans, What needs to be done to make sure that this reports are accurate andreport reliable?
Shelley Viehweber
I agree with Lawrence most loans are held up due to CBR ...how can that be reliably fast tracked
Tim Gitonga
Thank you Enock. Indeed, we would encourage anybody who has a default listing on their credit report to engage with their respective banks to clear their record through repayment of the loan facility. The bank can consider, based on the arrangements in place, whether to advance the customer more money or not. Please remember that if you have not cleared an outstanding debt and that debt is listed as a default record on your credit report, this affects your chances of accessing cheap credit in the future.
enock Ngeno
Noted . meaning no individual can access CRB directly for clearances ?
Tim Gitonga
Lawrence i see your point about CRB report accuracy. It will take both the customer and the bank to ensure that what is reported to the CRB is correct. Also note that any delays in meeting your debt obligations are reflected in the credit report ...delays do not show as a default, but they are disclosed by the banks (according to the legal requirement)...and this information would contribute to the cost of credit in the future. Equally, good loan repayment history is recorded with CRB and reflects on your credit report, so it can contribute towards the price negotiations with banks and ultimately lower interest rates for good borrowers.
Jacinta Awuor
Good morning Sir, my question for this session is ,do you have a framework that enable entrepreneurs develop business plans for a new or existing business idea into a well conceptualized and viable business that can attract financing from your Bank?
Tim Gitonga
Enock, you can access your credit report without going through the bank. There are 3 registered credit reference bureaus in Kenya. They are required to provide a customer one free report each year. The 3 bureaus are TransUnion, Credit Info, and Metropol.
AHMED OMAR
Good morning! Due to the state of quandary facing kenyan banks this year How can the banks assure the SMEs of their savings future and hope to continue business as many of the SMEs have lost alot from the 3 banks that collapsed?
Tim Gitonga
Thank you Jacinta. The value around a business plan is to first allow the business owner to create a focus of his or her business. 2, set specific milestones that are critical towards achieving the business objective, 3, for allowing a financier to see the potential, and Finally, to help the business owner know what it will cost to produce the envisaged goods and services, as well as, out of that cost what will be met by the investors/owners contribution, and who will meet the balance. The critical aspect that you need to consider is a background of your business; the capability of the promoters (ie the owners of the business); what products will you be offering the market; which markets are you targeting; why do you believe a demand exists for your product; who are the competitors; why are your products more superior than the competitors; at what pricing will you offer...and generally such information would be contained in the business plan.
Tim Gitonga
Business plans are very important because they help with projections -- both in terms of cost and revenue. This way, you will be able to know when you will start making money, as well as whether if the business is indeed viable as time progresses. It is said that most SMEs do not survive beyond 5 years, and the business plan is an important tool which helps entrepreneurs avoid this trap.
Tim Gitonga
To support SMEs on business plan development, a number of banks do offer workshops for capacity building which includes development of a business plan. There are also many local institutions like Kenya Institute of Management who have an SME Center that trains business owners on business planning. I would encourage entrepreneurs to consider investing this kind of training as it will help you run your business successfully.
Tim Gitonga
Ahmed you raise a topical matter in the industry at the moment. Central Bank of Kenya has established a framework to ensure that banks run their business while meeting the regulatory requirements. This means that the health of the sector will continue to improve and we are confident that the banking sector will be stronger. Just like other markets that have experienced their own crisis of confidence, the Kenya banking industry is resilient and will rebound. The broader framework of governance will be enhanced.
Tim Gitonga
Mackenzie I see your question about the role of technology in the sector and risk management.
Tim Gitonga
The banking industry is dynamic as a result of technology, and with new and emerging technology comes the challenges of managing cyber crimes and risks. Banks therefore invest in governance structures and have built internal control mechanisms to ensure that fraud is mitigated.
Tim Gitonga
Hi Samo, thank you for your question about the future of ECB.
Anne Kwamboka
Thank you Mr. Tim Gitonga for your detailed answers, much appreciated. My questions are 1) Does ECB plan(or already have) a training institute or incubation hub? 2. Like Samo has asked, where does ECB see itself in the Pan African sphere?
Tim Gitonga
ECB is investing in technology to provide payments solutions to our customers, particularly SMEs, with a view to create convenience and value for our customers. We consider that our economy is largely driven by SMEs and therefore, we have developed solutions that will allow SMEs to take advantage of emerging opportunities.
enock Ngeno
Can policy work, analytical work, and other Advisory Services provide support of SME finance activities. If so how does it work ?
Tim Gitonga
Anne thank you! The idea of an incubator is welcomed. As you know, ECB is largely owned by over 70 thousand teachers who are spread across the country, this gives us diversity in terms of our ownership. And this is inspiring us to look beyond the reach of our investors. As far as Pan African reach, we still have a lot of potential to exploit locally here in Kenya and this should provide a platform for this global outlook.
Tim Gitonga
Enock ...good ideas! and Im sure banks would welcome this line of thinking.
Tim Gitonga
Allow me to share some further thoughts...
Tim Gitonga
The survival and excellence of any enterprise is not dependent on financing. Even if you accessed all the money / capital you require ... without an appropriate business plan, it is unlikely that your business will survive. So key points for entrepreneurs to look at are as follows: 1, we need to be more innovative and avoid the "copy and paste" mentality towards starting a business.
Tim Gitonga
Secondly, business growth is a process...it is not an event, this means that we need to put the right structures in place; define the right products; apply the right pricing; package them appropriately to suit the market we want to serve; and build a network of clients so that the business is not dependent on one single buyer (eg Government)
Tim Gitonga
Thirdly, is the thorny issue of financing. The right financing model needs to be applied in line with the business requirement. Critical is cash flow management and this means matching your receivables against payments. Entrepreneurs should avoid drawing cash from the business unnecessarily especially when it is not geared to grow the business. For example, a supermarket owner drawing cash out of the business to by real estate which has no cash flows back to the business. This means also that financial discipline is a critical ingredient of any enterprise.
Tim Gitonga
Finally, the point I raised earlier on succession planning. To ensure that the business services beyond the tenor of the founder, it is important that we bring in the right people to conduct the business into perpetuity. The owner / founder will therefore need to pass on the skills and experience to incoming managers and this will allow him or her to focus on the bigger picture...and possibly take a holiday!
Chat Admin
ladies and gentlemen, we are now wrapping up the chat
enock Ngeno
Big THANK YOU
Chat Admin
Mr. Gitonga will give his final comments and close the session
Tim Gitonga
Thank you all for your participation. The development of our economy is dependent on a vibrant SME sector. And therefore, banks are committed to ensure that we give the requisite support to the sector ....to not only grow the economy but also create employment. This is our inspiration at ECB. And we are happy to support the SME segment through a diverse, tailor made solutions that resonate with the needs of every business.
Joshua Okeyo
Thank you. I was a silent participant and found the chat Informative
Lawrence Njuguna
Its been Very informative. Thanks Tim
Tim Gitonga
Thank you Joshua for following the discussion! and for your feedback.
Tim Gitonga
Welcome Lawrence
Jacinta Awuor
Thank you Sir.
Tim Gitonga
Thank you Jacinta
Samo Bryton
Thank you Sir. Informative.
Tim Gitonga
Than you again. I look forward to further engagement in the future.
stellah kinyua
thanks mr. Tim
Chat Admin
Ladies and gentlemen, allow me to thank Mr. Gitonga for being with us this morning and for his insights on Building Capacity of SMEs. We would also like to thank you all very much for participating in today's chat. Your contributions have made the session a success.
Chat Admin
You can get copies of the transcript and podcasts of past chats in the archives page available on http://chat.kba.co.ke/index.php?r=chat/archives
Jennifer Muriuki
First time onboard and found it extremely informative. Thank you
Chat Admin
We look forward to meeting you here again for yet another informative session next Friday at 10am. The topic will be "Understanding Islamic Banking" and our host will be Mr. Fazal Saib, First Community Bank, CEO
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Many thanks for your participation once more. We will close the chat room in about 15 minutes