Productivity in the Banking sector and credit to SMEs

Publish on: 30 Oct 2015

SMEs have strongly contributed to the economic development of Mauritius, yet many face financing problems, by comparison with large enterprises, in obtaining credit from banks as they often have relatively weak financial backing and may lack collateral. To meet these problems, the Government has developed a number of schemes and facilities in terms of finance, skill enhancement and provision of logistics to promote the SME sector in Mauritius. The problems of both access to and cost of finance has been addressed through collaboration between banks and the Government in the implementation of the SME Financing Scheme in December 2011, in line with a policy set out in the November 2011 Budget. This measure was specifically aimed at addressing the high cost of credit faced by the SME sector that was jeopardising its growth, profitability and competitiveness.

Under this scheme, the domestic banking sector has extended credit facilities to SMEs amounting to Rs3 billion over the period 2012 to 2014 at 3 percentage points above the prevailing Key Repo Rate. The scheme supports new operations and the renewal of existing credit covering both investment and working capital for SMEs. A key feature of the scheme is that it provides a guarantee by the Government to offer risk cover amounting to 35 per cent of every loan and overdraft facility. This concept of risk sharing reduces the risk to the SMEs themselves. Given the positive response, the scheme has been extended until December 2016 and an additional amount of Rs2 billion is being provided. In December 2011, the Bank of Mauritius set up the framework through which credit would be granted on favourable terms and conditions through 14 participating commercial banks. By the end of December 2014, credit facilities approved by banks under the scheme totaled Rs4.4 billion, while the outstanding credit amount was Rs1.7 billion. There were over three thousand applications, with 95 per cent of cases duly approved. About 80 per cent of the outstanding credit facilities were provided by four banks (Chart 1). By the end of December 2014, impaired credit as a ratio of outstanding credit stood at 3.8 per cent, slightly down from 3.9 per cent at the end of December 2013. This comparatively low level of default shows how well the scheme is working.

Chart I: Distribution by Banks to credit to the SME sector, end-December 2014

Access to finance constitutes one of the 11 areas of business activity on which the World Bank compiles the ranking for Ease of Doing Business index.

Table 2 shows that the ranking of Mauritius has continuously improved from 89th place in the Doing Business 2011 Report to 36th place in the Doing Business 2015 Report. The improvement partly reflects the measures targeted at improving access to finance for the SME sector.

Table II: Access to Finance Ranking 2011

Source: World Bank, Ease of Doing Business Surveys 2011-2015.

National Accounts Estimates (2012 – 2015) – September 2015 issue Highlights
Financial and insurance activities: to grow by 5.2% in 2015, lower than the 5.4% growth observed in 2014.
Sources: Bank of Mauritius website, Central Statistics Office.
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