Bridging the Gap in Access to Finance by Small and Medium Enterprices in Sudan

1. Bridging the Gap in Access to Finance by SMEs in Sudan
Graduate School of International Relations
Ritsumeikan University
Abeer Salih Mohamed
Professor Hideaki OhtaSupervisor
Student

2. TABLE OF CONTENTS
1. RESEARCH OBJECTIVE AND METHODOLOGY
2. OVERVIEW OF SUDAN ECONOMY
3. PRESENTATION OF FINDINGS
4. DISCUSSION OF FINDINGS
5. CONCLUSION AND RECOMMENDATION

3. • To assess the problems that hinder SMEs access
to finance and suggest an affective ways to
bridge the gap.
Research questions:
I. What are the major problems that hinder
Sudanese SMEs growth?
II. What is the current state of SMEs finance?
III. What lessons Sudan can draw from
international best experiences in SMEs access
to finance?
• Questionnaires, face-to-face interviews, observations, and reports were used in this study.
1.RESEARCH OBJECTIVE & METHODOLOGY

4. Sudan Economy
Population: 37.9 million.
population growth rate :1.78%.
20 % under the age of 24.
GDP per capita: $ 1,875.
Inflation : 36.9%.
Life expectancy: 63years.
Unemployment :14.8.
2.Overview of Sudan
Land mass: 1,861,484 sq Km.

5. Sudan Economy
1.The agriculture products
include cotton, groundnuts,
wheat, and gum arabic
2.The industries include the
textiles, cement, sugar,
petroleum, refining,
pharmaceuticals, and automobile
assembly.
3.The services includes
telecommunications services,
financial services,
transportations, training and
educations, and other services
-8
-6
-4
-2
0
2
4
6
8
10
12
14
1985 1990 1995 2000 2005 2010 2015 2020
Annualpercentage(%)
GDP growth rate
GDP growth (annual%)
Industerial
value
added
21%
Service
value
added
50%
Agriculture
value
added
29%
Sectors' contribution as percent of GDP, 2014.
Industery
7%
Service
13%
Agriculture
80%
Employment by sectors

6. 1.Account for 80% to 90% of all enterprises.
2.Contributes from 30% to 50% of GNP.
3.Provide jobs for 60% to 80%.
4.Stimulates industrial development.
5.Create entrepreneurship and innovation.
Global importance of SMEs
These companies started as SMEs and now they
have significant economic contribution.
Share of SMEs contribution to GDP

7. The three major global SMEs challenges
• The access to finance remains the major
challenge for SMEs growth (World
Bank).
• The problem is acute in DC.

8. ●SMEs segment is perceived as a high risk
●SMEs are unable to provide collateral
●Some banks operate in limited geographical area
●Lack of tailor made product for SMEs
●Poor recording and lack of transparency in SMEs financial records
●Inability to prepare and present business plan that meet bank requirement
●Lack of adequate guarantee scheme
●Poor knowledge on business and operating law
Challenges for SMEs Financing

9. SMEs contribution in Sudan
make up 93% of manufacturing sector
Account 90% of private sector
Provide 2/3 of the daily household needs
Defined as having less than 50 workers

10. 3.PRESENTATION OF FINDINGS
General description of the respondents profile
5%
42% 41%
10%
3%
0%
10%
20%
30%
40%
50%
Primary Secondary Bacholer Master Other
Percentage
Level of Education 60%
18%
8%
2%
13%
0%
10%
20%
30%
40%
50%
60%
70%
Sole
proprietor
Familly
business
Private
limited
company
Public
limited
company
Partnership
Percentage
Ownership
53%
20%
15%
3%
10%
0%
10%
20%
30%
40%
50%
60%
1_5 years 6_10 years 11_15
years
16_20
years
more than
20 years
Percentage
Years in Business
79%
11%
4% 2% 3% 2%
0%
20%
40%
60%
80%
100%
1_9
employees
10_19
employees
20_29
employees
30_39
employees
40_50
employees
Missing
Percentage Number of Employees
38%
27%
23%
12%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Manufacturing Trade Service Hotel and
restaurant
Percentage
Business Sector

11. 1.What are the major problems that hinder SMEs growth in Sudan?
Specific research questions
• IFC, 2011 report classified
access to finance as major
obstacle for SMEs in
developing countries.
• From this study access to
finance ranks as second
major problem for SMEs.

12. 2.What is the current state of SMEs finance in Sudan?
Access to finance as a constraint for growth
59%
24%
10%
7%
Major
obstacle
Moderate
obstacle
Minor
obstacle
Not obstacle
51%
27%
22%
Legal barrier Social barrier Other barrier
Barriers to financial access

13. 2.What is the current state of SMEs finance in Sudan?
• SMEs in Sudan source their startup capital from the savings followed by family and friends.
• The operating finance is the retained earnings, money lender and family & friends.
• Banks and microfinance play a very small role in SMEs financing.
7%
2%
24%
62%
6%
Banks Microfinance
institutions
Familly and
friends
Saving Moneylenders
Startup Finance
7%
1%
12%
67%
13%
1%
Operating finance

14. Description Male Female
Number of loan application 36 4
Percentage of loan applicants for each gender 23% 11%
Number of loan acceptance 28 3
Percentage of loan acceptance from each gender 78% 75%
Manufacturing Trade Service Hotels & Restaurants
Loan application 22 8 9 1
% of loan applicants for each sector 30% 15% 20% 4%
Loan acceptance 20 6 5 0
% of loan acceptance for each sector 91% 75% 56% 0%
2.What is the current state of SMEs finance in Sudan?

15. • The challenges exist from both sides SMEs
and Bank.
• Sudan business culture and religion has impact on
business.
2.What is the current state of SMEs finance in Sudan?
45%
17%
14%
12% 12%
No need for
external finance
Strict collateral
requirements
Complex
application
procedures
High interest rate High rejection
possiblility
Reason for not applying
33% 33%
22%
11%
Lack of acceptable
collateral
Inadequate
application
Lack of profitability Missing
Reasons for rejection

16. • The average loan given to SMEs were SDG 20,000 ( $3,278).
• The interest rates were varies between 4% to 18%.
2.What is the current state of SMEs finance in Sudan?
3%
18%
48%
10%
23%
Working capital Fixed investment New
product/Existing
product
New equipments Missing
Loan purposes
23%
30%
10%
38%
6 month to 2 year 2 years to 4 years More than 4 years Missing
Loan terms

17. • SMEs which uses ATM for their cash need is less than half of those which uses other means.
• The SMEs business forecasting to be growing and expanding has a culture and belief backup.
2.What is the current state of SMEs finance in Sudan?
37% 37%
26%
Withdraw from ATM Safekeeping at your
premise
Visit Bank
Cash needs
68%
16% 14%
2%
Growing and
expanding
Not improving Declining Missing
Business forecasting

18. Key Findings
• A large number of SMEs have never used formal finance due to
strict collaterals and complex procedures.
• Most of the SMEs depend on borrowing from family & friends or
money lenders.
• Some SMEs owners still hesitate to benefit from banks loans due to
cultural and social barriers.
• A minority of those surveyed did use bank loans but suffered great
difficulty in dealing with the system, repaying the loan, and dealing
with high interest rates and minimum loan size.

19. · No specific policy that addresses the SMEs in Sudan.
1. No responsible body that can create a strategic program to support SMEs in order to
strengthen their capacities and productiveness, consequently:-
• No national definition for SMEs.
• No measurement of the size of SMEs sector and it is contribution to the economy.
• No evaluation of the problems that hinder the development of SMEs sector.
• Lack of implementation of efficient policies and programs that support SMEs.
• Lack of encouragement to banks to expand lending for SMEs sector.
Institutional level
4.DISCUSSION OF FINDINGS

20. ·
1.Most of SMEs do not have sound firm financial systems and accurate financial reports
which affect their ability to secure fund for their investments.
2. Majority of SMEs are sole proprietorship that lack qualified personnel who able to
present a sound feasibility study for investment’s projects.
3. Culture & religion has great effect on SMEs finance choices.
SMEs level

21. ·
1. Most of financial institutional lack the vision and strategy to expand finance for SMEs.
2. Low fund ceiling and short repayment periods.
3. Limited information & distance from Khartoum are major obstacles.
Banks level

22. 3.What can Sudan learn from successful experience for SMEs financing?
1. Japan SMEs Act was enacted in
1963 and revised in 1999.
2. Government affiliated financial
institutions have been
established to support SME
financial needs.
● Japan Finance Cooperation for
SMEs
● National Life Finance
Corporation
● Shoko Chukin Bank
● System of credit guarantee has
also been introduced.
1. Malaysia National SME
Development Council
(NSDC) in 2004 responsible
for comprehensive
coordination and formulation
of the policy.
2. DFIs responsible to put in
place the institutional
arrangement and financial
policies to address the needs
for SMEs financial
requirements.
○ Tailor products for
SMEs
1. Office of SME Promotion
(OSMEP) in 2000 as a
government agency
responsible for promoting
SMEs policies and plans
2. Establishment of SME bank
among a Specialized
Financial Institutions (SFIs)
○ Fast Track Loan
○ Exporters’ Credit
○ Assets Capitalization Scheme

23. The countries that reform the best are those countries which take into account access to
finance in their policies and mandate their financial institutions to implement that strategy
(World Bank,2010).
1. Improve the enabling environment.
2. Forming a national body responsible for SMEs development.
a. Encourage banks to expand lending for SMEs and promote alternative financing
techniques for SMEs.
b. provide capacity-building and technical assistance for SMEs.
c. Establish credit guarantee system.
Sudan should do the following to bridge the gap in SMEs financing
5.CONCLUSION AND RECOMMENDATION
More studies are required in other states of Sudan for SMEs financing