Making financial markets work for the poor

FinScope MSME Survey Lesotho 2016

*

Launch presentation

Maseru, 03 November 2016

Contents

1. Introduction, background and methodology of the survey

2. Size and scope of the MSME sector

3. Capacity to grow & Challenges

4. Summary

5. Financial inclusion

6. Business sophistication measure (BSM)

7. Conclusions and recommendations

2

Partnering for a common purpose, inclusivity and capacity building

Ministry of Small Business Development, Cooperatives and Marketing - Chair

Ministry of Finance (Steering Committee deputy chair and funder)

Steering Committee

• Ministry of Small Business Development, Cooperatives and Marketing - Chair

• Ministry of Finance – Deputy Chair • FinMark Trust • AfricaScope • Bureau of Statistics (BOS) • United Nations Development Programme • Ministry of Development Panning • Ministry of Agriculture and Food Security • Basuto Enterprises Development

Corporation (BEDCO) • Central Bank of Lesotho • Lesotho Chamber of Commerce & Industry • Private Sector Foundation of Lesotho

FinMark Trust Main Funder

(Project management, technical assistance)

Bureau of Statistics (Statistical oversight, quality control)

AfricaScope (Research House)

United Nations Development Programme (Funder)

3

About FinMark Trust

• Independent trust formed in April 2002 • Initial and core funding from the UKAid from the Department for International

Development. Other donors are now on board. • Mission: “Making Financial Markets Work for the Poor” • Aim: Facilitating and catalysing development around access to financial services • How: Moving beyond data production, with an increased focus on being a catalyst to

systemic change in financial inclusion by providing support to transformation at a country level

4

Introduction and background

= Comprehensive study focusing on individual entrepreneurs, and owners of micro-, small- and medium enterprises (MSMEs) and their financial services needs

FinScope MSME surveys have been conducted in: • Zambia (2009) • South Africa (2010) • Tanzania (2010) • Malawi (2012) • Mozambique (2012) • Zimbabwe (2012) • Lesotho (2016) • Currently underway in Swaziland

FinScope MSME Survey

5

FinScope Consumer Surveys have been conducted in 27

countries, including Lesotho (2011, conducted, a follow-up

survey is due)

• To assess the size and scope of micro, small, and medium enterprises (MSMEs) in Lesotho

• To describe the levels and landscape of access to financial products and services (both formal and informal)

• To identify the most binding constraints to MSMEs development and growth with a focus on access to financial markets

• To identify and describe different market segments with specific development needs in order to stimulate segment related innovation

• To propose recommendations regarding financial access by MSMEs as well as development policies

Objectives of FinScope MSME Survey Lesotho 2016

6

Lesotho MSME Policy: Priority Intervention areas

• Enabling legal and regulatory environment;

• Entrepreneurship training and skills development;

• Technological development and innovation;

• Access to finance;

• Infrastructure development and business shelter; and

• Access to markets, including the development of MSME clusters;

Cross-cutting areas: These are as follows:

Gender in development and women economic empowerment in

MSME development;

Youth and economic empowerment in MSME development;

HIV and AIDS and dealing with other marginalised groups such as

persons living with disability, and

Managing the environment. 7

Survey methodology

Field checks, sample frame and weighting of the data was conducted by AfricaScope

Enumerator areas (EAs)

Using probability proportional to size (PPS)

Households

Using systematic random sampling

8-12 qualifier households from each EA were selected

Individual (MSME owner)

via Kish Grid

Multi-stage sampling process Comprehensive listing exercise

336 EAs Over 47 000 households, identifying over 4 000 MSME owners TOTAL: 2 182 Face-to-face interviews (September 2015 to February 2016, conducted by Africa

Scope)

Nationally representative sample of small business owners who:

• Are 18 years or older

• Perceive themselves to be business owners/ generating an income through business activities

• Employing ANY number of people (including individual entrepreneurs without any employees)

Target population

8

1. Introduction, background and methodology of the survey

2. Size and scope of the MSME sector

3. Capacity to grow and Challenges

4. Summary

5. Financial inclusion

6. Business sophistication measure (BSM)

7. Conclusions and recommendations

9

Defining MSMEs for this survey

Micro Small Medium

No. of employees

(including owner)

Less than 5

employees 6 - 20 21 – 50

Annual turnover Less than

M200 000

Less than

M1 000 000

Less than

M5 000 000

Legal structure Informal Formal Formal

By the number of employees and annual turnover

10 Source: Micro, Small, Medium Enterprises (MSMEs) policy for Lesotho

Size: Percentage of MSME owners

11

Businesses in Lesotho by number of employees %

83

7

4

2

1

3

0 (no employees)

1 (employee)

2 (employees)

3 (employees)

4 (employees)

5+ (employees)

97

3 0.3

Micro-Enterprise Small Enterprise MediumEnterprise

MSME Sector by size of business %

Businesses Percent

Micro-Enterprise 73 746 97

Small Enterprise 2 065 3

Medium Enterprise 257 0.3

Total 76 068 100

Based on employees, 97% of MSMEs are in the informal sector

Size and scope of the MSME sector

76 068

MSME owners

Employing

54 939 people

(any age)

Owning

85 173

MSMEs

Estimated turnover (Monthly)

192 million Maloti

(75% of MSME owners

reported on turnover)

118 000 people work in the sector (this number includes 55 000 employed and 63 0000 individual entrepreneurs)

63 191 individual entrepreneurs

12 877 business owners with employees

83%

17% Important contribution to employment

12 LSL/US$ exchange rate in September 2015 (start of fieldwork) = 14.0172

Age of business

10 14 11 10

25 30

2015/2016(1 year)

2014 2013 2012 2011-2006 2005 andless (11years +)

Number of years in business %

36

24

40

Start-up (2 years andless)

Growth (between 3 and5 years)

Established (6 years andmore)

Business by life cycle %

30% have been in business for more that 11 years, thus indicating that businesses are either in the growth phase or are established businesses

There was a slight decline in the formation of business in 2015/2016 compared to 2014

The majority of the business (64%) have been in business for more than 4 years

13

Macro trends in Lesotho

14

Business Sector

18

1

1

1

1

1

2

3

3

9

10

22

30

Other service activities

Electricity, gas, steam

Education

Professional, scientific technical

Real estate activities

Human health and social work

Construction

Arts, entertainment and recreation

Transportation and storage

Manufacturing

Accommodation and food services

Agriculture, forestry and fishing

Wholesale and retail trade

Most of these activities are retail in nature

%

15

69% sell merchandise in the same

form

22% add value and

sell

31% Accommodation

construction

25% Tourism

53% rear livestock,

15% grow crops

28% sell cooked

food

69% Sell bricks,

furniture & craft

16% Add

value

78% Buy &

sell

16% Add

value

Estimated turnover of the sector

Estimated turnover (monthly)

192 million Maloti (75% of MSME reported turnover)

Sector Size Turn over

Wholesale, retail and repair of motor vehicles

30% 65 000000

Agriculture and Forestry 22% 39 471 000

Other services activities 18% 32 333 000

Accommodation and food services

10% 13 600 000

Manufacturing 9% 12 700 000

Transportation and storage

3% 3 146 000

Business size Size Turn over

Micro 97% 184 875 500

Small 3% 5 214 250

Medium 0.3% 1 910 250

42

58

Keep financial records

Do not keep financial records

Financial record keeping %

17

LSL/US$ exchange rate in September 2015 (start of fieldwork) = 14.0172

Below the surface

18%

81%

Formal (registered) MSME sector (13 899) Informal MSME sector (61 800)

Limited (financial) resources and information preclude the possibility of spreading policy initiatives to include the entire MSME sector

Current focus of interventions

FinScope MSME Survey

Licensed Business (13 262)

Unlicensed Business(62 806)

17%

83%

18

Registered MSMEs

Total number of registered businesses: about 13 900

94% of those registered, claim to be registered with Lesotho Registration Office 2% claimed registration was in progress

Type of registration %

19

94% Micro-Enterprise 13 054 4% Small Enterprise 616 2% Medium Enterprise 230

94

4 2

97

3 0.3

Micro-Enterprise Small Enterprise Medium Enterprise

Registered Total

3

2

0.3

2

2

5

6

82

Do not know

Other

Franchise

Co-operative

Community project

Partnership

Company

Sole proprietor

%

Registration

Cost, knowledge & complexity of registration process • Time: about 5 days

• Cost: at least 500 Maloti

• Problems experience by those who registered

Reason for not registering/licensing • Costs – Business too small (50%), no money (11%)

• Knowledge – Do not know how (17%), too complicated (12%)

*Source:

http://www.doingbusiness.org/data/exploreeconomies/Lesotho#starting-a-

business

20

Perceived benefits of registration %

3

4

4

4

7

24

49

Access togovernment tenders

No benefits/none

Avoid fines

Avoid harassmentfrom authorities

Access to finance

Do not know thebenefits

Comply with the law

1. Introduction, background and methodology of the survey

2. Size and scope of the MSME sector

3. Capacity to grow and Challenges

4. Summary

5. Financial inclusion

6. Business sophistication measure (BSM)

7. Conclusions and recommendations

21

Business skills Acquiring business skills

2

2

2

3

7

8

8

9

9

49

Other

Spouse

University/college

School

On the job

Previous job or work experience

Mentor/advisor

Training programmes/courses

My family

Taught myself

• 42% keep financial records • 84% do not get help but keep records

themselves • 96% keep records manually • Only 6% have a book keeper or auditor 22

9

35

29

20

7

Very successful

Fairly successful

Struggling butpromising

Struggling butsurviving

At risk or in danger offailing

• The owners with successful business are more likely to be registered, keeping financial records and claim that their businesses performed better than the previous season

Opinions about the business % Acquiring business skills %

Business skills & Sources of information

4

2

3

4

5

6

6

81

Other

National University of Lesotho

Ministry of Finance

Lesotho National DevelopmentCorporation LNDC

Trade and Industry

The Basotho EnterprisesDevelopment Corp.

Lesotho Revenue Authority(LRA)

None

Organisations made use of (those who are aware) • Lesotho Revenue Authority14% • Trade and Industry 8% • Basotho Enterprises Development

Corporation 8% • Civil Society Organisation 3% • Other 7%

23

6

3

3

4

6

8

19

23

24

25

31

Other

Support organisation

Business association

Professional consultant

Suppliers

Customers

Businesses owners

Spouse/partner

Relatives

Friends

Do not seek advice

Awareness of Organisations offering support services % Sources of information %

About a third of business owners do not seek business advice, while of those who seek business information 72% rely on immediate contacts (family and friends)\

Main business constraints

8

13

13

14

19

19

49

None/noproblems

Being owedmoney/debtors

Too manycompetitors

Whatproduct/service

to sell

Cash flow

Not enoughcustomers

Sourcing money

24

To start a business %

9

8

13

16

22

26

35

None/noproblems

Who to sell to

Too manycompetitors

Not enoughcustomers

Being owedmoney/debtors

Cash flow

Sourcing money

Operational constraints %

7

5

5

7

7

15

16

20

Other

Transportation

Crime and theft

Cost of finance

Bad weather/naturaldisasters

Competition

Space to operate

Access to finance

Obstacles to grow the business %

1. Introduction and background and methodology of the survey

2. Size and scope of the MSME sector

3. Capacity to grow

4. Summary

5. Financial inclusion

6. Business sophistication measure (BSM)

7. Conclusions and recommendations

25

Country comparison

26

South Africa

(2010) Malawi (2012)

Mozambique

(2012) Zimbabwe (2012) Lesotho (2016)

Business owners

16 years and older

200 employees or

less

18 years and older

100 employees or

less

18 years and older

100 employees or

less

18 years and older

75 employees or

less

18 years and older

49 employees or

less

Estimated adult

population 33,5 million 6,1 million 10.8 million 5,9 million 1,1 million

Estimated % of adult

population that owns

MSMEs

17% 13% 42% 46% 7%

Number of MSME

owners 5,6 million 760 000 4,5 million 2,8 million 76 068

Number of MSMEs they

own 6 million 1 million 4,9 million 3,5 million 85 000

% of MSME owners with

registered businesses 17% 3% 14% 15% 18%

Number of employees 6 million 1 million 850 000 2,9 million 118 000

% of individual

entrepreneurs

% of businesses with

employees

67%

33%

59%

41%

93%

7%

71%

29%

83%

17%

26

1. Introduction, background and Methodology of the survey

2. Size and scope of the MSME sector

3. Focus on agriculture sector and youth

4. Capacity to grow

5. Summary

6. Financial inclusion

7. Business sophistication measure (BSM)

8. Conclusions and recommendations

27

Total business owner (BO) population = Minimum age defined by the age at which individuals can enter into a legal financial transaction in their own capacity

Financially included = BOs who have/use financial products and/or services for business purposes – formal and/or informal

Financially excluded = BOs who do not have/use any financial products and/or services – if borrowing, they rely only on friend/family; and if saving, they save at home

Formally served = BOs who have/use formal financial products and/or services provided by a formal financial institution (bank and/or non-bank)

Informally served = BOs who have/use financial products and/or services which are not regulated, e.g. farmer associations, saving clubs/groups, private money lenders

Banked = BOs who have/use financial products and/or services provided by a commercial bank regulated by the central bank

Served by other formal (non-bank) financial institutions = BOs who have/use financial products and/or services provided by regulated non-bank formal financial institutions, e.g. insurance companies

Financial inclusion - Framework

28

Total business owner (BO) population 100% (76 068)

Financially included 65% (48 317)

Financially excluded 35% (27 751)

Formally served 45% (34 301)

Informally served=38% (28 856) Driven by informal savings

Banked 41% (30 973) Driven by cash

transactions and savings

Served by other formal financial institutions 12% (9 128) Driven by mobile money

Financial inclusion among MSME owners in Lesotho

29

Overall levels of financial inclusion, overlaps and Lesotho MSME Access Strand

35

38

12

41

45

Excluded

Informal

Other formal (non-bank)

Banked

Formally served

Overalls with overlaps %

41 4 20 35

Banked Other formal (non-bank) Informal only Excluded

Access Strand %

30

Access Strand by MSME classification

41

52

40

4

5

20

13

20

35

35

35

Overall

Medium/Small

Micro

Banked Other formal (non-bank) Informal only Excluded

%

31

Banking Status

41 59

Banked Unbanked

71% use their personal bank accounts for most of their business banking

15% use bank account in the name of the business

84% normally go to the bank branch/ATM themselves

56% access their bank branch in 30 minutes or less

45% deposit their money in the bank on a daily basis

Drivers – 33% recommendation; 22% advertising and 22% already had personal account there

64% of banked business owners use the banking facilities monthly

32

%

Mobile money services

8

92

Use mobile money Do not use mobile money

1

3

3

8

47

51

Money transfers betweenmy bank accounts Mobile

Money

Cash deposits for thebusiness Mobile Money

Buy cell phone or airtime forbusiness Mobile Money

Paying business accountswith Mobile Money

Customer payment Mobilemoney e.g. Mpesa/Ecocash

Using utilities bills MobileMoney

Mobile money usage % Mobile money drivers %

33

Savings overalls and Savings Strand

29 1 25 6 40

Bank savings products Other formal (non-bank) Informal

Saving at home only Not saving

40

12

36

1

29

30

Do not save

Save at home

Informal

Other formal (non-bank)

Bank savings products

Formally served

Overalls with overlaps %

Saving Strand

34

Credit overalls and Credit Strand

2

0.2

4 3 91

Bank credit Other formal (non-bank)Informal Borrow from family/friends onlyNot borrowing money

91

3

4

0.2

2

2

Not borrowing

Family/friends

Informal

Other formal (non-bank)

Bank credit

Formally served

Overalls with overlaps %

Credit Strand

35

20% attributed ‘access to finance’ to inhibiting

growth

Main constraint in starting business

is ‘access to finance’

35% of owners reported access

to finance limiting

operations

Insurance uptake

2

98

Business have insurance Not insured

7

9

10

12

12

15

15

Theft of businessequipment

Rain damage

Drought

Theft of business stock

Compeition

Death of business owner

Not being paid bydebtors

Insurance penetration % Insurable risks experienced %

36

A lack of knowledge regarding how and where to obtain insurance, and what to get needs to be addressed by insurance companies before they can expect a significant increase in the uptake in insurance.

1. Introduction, background and Methodology of the survey

2. Size and scope of the MSME sector

3. Focus on agriculture sector and youth

4. Capacity to grow

5. Summary

6. Financial inclusion

7. Business sophistication measure (BSM)

8. Conclusions and recommendations

37

TRADITIONAL SEGMENTATION APPROACH And the Business Sophistication Measure (BSM)

• Registration • Very low levels of any type of registration

• Number of employees • Mostly one or two employees

• Turnover • Lack of record keeping • Under and over stating of turnover • Confusion between turnover, income and profit

• Formal versus Informal • Many different definitions of what is formal/informal

Micro Small Medium

No. of employees

(including owner)

Less than 5

employees 6 - 20 21 – 50

Annual turnover Less than

M200 000

Less than

M1 000 000

Less than

M5 000 000

Annual turnover Informal Formal Formal

97

3

0.3

Micro-Enterprise

SmallEnterprise

MediumEnterprise

Source: Micro, Small, Medium Enterprises (MSMEs) policy for Lesotho

MSME Sector by size of business %

38

BSM DEVELOPMENT (Methodology for constructing the BSM)

A two stage process applied to the data:

• The first step:

• Identify those variables contained in the survey which would best reflect the diversity of business practices in the country.

• Ensure a reflection of the full scope of Lesotho business along a stratified continuum.

• Step 2

• Conduct a principal component analysis using significant variables from the sample weighted data.

• Obtained a statistically significant solution with 5 clusters

• Rank the original principal component analysis

• Combine outlier clusters

• Obtain the final 3 BSM segments.

• 20 variables were used

• Psychographic variables – Attitudes and motivations

• Demographic variables – Age and gender

• Access to services – Water electricity and others

• Registration – Registered or not

• Access to finances – Have a bank product

• Financial capability – Keep financial records

39

Sophistication of MSME Sector in Lesotho (Size and scope of the various segments)

45 41

14

Leastsophisticated

EmergingBusinesses

Mostsophisticated

MSME Sophistication in Lesotho %

Least sophisticated approx. = 34 456

Emerging Businesses approx. = 30 960

Most sophisticated approx. = 10 652

Total MSME businesses = 76 068

55 44 43 49

45 56 57 51

Leastsophisticated

EmergingBusinesses

Mostsophisticated

Total

Urban versus rural divide %

Rural Urban

40

Seek business advice from others

66 70 74

34 30 26

Leastsophisticated

EmergingBusinesses

Mostsophisticated

Seek business advice from others %

Yes No

Provider of business advice Least

sophisticated

Emerging

Businesses

Most

sophisticated

Spouse/partner 21% 23% 31%

Friends 16% 15% 14%

Other small business owners 12% 13% 13%

Relatives 8% 6% 8%

Customers 2% 3% 2%

Professional consultant 2% 3% 1%

Suppliers 1% 1% 1%

Business association 0% 0% 1%

Small business support

organisation 1% 1% 1%

Other or do no seek advice 36% 32% 27%

• About 5% of business owners have no formal education • More sophisticated business owners have higher education • Low levels of advice sought from others • 62% of least sophisticated do not belong to any groups • Low levels of belonging to business groups • Need to develop higher levels of BDS in Lesotho

41

External buyers and suppliers

3 4

7 7

9

11

Least sophisticated Emerging Businesses Most sophisticated

Export to customer outside Lesotho Suppliers outside of Lesotho

• Instead of developing and implementing blanket programs to increase exports, a targeted approach aimed at those businesses actually involved with export business would yield higher returns on investment.

• Similarly for the streamlining of customs operations

%

42

Perceptions of business performance

42

48

48

30

28

31

17

16

13

6

5

3

4

3

5

Least sophisticated

Emerging Businesses

Most sophisticated

Better The same Worse Just starting out Can’t say/don’t know

Overall 45% of business owners say that they feel their business is doing better than 12 months ago. The more sophisticated groups feel more positive about their business performance.

%

43

Keep financial records

39 43 51

61 57 9

Least sophisticated Emerging Businesses Most sophisticated

Yes No

• Only 51% of most sophisticated businesses say that they keep financial records • Important area of BDS training • Impact on financial inclusion

%

44

Financial Access Strand by BSM

35

42

57

41

4

4

5

4

21

21

12

20

40

33

25

35

Least sophisticated

Emerging Businesses

Most sophisticated

Total

Bank Other formal non-bank Informal mechanism only Excluded

• 6 075 out of the 10 700 business owners in the most sophisticated segment have a bank account with a commercial bank.

• Potentially 4 625 sophisticated business without an account with a commercial bank. By focussing on banking these businesses financial inclusion in the country can be much improved.

• About 6 500 emerging businesses are using informal products. Many of these businesses are located in urban areas and display characteristics which could cause them to be banked with commercial banks.

• Carefully targeted strategies by financial service providers such as mobile money products could dramatically improve financial inclusion.

%

45

Conducting business banking

60 53

68

3 6

4

37 41

28

Least sophisticated Emerging Businesses Most sophisticated

Go yourself Send someone else Don’t go to the bank

• Majority of owners work 8 hours a day

• Tend to go to the bank themselves

• Indication of the needs for mobile and internet banking facilities

%

46

Obstacles to growth (Challenges)

Least Sophisticated

• Space to operate

• Competition

• Crime and theft

• Transportation

• Access to land

Emerging Businesses

• Access to finance

• Space to operate

• Electricity supply

• Access to land

Most Sophisticated

• Access to finance

• Competition

• Cost of finance

• Infrastructure development

47

Savings Strand

23

30

41

29

0

1

0

1

23

27

22

25

7

5

5

6

46

36

31

40

Least sophisticated

Emerging Businesses

Most sophisticated

Total

Bank Other formal (non-bank) Informal Home only Not saving

• Overall 29% of business owners are saving with a formal bank • 41% of the most sophisticated save with a formal bank • 46% of the least sophisticated are not saving for business

purposes

Save for business purposes%

48

1. Introduction and background

2. Methodology of the survey

3. Size and scope of the MSME sector

4. Focus on agriculture sector and youth

5. Capacity to grow

6. Summary

7. Financial inclusion

8. Conclusions and recommendations

49

Key take outs

Ease of doing business

• Starting the business

• Dealing with permits

• Electricity supply

• Property registration

• Getting credit

• Paying taxes

• Trading across borders

Cost of doing business

• Registration

• Start-up costs

• Finance costs

• Cost of business premises- purchase/rental/lease

• Cost of utilities

• Staff productivity/cost

• Transportation cost

50

Key take outs

Product differentiation

• Innovation

• Marketing

• Market trends

• Segmenting markets

• Target marketing

• Unique product values and propositions

• Packaging

• Increased service offered

• Partnering with like providers

Employment creation

• Tax credits

• Subsidised employees

• Youth employment

• Infrastructure development

• Sector investment and incentives

• Rural development

• Education, training and skills development

51

MSME Policy: Priority Intervention areas

1. Enabling legal and regulatory environment;

2. Entrepreneurship training and skills development;

3. Technological development and innovation;

4. Access to finance;

5. Infrastructure development and business shelter;

and

6. Access to markets, including the development of

MSME clusters.

52

Enabling legal and regulatory environment

• Only 18% registered business

• 66% say to comply with the law

• 7% to access Government tenders

• 7% to avoid harassment

• 5% to access finance

• Provide positive motivation to register

Registration and licensing of MSME's

• Review registration (benefits & processes)

• Costs an issue • Incentive for legal

compliance • Carrot versus Stick

approach

53

Entrepreneurship training and skills

development

• 118 000 currently employed

• Target 150 000 by 2018

• Incentives for increased employment opportunities e.g. tax relief

• District level incentives

MSME contribution to

employment

• Increase awareness of BDS providers

• Set awareness targets -from 19% currently to 40% by 2018

• Coordinated cross-focus approach

• Focus on:

• Marketing

• Record keeping

• Business skills education at college/university level

Need for skills

training

54

Technological development and innovation

• Only 3% have a written business plan

• Only 10% have signage advertising the business

• Only 2% have an email address

• Fewer than 1% have a website

• Only 2% have internet access

• Increase number of training facilities

Limited use of sophisticated

marketing techniques

• Support MSME owners in their venture to market their business (networking, referrals, local business directories, radio, billboards, local newspapers)

• BDS • Education

55

Infrastructure development and business shelter

• 61% of businesses operate from residential premises

• 16% say lack of space to operate as a challenge to growth

• Consideration to creation of MSME business hubs

• Land tenure improvements

Lack of operational

space

• Tackle operational space issue with regards to availability and affordability

• Supply of services – water, electricity and sanitation

56

Access to markets, including the development of MSME clusters

• 16 500 (22%) of businesses are in agricultural sector

• 52% are informally financially served

• 36% say sourcing money is biggest operational challenge

• Only 7% licensed/registered

• 7 000 of the agricultural businesses say they are struggling

• MFI opportunities

Importance of

Agriculture

• Need for affordable and flexible solutions to cover seasonal input and fixed assets (agri finance);

• Need tailored agricultural insurance;

• Infrastructure development

• Facilitate market access

57

Access to finance

• Support development of financial products and services that are: • Affordable (given low levels of

income)

• Appropriate - flexible (given irregularity of income)

• Accessible (given hours and days worked)

• Insurance provision as safety net

• Mobile banking

• Huge opportunities for microfinance institutions that could serve the purpose of grooming the MSMEs to a point where they are bankable

Low levels of access and

usage of financial

products and services

58

Access to finance

• 49% say access to finance a challenge to start business

• 24% say getting a loan from a bank is difficult

• Only 2% of all businesses have borrowed money from a bank

• 36% say the amount of their last loan was under M1 000

• 40% say the loan period was under 3 months

• 35% sourcing money is one of biggest operational problems

Access to

credit and

loans

• 35% said the needed less than M 1 000 to start the business

• 25% said they received money from savings group or friends and family

• Of the 9% currently borrowing, 7% borrowed money from informal sources or friend and family

Importance of informal financial

mechanisms

59

Business Development Services (targets)

Least

sophisticated

Emerging

Businesses

Most

sophisticated

Total

Market

Total market 34 488 30 881 10 699 76 068

Professional advice source

Professional consultant 648 1029 125 1802

Government institution 160 96 14 270

Small business support organisation 251 392 65 708

Business association 69 8 97 174

Currently using professional advice 1128 1525 301 2954

Potential Market 33 359 29 356 10 398 73 113

Possible gains 10% 40% 60%

Probable market 3 336 11 742 6 239 21 317

• There is an overall lack of business sophistication in the MSME sector.

• There is a critical need to expand efforts in Lesotho to provide BDS services to the

MSME sector. It is estimated that the potential size of the BDS market for various

services could be as high as 21 000 businesses.

• This estimated potential market improvement, 10% of the least sophisticated

segment, 40% of the emerging segment and 60% of the most sophisticated:

60

Registration of businesses (targets)

Least

sophisticated

Emerging

Businesses

Most

sophisticated Total Market

Total market 34 488 30 881 10 699 76 068

Currently

registered 5618 5507 2774 13899

Potential Market 28 869 25 374 7 925 62 168

Possible gains 10% 40% 60%

Probable market 2 887 10 150 4 755 17 792

• There could be a significant increase in the number of businesses registered by addressing

the reasons why businesses say that they are not registered. The majority provide the

following reasons:

Business is too small

No benefit to registering

Process too complicated

Do not have the money to register

• These perceptions can easily be addressed through advertising and direct business

contacts. If addressed it is estimated that an additional 17 800 business could be

registered.

• This estimated potential market improvement, 10% of the least sophisticated segment, 40%

of the emerging segment and 60% of the most sophisticated:

61

Formal Sector Banking (targets)

The banking sector could increase the number of banked businesses, through

product and service innovation, (particularly Mobile and Internet Banking) by over

12 000.

This estimate is arrived at by looking at the size of each BSM, taking the number

of currently banked into consideration and then assuming that the industry could

attract, from the potential market, 10% of the least sophisticated segment, 40% of

the emerging segment and 60% of the most sophisticated:

Potential

banking increase

Least

sophisticated

Emerging

Businesses

Most

sophisticated Total Market

Total market 34 488 30 881 10 699 76 068

Currently banked 11 929 12 969 6 075 30 973

Potential Market 22 558 17 912 4 624 45 094

Possible gains 10% 40% 60%

Probable market 2 256 7 165 2 774 12 195

62

Thank you bob.currin@africascope.net jabulanik@finmark.org.za

www.finmark.org.za

For more information on FinScope MSME Survey Lesotho 2016 please contact:

Dr Kingstone Mutsonziwa Kingstonem@finmark.org.za

Mr Jabulani Khumalo jabulanik@finmark.org.za

Tel: +27 11 315 9197 www.finmark.org.za

63