Small businesses, especially those run by women, struggle to access the money and credit needed to grow their enterprises, a new report by the Central Bank of Samoa and the United Nations has found.

While work has been done over the years to improve financial inclusion, this report is the first to measure how well the work has changed the situation for micro, small and medium enterprises (M.S.M.E.s).

It found only half of Samoa’s M.S.M.E’s had managed to get commercial finance, which is significantly less than the number who want to access it.

According to their consultations of between 4000 and 6000 small and medium businesses, the high rejection rate comes from weak business cases and inadequate collateral. 

The report, prepared by the U.N. Economic and Social Commission for Asia and the Pacific (U.N.E.S.C.A.P.), said the four commercial banks in Samoa have no commercial drive to increase their loan portfolio for small and medium businesses, because larger businesses are a less risky and available option.

What’s more, S.M.E.s in Samoa do not have a “sufficiently robust […] track record” to inspire confidence in the banking sector.

And while initiatives have been ongoing to support S.M.E.s, they often focus on starting a business rather than sustaining or growing one.

“This is most notable in relation to independent assessments of proposed growth plans and the subsequent preparation of strong business cases for lenders and/or investors,” the report said.

Though there are several available credit lines available, there is no domestic supply of finance like a stock exchange, small camps equity market, a venture capital fund, equity crowd funding mechanisms or the like. 

Women are significantly affected by the lack of access to finance. According to the report, just 40 per cent of women hold bank accounts (though this is more than men), 50 per cent of women receive remittances and 50 per cent of small businesses are owned by women.

“Women take on more responsibility for debt management and, according to the interviewed credit providers, have proven to be more responsible managers.”

Women are also held back by social culture and customs, which may stop them from growing their businesses and increasing their earnings. 

The report found social obligations constrain women and stop them from accessing business networks and associations, and often have less control over how finances are spent even if they are the ones who earned it.

“Women in Samoa still have the prime responsibility for their immediate and extended families and they are more likely to be under pressure to contribute to community events such as funerals, weddings and church services. 

“The expectations and attitudes of male partners and family members may also result in less control over spending. As one experienced banker noted, “women may be earning the money, but it is often the husband who spends it.”

One solution the report reveals is that the Asian Development Bank will “resurrect” a previously delayed project on establishing a credit bureau, and intends to do this by early 2021, as it is the main infrastructural impediment raised by commercial lenders.

This might get around the problem of cultural issues with using customary land as collateral for a loan. 

U.N.E.S.C.A.P. also recommends the Samoa Business Hub play a larger role in helping businesses with the “bankable proposals,” and that it will need more support to provide that help.

S.B.H. should also manage a collateral shortfall partial guarantee scheme to share the risk with MS.M.E.s and enable lenders to take them on.

“The outcomes would be an increase in the number of S.M.E.s, particularly women-owned businesses, securing commercial finance and a likely improvement in the lenders’ S.M.E. risk perceptions.”

The report suggests there are approximately 2,500 and 3,000 S.M.E.s in Samoa with commercial finance, or half of all operating enterprises. In 2013 a Samoa Bureau of Statistics survey found around 40 per cent of business respondents had gotten a bank loan for their business. 

Since 2002, Samoa’s main microfinance supplier South Pacific Business Development (S.P.B.D.) has given loans to more than 80,000 clients. In 2019, it disbursed T$24.2 million in loans.

The Development Bank of Samoa has been piloting a new project called the Inclusive Development Facility for Women and Youth, which has been running in Savaii since July 2017. 

By January 2020, the pilot had resulted in 70 per cent of borrowers reporting increases to their family income, some 3.3 times the value of their loan, and only six out of 780 borrows defaulting on their loans.

Among the commercial banks, lending is increasing every year. According to the C.B.S, credit to the private sector by December 2019 was T$1.156 million, increasing 13 per cent over the last three years.

But for smaller enterprises commercial banks are not always their best lending option.

“The financial services offered by the commercial banks satisfy most of the S.M.E.s’ requirements, but the associated costs and collateral requirements make it difficult for S.M.E.s to access finance. 

“Commercial banks have noted that the great majority of S.M.E. finance applications are rejected and almost all such requests from new customers/enterprises are determined not to be creditworthy.”

One key issue in the data, by the report’s own acknowledgements, is that there are no agreed on definitions of what a small or medium enterprise is so the calculations of overall business numbers may not be completely correct. 

The credit providers who work with S.M.E.s also have no inconsistent reporting on their lending volumes or trends, except to segregate by industry sector.