UNIDO and UNDP are working together to support MSME development and access to finance in Somalia
A recently concluded review on the Credit line rolled out by UNIDO for MSMEs in Beledweyne reflects the enthusiasm and appreciation from the borrowers. The presence of a grace period of couple of months in the credit period , though common elsewhere , is new to these beneficiaries which allows the firms to build up the business in the initial growing period without repayments so that it can reliably repay when the revenue of the firms are stabilized. It was also reported that the UNIDO credit products terms and conditions are more favourable than the other existing loan products in the country.
The credit line in Beledweyne is part of support to the private sector nationwide (newsletters Q3 2020 and October 2021) and aims to reduce the serious shortage of funds available to companies in Somalia. Funding in Beledweyne is partly from UNDP which also supports the Beledweyne Enterprise Development Unit promoted by UNIDO as part of its EDU network in collaboration with Somalia Chamber of Commerce & Industry, which provides business advice and training. UNIDO’s focus on the local economy and livelihoods shapes the programme. The Beledweyne Enterprise Development Unit helps the firms to make the loan applications.
The findings of the review indicated that all borrowers had been in business for some time and ownerships is a mix of women and men. Under a commonly used definition, most are small firms in that they have more than 10 employees but fewer than 50. Many of the employed in these firms include both women and IDPs. Interestingly, IDPs are not yet borrowers to the credit line which operates through a local commercial bank and it seems that they lack references locally, have nothing to give as collateral, or are too new to the area to create businesses which can borrow. Start-up firms also missed out on loans, as is often the case internationally. Banks prefer to know their customers and to see they had already borrowed and repaid loans. Firms borrow mainly for materials, with the length of the loans too short for capital investment. If firms are to borrow for capital investment, the loan product needs to be designed for a longer period.
Growing cereals and vegetables on 80ha, the company used the $11,000 loan to buy agrochemicals, repaying the money over two years. Owned by 4 men and two women, it employs 13 people of which 4 are women and 3 IDPs. The firm had never previously taken a bank loan and gave a house as collateral for the loan. Training on stock management by the Enterprise Development Unit was highly rated by the company owners.
The aim of this intervention is to boost the local economy so that jobs and livelihoods are created. There are not many formal jobs in Somalia and so the effects will mostly be on livelihoods or, in other words, the collection of ways that people make a living. Measuring the impact of the project with certainty is not possible as of now but the fact that none of the borrowers has failed to repay is a good first sign of success. Since local growth is essential and helping firms to grow through credit flow is important part of that equation.
It helps that business confidence in Beledweyne is strong, with firm owners optimistic. Security appears less of a constraint on doing business in the town or the surrounding districts than it is elsewhere. Farmers some distance away say that they are not affected by armed groups, while rising land prices in town suggest the local economy is in good shape. Hence, similar interventions are vital for the economic growth and can encourage MSME viability. The question now is how lending can increase to match the considerable demand.
