Background that would encourage participating financial institutions

Background Information

Swaziland currently has two guarantee schemes that are housed at the Central Bank of

Swaziland (CBS) namely; the Small Scale Enterprise Loan Guarantee Scheme (SSELGS) and the Export Credit Guarantee Scheme (ECGS). The schemes were established in 1990 and were re-launched in 2010. The main objective of the schemes is to circumvent, to a large extent, the issue of collateral by acting as an assurance to banks in the absence of acceptable collateral from SMEs that want to access finance through the country’s banks.   

Its specific objectives are: 

·         To establish a loan guarantee Fund that would encourage participating financial institutions (commercial banks) to increase lending to small-scale enterprises in Swaziland, by reducing the financial risk to be taken by those institutions. 

·         To make better use of financial resources available at commercial banks for a specific development purpose, i.e. to actively support local entrepreneurs, (many of whom have no access at present to commercial credit due to lack of collateral) to develop their businesses into viable private enterprises. 

·         To promote increased participation of Swazi nationals in the economic growth of the country, in particular in sectors of industry suitable for small-scale operations and to improve their competitive position, and

·         To stimulate efficient localization of small-scale businesses by providing adequate capital to take over existing shops and workshops or to even establish new ones.


Information sourced from the SSLEGS main report (thereafter referred to as the SSLEG Report), suggests that as at June 2016, the total number of loans guaranteed had reached 1 -179 (251outstanding loans) for a total value of loans amounting to SZL 100.5 million. Of this, 59.7% (E60 million) was for paid loan while the remainder represents the outstanding loan portfolio guaranteed at E 40.5 million (or 40.3% of the total value of the scheme). In terms of the largest beneficiaries of the scheme, the retail sector came first at 58.6% of issued loans leaving the remaining 41.4% to the other sectors namely; Manufacturing (5.5%), Transport (3.9%), Services (24.1%), and Agriculture (1.3%).

The SSLEGS Report further documents that the default rate stood at 5.28% in June 2016. Given that Small and Medium Enterprises (SMEs) have come to be seen as major players in stimulating economic growth and increasing employment (OECD, 2000), providing support and other ancillary services to SME’s is therefore crucial for stimulating economic growth. To be clear, the government of Swaziland sees SME’s as key in the fight against unemployment, poverty, and hunger (NDS of 1997, revised 2014). However, issues of financial exclusion due to primarily lack of collateral and targeted support to SME’s have meant that the SME sector contributes very to GDP production in Swaziland. The literature shows that for a country to develop, it has to have a lot of functional SMEs. Moreover, for SMEs to perform well and contribute to economic growth they need to have access to financial services. Recognising this, the Government of Swaziland through the Central bank of Swaziland (CBS) introduced the SSELGS.  Implicit to the introduction of the scheme is the assumption that the major stumbling block for SMEs when applying for loans is the lack of collateral. However, even with the presence of the scheme, SMEs in Swaziland still face some difficulties when it comes to accessing loans. Available evidence shows that, in most cases SMEs are either not given the loans at all or the loans are issued very late which becomes a great inconvenience to the entrepreneurs, raising questions regarding what more can the government do to support SMEs. Given that twenty-seven (27) years has passed since the scheme was first launched in Swaziland, its impact and value to the economy need to be evaluated.

Against this backdrop, this study seeks to find out if the scheme (SSELGS) since its inception has had any positive contribution to the performance of SMEs which in-turn affects the economy. The criteria of qualifying for a loan at a broader spectrum, among other requirements, is collateral. However, and notwithstanding that the issue of collateral has been fixed, SMEs still find it difficult to get loans, which suggests that there are other factors at play other than collateral. Hence the study will investigate other possible factors hindering SMEs from accessing loans.