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The war against financial exclusion

While the world, not in the least, Botswana, battles unemployment of up to 20 percent, the question of how to create jobs and sustainable livelihoods, has for most become a rhetorical question whose answer is yet to be seen on the ground.


However, Government technocrats, economists and finance professionals present various ideas with mixed results. Several institutions provide training on business linkages and others provide finance such as the Citizen Entrepreneurial Development Agency.


However, though not quantified authoritatively, the informal sector provides a livelihood for a majority of the population that is involved in economic activity. The Small to medium sized sector has access to service propositions from various commercial banks. However, access to funding for capital needs remains elusive for this segment, particularly the ‘small’ section of the SME complement.


In the face of bleak prospects for the indigent, unbanked and financially excluded women, who are identified as the majority heads of families in the country, the Women’s Finance House of Botswana has emerged as a trailblazer in answering the question of how to mobilise funds to make a reality of small business potential.    


WFHB gives micro finance to groups of women who then make repayments, all the while ensuring that nobody gets left behind in repayments as this will mean the group cannot access further funding.  “We have zero defaults on repayments because of that reason,” said Veronica Masenya, executive chair of the WFHB.


“We have not been going all out to market ourselves because of lack of financial resources, we have operated only in the central and southern districts but with more strategic partners we can cover the whole country.”
“Currently, we have 9,000 clients who are mandated to save P5 per day to also encourage the saving culture,” said Masenya.


“We have extension officers who are resident in these villages,” said Masenya.


 “We a have a special Bank of Botswana license that that allows us to take deposits but w are not allowed to engage in speculative activities because we do not have the necessary reserve requirements,” Veronica Masenya, executive chair of the WFHB. “We have zero defaults on repayments.”


“Our micro loans start from P750 to P20 000 and these are cyclical because people first have to be taught how to use money; by the fourth cycle the groups can now access the P20 000.”


Standard Chartered Bank Botswana and WFBH this week, held its annual Client Day and Business Forum under the theme Strategic Alliances: Drive Towards Financial Inclusion.


Health Minister Dorcas Makgatho, a guest at the forum, urged women to diversify their business lines and not all venture into one business that seems lucrative, ultimately saturating it to a point where it is not lucrative anymore. Mmasekgowa Masire Mwamba and various institutions like the Local Enterprise Authority gave lectures on marketing, branding and the fundamentals of business.


Women’s Finance House, an NGO, was established in 1989 to help alleviate poverty and provide access to financial services to low income women entrepreneurs, with special emphasis on those who do not have access to conventional financial institutions.

The NGO provides micro loans, basic business training and business support services. The organisation’s loan fund has suffered the departure of donor funding to Botswana over the years, when the country attained a middle income status and has struggled to reach the corners of the country due to the resource shortage. However, in 2014, Standard Chartered injected P1 million into the organisation’s loan fund.


Botswana’s growth rate slowed from an average of around 7 percent for several years to 4.5 percent in 2015, making the creation of jobs, particularly for the youth, a major challenge. Analysts have put the unofficial overall unemployment rate in the country as high as 40 percent extending far beyond just the immediate crisis of individuals lacking a livelihood but longer-term national threats that include political stability, the viability of the country's fiscal and social security systems, and the social integration of a non-productive generation.

SOME CASE STUDIES

Nana Daisy Tsheko, a single parent, joined the organisation in 2008 and her Gaborone based tailoring business has grown over the years, employing 3 people. Ms Tsheko found a lucrative market in protective clothing and is planning to diversify in that direction, having secured contracts with mining companies. Her son, a recent graduate now does the public relations functions for her business.


Kefilwe Lobelo, an award winning fashion designer, joined WFHB in 2002 and resigned from formal employment to take up business. Though she started with no finance, the working capital boost that she acquired from WFHB allowed her to meet the demands of her growing business. Lobelo is planning to expand her clothing line into an all African clothing outlet with a presence in high end shopping malls across Botswana.


Mrs Motie Ntsholeng , a Mochudi based poultry farmer, joined WFHB in 2002, operating a tuckshop. She since diversified her business lines and currently plays in the property market where she earns income from 12 rooms she has built within her homestead. In addition she has established a poultry business where she started off with 100 chicks to the current 300. She intends to access more funds to meet the growing demand for chickens.


WHFB clients engage in various business activities including, preschools, events management, soap manufacturing, catering, just to name a few.
 

PROFESSIONAL VIEWS
Thabelo Nemaorani of eConsult, a private economics consultancy, told BusinessPost that the Women’s Finance House group lending method is the answer to small business financing that suffers under the risk averse environment of the commercial banking sector, who would under normal circumstances not give funding to start ups and small business.


Afena Capital managing director, Bakang Seretse, believes that the key to employment creation, and sustainable livelihoods, along with greater political will, is national blueprint for cooperative models of business in every sector.


“The cooperative movement would contribute towards shifting the conception and programmes around SMMEs away from focusing on individual ntrepreneurial activity to collective community production. These cooperatives will be versatile economic enterprises and will be established across every sector of the economy such as public works, farms, bakeries, financials services, mines, just to name a few,” said Seretse earlier this year at a seminar.

“Cooperatives have been used in many countries such as South Africa, Zimbabwe, the United States and Spain; Cooperatives don’t challenge capitalism but are a part of a wider strategic response to transcending capitalism.”

A statement by the United Nations Economic Commission for Africa, issued in early 2015, stated that: “Some good practices have emerged in different countries to enhance conditions in the informal  sector and increase the productivity of operators.

In Kenya, the development of a fledging  innovation ecosystem, iLab Africa, links universities and entrepreneurship, providing business  solutions for informal firms through mobile technology, thus improving access to ICTs and  overall productivity.

This is forward – integrated with venture capital firms to create formal employment opportunities for youth (Blohm 2008). In Botswana the forward linkages in raw diamond production created 21 firms in cutting and polishing and 3,000 jobs (Grynberg 2013).” However most of the gains for Botswana have been reversed by the same number of job losses in the same sector due to company closures.

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Botswana on high red alert as AML joins Covid-19 to plague mankind

21st September 2020
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This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.

The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.

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Finance Committee cautions Gov’t against imprudent raising of debt levels

21st September 2020
Finance Committe Chairman: Thapelo Letsholo

Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.

He was speaking in  Parliament on Tuesday delivering  Parliament’s Finance Committee report after assessing a  motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.

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Gov’t Investment Account drying up fast!  

21st September 2020
Dr Matsheka

Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.

The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.

The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.

The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.

This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.

Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.

Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.

However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.

Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.

When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.

This  as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.

Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.

The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.

Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.

In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.

Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.

Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.

Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.

Acknowledging the need to draw down from GIA no more, current Minister of Finance   Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”

He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”

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