Tackling poverty in Swaziland from the grassroots up

Photo: FINCORP

OFID was the first international financing institution to provide a line of credit to FINCORP, the Swaziland Development Finance Corporation. This recognition has helped to build a positive image of FINCORP and increase confidence among other global partners.

When more than two-thirds of the population lives below the poverty line on less than one dollar a day, and when the unemployment rate is estimated at around 40 percent, there is an increased need to provide incomegenerating opportunities. Such is the case in Swaziland, a lower middle-income country in Southern Africa, where about 75 percent of the 1.1 million-strong population is engaged in subsistence agriculture.

On the one hand, the bleak picture of this small country is compounded by it having the world’s highest death rate from HIV/AIDS and one of the lowest average life expectancies. On the other hand, there is promising potential, according to the World Bank, based on Swaziland’s 82 percent literate labor force, above average infrastructure, and well-developed road links with South Africa, the continent’s largest economy, which accounts for over 90 percent of Swazi imports and about 70 percent of Swazi exports.

After years of weak economic performance, when real GDP growth floundered at just over 2.5 percent from 2003 to 2010, compared with 3.7 percent from 1990 to 1999, the government launched an economic recovery strategy targeting the private sector as an engine of growth. Every option was considered valid in order to stimulate an economy that had been slowed by many years of deficit. Enhancing the number of small and medium size enterprises (SMEs) through microfinancing was seen as an effective way to move towards economic and social wellbeing.

In 1995, the government created FINCORP, the Swaziland Development Finance Corporation, and mandated it to finance and promote the development of Swazi-owned enterprises, support the expansion of financing to SMEs, create jobs and help provide business advisory services, such as training, monitoring, technical transfers and the development of other products and services for SMEs.

OFID – a pioneer supporting FINCORP

Dumisani J. Msibi, the Acting Managing Director of FINCORP, explains that since its inception, the cumulative loan disbursements of FINCORP to more than 60,000 Swazi clients total US$175 million. The current portfolio is US$65.1 million to just over 10,000 clients. The loan portfolio is split into four major categories: micro loans, loans to small and medium enterprises, and large loans to rural community farmers’ associations that are predominantly engaged in sugar cane farming, a key foreign exchange earner for Swaziland. Loan amounts can vary from US$250 to US$600,000.

The organization has received awards from international bodies, such as the Euromarket Research Centre, and has been ranked the fifth best in Africa by the Association of African Development Finance Institutions. OFID was the first international financial Institution to provide a line of credit to FINCORP, thereby paving the way for others such as the NORSAD Fund, the African Development Bank and the Industrial Development Corporation (South Africa) to support the growth of the institution.

The number of loan recipients funded by OFID over the years has climbed to over 740. As the average rate of additional employment per borrower is two employees, OFID’s funding has helped create more than 1,400 jobs. With Swaziland confronted by one of the highest unemployment rates in sub-Saharan Africa, the facility has made an invaluable contribution to the creation of much needed jobs.

Mr Msibi remarks that “as an organization that provides business credit across all economic sectors, the proceeds of the OFID facility have been disbursed to many sectors of the economy.” These include light manufacturing, construction, the haulage industry, public transport, order financing, retail and agribusiness. Most of the loans were issued for start-ups, with no collateral or minimal collateral requirements for the provision of financial services to Swazi nationals, in particular, women and the rural poor.

The future looks promising for FINCORP, whose new five-year strategic plan was adopted in April 2012 and will guide the company until 2017. According to Mr Msibi, the main thrust of the plan is to grow the loan commitments to a staggering US$11 million and also to broaden the product offering.