On July 16, 2020, President Mokgweetsi Masisi launched the revised Citizen Entrepreneurial Development Agency (CEDA) Lending Guidelines and Requirements.
The guidelines were a revision of guidelines that were launched and approved in 2008. Since then, the Botswana economy has changed drastically necessitating a revision of the guidelines to ensure they are still relevant to the market and clients.
The guidelines have taken an even bigger sense of importance in the past year. As they were being developed, we have since seen the calls for Economic Transformation taking centre stage in national discourse. The new guidelines therefore, will be very central and relevant for pushing national priorities like Citizen Economic Empowerment, import substitution and most recently the need to reduce the country’s dependence on its neighbours for trade. Contrary to popular belief COVID-19 was not the reason the guidelines were reviewed, but it has thrust them squarely in the limelight and made them more important going forward with the Economic Recovery and Transformation Plan. So, what are the main changes to the guidelines?
First and foremost, the loan limits are much bigger. The Small and Micro loans have been merged and grown from a maximum of P300,000 to P1 million, medium-sized limit increased from a maximum of P4 million to P10 million and large from maximum of 30 million to P50 million.
The changes have now also increased the lengths of the loan with small going up to seven year, medium and large both going up to 20 years. These changes are both welcome as the bigger limit accounts for change in prices in the last decade and the longer loan periods reduce the instalments and hence pressure on the business in daily business.
Another major change has been in the interest rates charged. As market rates went down, CEDA’s fixed loan was proving to be uncompetitive with banks, so the new guidelines have now adopted a market rate risk based pricing of prime minus 1.5% for small, prime (5.75%) for both medium and large-sized loans. We also see a change from owners’ equity contribution of 15% down to 10%. Whilst a lot of Batswana would like to see this requirement removed, it is extremely necessary to show commitment from the owner to their project.
The most significant change has to be the security aspect. Previously, the expectation was for a business owner to put up immovable assets as security to the equivalent of the loan. This has been changed such that rather than the owner pledging their personal surety, the owner committs to be personally liable if the company cannot pay. Whilst this removes the personal liability protection provided by companies being (Pty) Ltd, it does make it a lot easier to ensure you get funding.
The complications only arise if you default on your loan. For most entrepreneurs, this is a risk most will be willing to take. Another major aspect now added to the current guidelines, is that CEDA will take social impact of projects into consideration when funding.
Therefore projects which promote economic inclusion based on their geographical location, number of jobs they create and opportunities to vulnerable groups like youth, women and the disabled will qualify for potentially a preferential rate or reduced security requirements. This is in line with the NDP11 objective of increasing socio-economic participation in the country.
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With the push for food self-sufficiency, it is important that funding be directed to projects that improve Botswana’s current situation. This sector will also include agro-processing and downstream value adding activities.
In line with the country’s efforts to encourage export led growth, this sector was included to try and encourage more activity in this area and grow its share of GDP and assist in creating employment.
This would encourage Batswana to participate more meaningfully in the construction industry, especially in property and its related sectors.
With the need for self-reliance and citizen economic empowerment highlighted by energy and fuel shortages in the past few months, this sector is imperative for Batswana to play a much larger role going forward.
With the increasing disgruntlement with the minimal citizen participation, this industry is included to empower Batswana to get involved in all aspects of the tourism industry. This includes accommodation, but also goes to value-added activities like transportation in the form of boats and helicopters. Batswana should consider buying equity in existing operations using CEDA loan facilties.
This industry is important because of the value of the individual jobs created with it being the highest average employer in Botswana. Whilst the industry is mature, participation by local companies is still at an early stage. This special consideration will allow Batswana to participate in early stage mining and also in support work for existing mines.
The creative industry has been earmarked as having great potential, but currently under explored. This covers cultural and artistic sectors like advertising, graphic design, music, film and tv etc. This consideration is to provide funding to grow that sector to its full potential.
Similar to the creative industry, with the national push to change to a knowledge-based economy, technology takes centre stage in also enabling the country to leapfrog into the fourth Industrial Revolution and allow for Digital Transformation of services and companies.
Investment in local companies will ensure the transformation is not led by foreign companies.In conclusion, at a high level it is clear that the CEDA guidelines were compiled taking into consideration the current realities and national priorities of country.
As a fundamental element in any business ecosystem, the funding aspect of the ecosystem looks sufficiently covered in this respect. It is now for the other market players to step forward and improve on human resource skills and market access that will allow for Botswana’s diversification efforts to be realised.
*Mphoeng is currently employed at University of Botswana as a lecturer in the Department of Accounting and Finance at the Business Faculty. He holds an MSc in Finance from Manchester Business. He also works with the pioneering local data science company called Spectrum Analytics, where he is involved in steering Botswana into the 4th Industrial Revolution.
His career started in 2006 at the Bank of Botswana where he held numerous roles in the Financial Markets Department between 2006 and 2009