Barclays Africa said it plans to raise 1.3 billion rand ($88 million US) to fund loans for small and medium enterprises at a time when U.K.-based parent Barclays plc is selling down its stake in the group.
The bank said the funding is part of a “shared growth” strategy towards improving socioeconomic conditions in 12 African markets where it operates, IndependentOnline reported.
Barclays Africa CEO Maria Ramos said the bank will raise the funds with corporate partners, development finance institutions and global financial bodies by the end of this financial year to let SMEs do business with the bank and its clients.
SMEs involved in producing and supplying goods and services to Barclays clients will be able to apply for loans, said KeaObaka Mahuma, head of Barclays Africa’s enterprise and supply chain development.
The idea is to raise funds and make loans at attractive rates, Mahuma said.
So what’s an attractive interest rate in Africa?
Sub-Saharan Africa has some of the highest interest rates in the world, offering high rates of return for investors, CountryRankers reported.
Trading Economics compares federal fund interest rates for 196 countries with data from official sources.
Interest rates in South Africa averaged 12.9 percent from 1998 until 2016, reaching an all-time high of 23.99 percent in June of 1998 and a record low of 5 percent in July of 2012.
Interest rates in Kenya averaged 14.26 percent from 1991 until 2016, reaching an all time high of 84.67 percent in July of 1993 and a record low of 0.83 percent in September of 2003.
By comparison, the interest rate in the U.S. averaged 5.87 percent from 1971 until 2016 with an all-time high of 20 percent in March of 1980 and a record low of 0.25 percent in December of 2008, Trading Economics reported.
SMEs provide 60 percent of South Africa’s jobs and contribute up to 50 percent of gross domestic product, but access to loans is one of their biggest challenges, IndependentOnline reported. With a high chance of failure and little to offer in the way of collateral, banks see them as high risk.
Corporate lending in South Africa alone rose to 36 percent of the banking system’s total exposure in 2015, up from 31.5 percent in the five years prior, according to a May report by ratings agency Moody’s, BusinessDayLive reported.
Retail exposure dropped 42 percent to about 34 percent in the same period.
Barclays plc plans to sell down its 62.3 percent share in the banking group. It sold 12.2 percent of this in May.
“Africa is our destiny. We know that we can make a huge difference, and we must make a huge difference across this continent,” Barclays Africa CEO Maria Ramos told MoneyWeb.
Ramos said that Barclays Africa’s strategy for shared growth is not philanthropy but a core part of business strategy.
The loans will be given to emerging businesses that wouldn’t ordinarily qualify for funding via traditional channels, due to weak balance sheets or insufficient collateral.
Ramos said that the group’s three-year growth strategy, launched in 2014, is still intact.
“We are making a serious and clear commitment to the continent on which our strategy depends,” Ramos said.
Barclays PLC announced in May that it will sell a 12.2 percent stake in its African unit to an array of investors, as the British bank pushes ahead with its retreat from the continent, Wall Street Journal reported.
South Africa’s state pension fund, the Public Investment Corp (PIC) agreed to buy up to 1.2 percent of Barclays Africa Group Ltd. shares. The rest of the 103.6 million shares will be sold to investors preapproved by the South African regulator.
Barclays said it plans to cut its 62 percent stake in Barclays Africa over the next two or three years. If PIC sale goes through, Barclays pls’s stake will be reduced to just above 50 percent.
Former Barclays CEO Bob Diamond said earlier this year he was putting together a bid for Barclays’s entire stake in Barclays Africa, with funding lined up from U.S. buyout firm Carlyle Group and other investors including several sovereign-wealth funds. They said they planned to buy the stake and then possibly combine Barclays Africa with Atlas Mara Ltd., the small African banking group Diamond co-founded in 2013.
The consortium of investors has finished raising funding and will bid for the remaining 50.1 percent share of Barclays Africa, WSJ reported in May.
Barclays Africa has majority stakes in banks in Botswana, Ghana, Kenya, Mauritius, Mozambique, Seychelles, South Africa, Tanzania, Uganda and Zambia.