SEDU: A Grand Success Unit Needs Support [Archives:2000/03/Business & Economy]

January 17 2000

Ismail Al-Ghabiri,
Yemen Times
The Small Enterprise Development Unit (SEDU) is the first financial institution in Yemen that is providing credit and technical assistance on a national scale for small entrepreneurs with a business in manufacturing, trading or other services. In this way SEDU is contributing to increased domestic production, local employment opportunities and poverty alleviation. A Dutch company FACET B.V., is represented in Yemen by Mr Jan Bol, senior consultant.
SEDU Services:
1) Financing the purchase of fixed assets (machinery and equipment) for small business, either newly set-up or expanding small enterprises.
2) Financing working capital needs of small enterprises, i.e., assisting in the purchasing of raw materials, start-up cost of new enterprises or increased working capital needs of expanding small enterprises.
3) Assisting borrowers in the preparation of a feasibility study and cash flow forecast.
4) Providing technical assistance or consultation to small enterprises during different stage of development (establishment, operations, renewal or rehabilitation).
Mr. Nabil Ali Al-Azrak, a graduate of Sana’a University, the college of Commerce, economics and political sciences department, works in the Youth Ministry and Environment safety and has been recently appointed as an executive manager for the SEDU was interviewed by Ismail Al-Ghabree of Yemen Times who filed the following:
Q: When was this Unit established?
A: It was established in 1990 and it started its lending activities in 1991.
Q: What was the objective of establishing this Unit?
A: The objective of establishing the SEDU was to enhance as well as support the pivotal role played by small enterprises in the social and economic development process. I can briefly state some of the goals that are highly stressed upon in the outstanding order of this Unit. They are as follows:
1) Providing job opportunities and making free work principles take roots in terms of increasing the awareness of the importance of the private sector in the small enterprises field.
2) Expanding as well as encouraging the scope and the prevalence of small enterprises so that they will perform their proper role in the emergence of strong medium-sized and big businesses.
3) Providing chances of productive work for the state.
4)Developing and encouraging handicraft and professional occupations and protecting them against extinction.
5)Developing ties with big, medium organizations and small ones in realization of mutual benefit.
Q: Where do you finance these loans from?
A: Loans granted to these small enterprises are financed by the donor organizations in terms of loans, aids, specifically the Dutch government and UNCDF. We also finance these loans from repayments of these loans and revenues of its commercial activities. We also aspire to establish big and wide-range cooperation relationship with the Social Fund for Development Fund in the future.
Q: What kind of loans do you provide? and who to?
A: At the first stages of the Unit and up to the mid of 1998, the activities of the Unit were restricted to funding productive industrial organizations, however, we had found that the field of the small enterprises is so large that can not be limited to a specific economic activity. Therefore, a new policy was adopted to finance all economic activities, the commercial and service activities included.
These loans are granted to support small investors whose incomes can not cover the expenses of their projects.
Q: How many branches do exist and is there any plan to open new branches?
A: We have two branches so far; one in Aden and the other is in Hodeidah, besides the main branch in Sana’a. There are new plans to open new branches in Taiz and Hadramout.
Q: How much has been the total amount of loans granted for the year 1999?
A: The total amount of loans granted up to the end of November 1999 has run to about YR112.5 million.
Q: Are there any other organizations that support the Unit?
A: The only supporting organizations are the previously mentioned ones. We only receive encouragement from the Ministry of Industry and that of Planning and Development.
Q: What are the most outstanding obstacles that face the Unit?
A: The most outstanding obstacle we face is the absence of the governmental, national organizations and that of the private sector that render facilities and help the Unit in its development program. Besides, there is a scarcity in the potential resources to cover loans. Finally, there is also a gap between the outstanding order of the Unit and its developed activities. This is what makes us constantly ask for changing the Unit into a company that not only finances small enterprises but also provides assistance, coordination, cooperation, advice and consultation for small enterprises which will be able to contact organizations concerned.
Q: What is your plan for the new millennium?
A: The Unit is aiming at extending its activities of granting loans to all governorates of the country. It also aims at accomplishing a comprehensive change in its outstanding order.
The Yemen Times’ Al-Ghabree has also conducted an interview with 
Mr Jan Bol, filing the following:
Q: What is the kind of assistance being given to SEDU?
A: SEDU has benefited in many ways from Dutch support. The project provided new equipment to replace equipment that was sometimes 9 years old. SEDU received new cars, fax machines, photocopiers, computers etc. Some old computers were upgraded and ‘cleaned’ from viruses and up-to-date ‘Windows’ and ‘MS Office’ software was installed in all computers.
SEDU had to move to other, more spacious premises from the cramped accommodation it occupied. This allowed the installation by the local agent of Compaq computers, Al-Engazat, of an up-to-date combined computer telephone network, linking all computers and printers and providing electronic links to the branches.
Another change was an internal reorganization of SEDU. Initially there were three departments dealing with respectively loan appraisal, loans monitoring and debt collection. As staff in the Appraisal department, who were handling loan applications from clients, were not responsible for loan repayments, the quality of work and loan repayment suffered at times from lack of attention. Therefore the departments were merged and loan officers become responsible for the outcome of their work. They now handle all stages of the lending process, loan appraisal, monitoring of ‘their own loans’ and they are responsible for the repayment of ‘their’ loans.
SEDU’s internal systems have also undergone an overhaul. First of all the method used to appraise loan applications was reviewed and changed after staff had been given training. The computerized accounting software was many years old and was replaced by new software provided by a local company, Yemen soft. This company also provided training to accounts staff in SEDU. Furthermore, the loan administration system was as old as the accounting system specifically developed by FACET for use by its clients/financial institutions that serve small entrepreneurs in developing countries. It will provide much better loan and client information and statistics, which earlier on had to be assembled by hand.
Staff training of course, accompanied all changes. It started with training on some basic financial and accounting principles to loan officers. This was followed by a training course on specific credit management issues, given by a specialized trainer from FACET in Holland and by more in-house training on the use of the new loan appraisal system.
Assessment of sales data, as given by SEDU’s clients on their business, is very important when appraising the viability of business proposals. SEDU staff, therefore, attended a training course on marketing for small entrepreneurs, given by a local consultancy firm, Techman. This training helps SEDU staff in providing advice to clients on the marketing plan for their business.
Q: Is SEDU only operating in Sanaa?
A: Before the start of this project clients from other governorates already traveled to Sanaa to obtain a loan from SEDU. SEDU staff was thus also traveling is costly and time consuming for both SEDU clients and SEDU staff, two branches were opened in Aden and Hodeidah as part of the project. Tow more branches are planned to open in Mukalla and Taiz.
Q: How do you see small entrepreneurs benefiting from SEDU’s activities?
A: Many small business are undercapitalized and need more working capital to expand their operations. At times they get credit from suppliers, but this may by costly and ties them to these suppliers. With a working capital loan from SEDU (generally with a loan repayment period of 1-2 years) they can often expand their business and increase sales or reduce operating cost and increase profit. Very often they also lack the capital to buy another machine to increase production or replace an old machine to improve quality and their competitive position in the market. An equipment loan from SEDU (with a loan repayment loan repayment period of 1-3 years) helps to overcome these problems Every business in the world, big or small, needs loan capital and small businesses in Yemen are no exception. In many countries, though, small entrepreneurs have difficulty in getting access to bank services. Loans from SEDU, therefore, help in increasing the size or quality of their business, which in turn creates more income and provides more employment in Yemen.
Q: How many loans have been disbursed by SEDU so far?
A: In the year 1999 the total disbursement (amount of loans paid out) up to the end of November was YR. 112 million through 240 loans. In the first 6 months of the year SEDU disbursed 150 loans to a value of YR. 40 million.
In 12 months in 1998 about the same number of loans (152) was disbursed as in the next 6 months in 1999, to a total of YR. 69 million. The volume of lending was substantially higher in (1999) than in (1998.)
The loan volume in 1998 was actually considerably lower than the year before (1997; 216 loans; YR. 107 million,) due to the changes introduced within SEDU IN 1998. Due to internal re-organization and shifting of responsibilities, staff had become much more careful in 1998 when appraising loans, causing a temporary drop in lending in that year.
Q: To what type of business do you give loans?
A: In the first 6 months of 1999 61 loans (YR. 22 million) were given to enterprises in the manufacturing sector, mainly food & beverage enterprises, clothing & textile producers and handicraft. 28 loans (YR. 13 million) went to the services sector, of which nearly YR. 9 million to medical and nursing services and YR. 2 million to ‘professional services’ (engineering and accounting officers, translation bureaus and similar.) Another 41 loans helped to finance shops and trading with YR. 4 million.
Q: What do you mean by medical and nursing services? That is not an industrial activity.
A: That is true, but SEDU provides finance to many other businesses than just industry. We give loans to women (or men) to run a school, to medical doctors or dentists to buy medical equipment, to owners of restaurants, to shop owners etc. anything that is not purely agriculture. We do finance, though, agricultural processing; that means making something from products of the land.
Q: You mentioned loans to women. Are there many women entrepreneurs in Yemen?
A: No, there are not that many of them, but I believe that the government is actively encouraging more women to go into business. Due to low income in many families, there are many people and also officials in government who think that more women should go into business and help in raising living standards for their families. In the first half of 1999 SEDU has given 43 loans to women and 107 loans to men, but the loans to women were generally small compared to those given to men. Forty-three loans to women represent 29% of all loans over that period, but in Rial value it only comes to 4% with 96% of the total amount going to male entrepreneurs. SEDU will gladly support good male entrepreneurs with a sound business, but it will be happy to also see more women go into business. At the moment SEDU is well funded and has no shortage of funds for lending to good small business of either male or female entrepreneurs.
Q: Many women have no experience in business, whilst this is a requirement of any lending institution.
A: That is true, but in the first half of 1999 SEDU has given 50 loans (33%) to starting entrepreneurs, although these had usually obtained experience as an employee somewhere else. But, indeed, lending to start entrepreneurs presents increased risk whether they are male or female.
As there seem to be no training courses on basic management issues in Yemen and no established institutions that give advice to small entrepreneurs, this project and FACET have taken the initiative to design training courses for starting entrepreneurs, be they male or female. This is done in co-operation with Techman, who as a local consultant, will be able to conduct these courses in Arabic, even after expiry of this project. There will be another course for experienced entrepreneurs, as most entrepreneurs can benefit from additional information to improve their business. The courses will be available early this, but Techman is still looking for donor support to finance the running of these courses.
Q: What are SEDU’s plans for the future?
A: First of all we want to continue improving the quality of our work. In the year 2000 in particular we want to look again at our internal procedures and see how these can be improved and how we can help our customers better and faster. Furthermore, we will start using the new loan administration system that has just been installed; we must now start entering all loan data into it.
Having first looked at internal matters, this year we want to get more publicity and promotion as so to attract more customers and work with more small enterprises. This will include talking to business organizations and women organizations and look at further co-operation with them. Internal training will, of course, continue and we hope that many starting and experienced male and female entrepreneurs will be able to benefit from the new management courses. We will also co-operate with the German project in Taiz and Aden that will support small enterprise. Before summer we want to open two more branches in Taiz and Mukalla and better spread our services over the country.
Given further initial support, in the medium term we would like to open small sub-branches in the country, as so to make our services more easily available to a greater number of small entrepreneurs and reduce the physical distance to many clients. This will allow increased lending away from large towns and will reduce SEDU’s operating cost in those areas.
Another issue of major importance is SEDU’s legal status. The government has taken the decision that SEDU Will become a company and must learn to operate as in independent organization, that ultimately will be able to stand on its own feet without donor support. We hope that this legal issue will be finalized in the next few months. It will allow us to set out our own rules within the legal framework for private enterprise in Yemen. We may be able to attract (foreign) institutions as a shareholder in the new Small Enterprise Finance Company as a step towards independence and the ability in the future to stand on our own feet without support from anyone, except our customers.