Sunday, 08 December 2019 22:05

The challenge of MSMEs in El Salvador

Written by Sandy Velasco

The challenges that MSMEs must fight include challenges such as educational capacity, formality and credit accessibility, according to the Central Reserve Bank (BCR).

Being a MSMEs in the country resembles a maze, and its dead ends to reach the goal, whether viewed from capacities, or financial perspective, as a BCR survey concluded.

In the National Survey of Access to Finance for Micro, Small and Medium Enterprises (MSMEs) are framed in the lack of educational skills, and conditions to be candidates for financial credit.

Likewise, the profile of the owner or manager of the business shows us the challenge in terms of capacities by educational level, it stands out in the first instance, and alludes to the limitations associated with innovation, competitiveness and awareness of the formality of the business.

Similarly, formality affects traditional credit accessibility, which also represents a challenge in terms of document requirements on the part of regulators and the capacity, and  payment moral on the part of creditors.

The sample revealed that the banking system predominates as the main credit grantor (67%), in fact, throughout the history of the business, 59% requested credit from a financial institution, although there are other intermediaries, such as cooperatives, state Banks, and lenders.

The analysis concludes that the obstacles that credit claimants observe for an application, such as for a loan already granted is similar to the high interest rate, complicated procedures and guarantees specifically required by the document.

Occasionally, 27% said that interest rates are very high, 17% that financial institutions ask for many guarantees, 14% that the processes are very complicated. Hence 99% financed the business through lenders, considering that the procedures are more agile and fast, do not ask for many documents or the requirement of guarantees is different from that requested by banks.

While 54.9% obtained a loan from a private bank, public financial institution or Sistema Fedecrédito, in a range from US$2,000 to more than US$100,000.

The survey conducted among owners, chiefs, financial managers, accountants, general managers in charge or administrators of companies throughout the country will serve to determine the conditions of access to financing that MSMEs have, in what they allocate it and what are the obstacles they face.

What are the characteristics of MSMEs?

The MSMEs in the country belong mostly to the male sex (60-70%), in contrast, microenterprises and the commercial sector are under the leadership of women.

On average, the owners of MSMEs are around 51 years old, and 41% of the sample analyzed completed university studies, followed by a high school diploma (24%), the rest went up to the ninth grade or have partial or vocational education.

Regarding the characteristics of the business, 56% correspond to natural persons, while 44% have legal personality. As for registers, 85% have NIT; VAT register (81%), quoted by the ISSS (71%) and an AFP (65%).

Most of the MSMEs consulted used their own resources to start the business (71%), followed by private banks (12%), the contribution of several partners (8%) and other sources.

According to the survey, 45% of micro, small and medium enterprises use computer resources to keep accounts, while 25% use only authorized registers and books. The rest use notebooks, spreadsheets or simply do not keep an accounting record.

One interesting fact is that 21% of microenterprises are between one and five years old, in contrast to the small ones, which have between 11 and 20 years of operations.

For the sample, the BCR was taken from a universe of 158,099 businesses in the verticals of industry, commerce and services established in urban areas that form part of the 2011/2012 Economic Directory of the General Directorate of Statistics and Censuses (DIGESTYC).

The calculation was made on a sample of 1,267 MSMEs from the whole country, with a sampling error of 2%, and a confidence level of 95%.


Last modified on Sunday, 08 December 2019 22:17