WRITE A FORMAL CONCEPT NOTE FOR THESE TERMS OF REFERENCE. Include Background, Research problem, objectives, significance of the study, methodology, and expected outcomes
ESWATINI BANK
TERMS OF REFERENCE
FOR THE ENGAGEMENT OF ESWATINI ECONOMIC POLICY ANALYSIS AND RESEARCH CENTRE TO CONDUCT A COMPREHENSIVE STUDY ON THE SMME SECTOR IN ESWATINI
1. Background and Context
Eswatini's SMME sector plays a pivotal role in employment creation, poverty alleviation, and economic diversification. However, it continues to face numerous constraints including limited access to finance, weak institutional support, inadequate skills, poor infrastructure, and constrained market access. Marginalized groups, particularly women, youth, and persons with disabilities (PWDs), face amplified barriers within this ecosystem due to entrenched inequalities and limited institutional responsiveness.
In alignment with national development objectives and the Bank's strategic ambition to become the leading financial partner for SMMES, the Bank seeks to commission a comprehensive study of the SMME sector in Eswatini. The aim is to better understand the dynamics, opportunities, challenges, and support ecosystems of SMMEs in various sectors, and to use this understanding to inform the development of tailored financial products, advisory services, and partnership models that support the growth and sustainability of SMMEs across the country.
2. Objectives of the Assignment
The overarching objective of this assignment is to conduct an extensive diagnostic study on the SMME landscape in Eswatini to enable the Bank to design and deliver responsive, innovative, and sustainable banking solutions for SMMES. The specific objectives are:
•	To map the size, composition, and distribution of SMMES across sectors and regions in Eswatini.
•	To assess the financial and non-financial needs of SMMES at various stages of their business lifecycle. 
•	To identify existing and potential barriers to SMME growth, including access to finance, regulatory constraints, skills gaps, market access limitations, and infrastructure challenges. 
•	To assess the specific financial and non-financial needs and constraints of women-led, youth-led, and PWD-owned SMMES.
•	To review the current ecosystem of institutions supporting SMMES (government, parastatals, NGOs, private sector) and identify collaboration opportunities. 
•	To recommend actionable strategies and product opportunities for the Bank to support SMMEs, including digital finance, sector-specific products, guarantee schemes, business advisory services, and inclusive banking models.
•	To provide a roadmap for the Bank's positioning as a leading SMME Bank in Eswatini.



3. Scope of Work
The Consultant shall be expected to undertake, at a minimum, the following tasks:
A. SMME Landscape Analysis
•	Define and categorize SMMES by size, sector (agriculture, retail, manufacturing, services, construction, tourism, etc.), ownership (youth, women-led, cooperatives, Persons with Disabilities), and location (urban vs. rural). 
•	Conduct a national mapping of formal and informal SMMES using surveys, interviews and secondary data.
B. Financial Access and Inclusion
Assess current levels of financial inclusion among SMMES.
•	Identify the types of financial products currently used and unmet needs (e.g., working capital, asset financing, trade finance).
•	Evaluate constraints to credit access, including collateral requirements, credit information asymmetry, and banking practices.
C. Non-Financial Support and Capacity Building Needs
•	Determine the business development support required by SMMEs (training, mentoring, digital literacy, financial management).
•	Evaluate the availability, accessibility, and effectiveness of such services in Eswatini.
D. Institutional and Regulatory Environment
•	Review the regulatory, policy, and legal frameworks affecting SMME growth (business registration, taxation, labor laws, etc.).
•	Identify bureaucratic and administrative hurdles faced by SMMES.
•	Analyse government incentives and schemes targeting SMMEs.
•	Analyse the policy environment and whether it adequately promotes access and opportunity for women, youth, and PWD entrepreneurs.
E. Ecosystem Stakeholder Mapping
•	Identify and consult key stakeholders including:
o	Government ministries and agencies (e.g., Ministry of Commerce, SEDCO, etc)
o	Development partners and NGOs
o	Private sector associations (e.g., Business Eswatini, FESBC, etc) 
o	Financial service providers and FinTech’s
o	Incubators and accelerators
•	Document the current support ecosystem and identify potential partnership models.
F. Sector-Level Deep Dives
•	Conduct targeted sectoral analysis on high-potential SMME segments (e.g., agri- business, green enterprises, etc).
•	Identify sector-specific financial and business development support gaps.

G. Demand and Supply Gap Analysis
•	Compare the demand for financial services by SMMES with the supply side offerings from banks and MFIS.
•	Identify mismatches and areas for product and service innovation.
H. Recommendations and Strategic Roadmap
•	Propose strategic recommendations for the Bank to position itself as a leader in SMME banking.
•	Develop a 3-5-year action plan including: 
o	Product development roadmap
o	Institutional alignment recommendations
o	Partnerships and outreach models
o	Capacity-building needs for bank staff and systems
Below are some of the key risks we see from SMMEs in the country, categorized by risk type.
1. Credit Risk
SMMEs are inherently more vulnerable to credit risk than larger enterprises due to:
•	Limited Collateral: Many SMMEs in Eswatini operate informally and lack bankable assets or formal ownership documents that can serve as collateral. 
•	Thin Credit Histories: A significant portion of SMME is either new or previously unbanked, leading to little or no credit records.
•	Cash Flow Volatility: SMMES often experience irregular income flows, particularly in agriculture, retail trade, and construction sectors, key industries in Eswatini.
•	High Default Rates: Poor business management practices, economic shocks (e.g., droughts, fuel prices), and market access challenges increase the likelihood of repayment defaults.
2. Operational Risk
Banks face operational challenges when dealing with SMMEs due to:
•	Documentation Gaps: Incomplete or poor-quality records, such as unaudited financial statements, hinder proper risk assessment and underwriting.
•	Fraud and Misrepresentation: Risk of misstatement of income, fake invoices, or overstated asset values is higher in some SMME segments.
•	Capacity Constraints: SMMES may not have internal controls or governance frameworks, increasing the risk of internal fraud or business failure.
3. Market Risk
SMMES, particularly in agriculture and retail, are exposed to:
•	Commodity Price Volatility: Fluctuating input and output prices, such as maize or sugar, impact their profitability.
•	Concentration Risk: Many SMMEs are clustered in a few sectors (e.g., retail, transport, food services), meaning economic shocks can simultaneously affect a large portion of the loan portfolio.
•	Exchange Rate Risk: Those involved in cross-border trade with South Africa or Mozambique may be affected by Lilangeni-Rand exchange rate movements.
4. Liquidity Risk
•	Short-Term Nature of Liabilities: SMMES typically seek short-term working capital but may fail to repay within agreed terms, straining the bank's liquidity management.
•	Mismatch Between SMME Financing and Bank Funding Structure: Long-term SMME loans may be funded by short-term deposits, creating an asset-liability mismatch for the bank.
5. Reputational Risk
•	Public Perception: Aggressive recovery from defaulting SMMES or denial of credit to small businesses could attract negative public sentiment or political pressure.
•	Customer Service Delivery: Failure to design products that are suitable for SMME needs may lead to poor uptake and reputational damage.
6. Macroeconomic and Environmental Risk
•	Climate and Weather Risks: Agriculture-based SMMEs are exposed to droughts, floods, and other climate shocks common in Eswatini.
•	Unstable Market Conditions: Sluggish economic growth, high unemployment, and inflation in the country can reduce consumer spending and SMME profitability.