Addressing challenges in accessing finance by small and medium enterprises (SMES) in Zambia: a pragmatic approach.

Abstract

The objective of the study on ‘Addressing Challenges in Accessing Finance by Small and Medium Enterprises (SMEs) in Kitwe District of Zambia, was to examine the constraints experienced by SME owners in their quest to access financing from financial institutions, to fund business initiatives such as startup endeavors, business operations, and business expansion. The study employed a mixed method research design. The sample for the quantitative approach for the study comprised 60 SMEs and 6 Banks while 4 institutions dealing with SMEs were included as key informants for the qualitative approach. Questionnaires were used to collect data which was subsequently analyzed using Descriptive analysis and chi square test of independence in IBM SPSS Statistics version 28. For the qualitative approach, interviews were for data collection while content analysis was used for data analysis. The findings revealed that access to finance has a significant relationship with SME capabilities of procuring new technology and improving performance for them to survive and attain sustainability and growth, hence the need to resolve the long-standing SME financing challenges like high interest rates, short term loan product offerings, and rigid requirements of collateral and audited financial statements. On the other hand, the study revealed that SME survival was not only dependent on accessibility to finance but also proper SME management, which affects operations and profitability and subsequently loan repayment capabilities. The findings also revealed that banks continued to prefer immovable assets as collateral when lending to SMEs. The study therefore recommends taking measures to resolve the challenges in SME financing through formulation of schemes to lend to groups of SMEs at relatively low rates while the group members of SMEs share default risks, implementation of Credit Guarantee Schemes, formulation of collateral registers with guidelines on valuation and disposal of securities, as well as provision of incentives to banks that lend and effectively monitor the performance of SMEs to ensure success. The implication of this study is that Government and nongovernmental organizations could make use of the research findings to reflect on the challenges, develop and implement effective intervention policies and laws in accordance with international best practices, aimed at spurring the SME sector for sustainable and inclusive growth. Key Words: Small and Medium Enterprises (SMEs), SME Financing Challenges, SME Growth