Factors affecting access to finance for small and medium scale enterprises (SMEs) in Zambia: a case study of Chilanga district’s central business district (CBD).

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Zulu, Francis
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The University of Zambia.
Small and Medium Enterprises (SMES) are hailed for their pivotal role in promoting grassroots economic growth and equitable sustainable development. They contribute substantially to the Gross Domestic (GDP), export earnings and employment creation in many countries and have been widely acknowledged as the springboard for sustainable economic development. While SMEs constitute an important component of the private sector in the developing world (mostly), they report significantly higher obstacles to their operations and growth than large enterprises. Among the many obstacles, the lack of access to appropriate financial services, especially lending services, looms large. The main objective of this study, therefore, was to analyse the factors affecting access to finance by small and medium (SMEs) businesses operating in Zambia, focusing on the Central Business District of Chilanga District as a case study. The study revealed notable constraints from both the demand and supply side of access to finance due to a number of factors like lack of collateral, higher risk of small and medium enterprise business failure, poor debt repayment culture, poor record keeping by small businesses and lack of succession planning among other things. Other factors included high interest rates by financial institutions, lack of understanding of small and medium business needs and lack of trust in the management of small business by financial institutions as small firms were known to divert borrowed funds from the business thereby resulting in high default rates. The demand side factors of access to finance were also affected by volume of required documentation in credit applications, banking policies, regulatory environment and scanty credit information.
Thesis of Master of Science in Accounting and Finance.