Editor's Comment

SMEs need financial backing

A STRONG small and medium enterprises (SMEs) sector is the main growth driver of any economy in the world.
SMEs despite their significant roles in the economies of scale, are however often overshadowed by the big conglomerates.
Yet, SMEs by nature feed into the conglomerates and provide employment resulting into a strong middle class – the consumption class which drives the economy.
Some businesses which start off as SME graduate into corporates and with time, may mature into multinationals.
But it does not necessarily occur in an orderly manner and some take characteristics of more than one category.
SME does not also necessarily mean a small struggling business operating from a back street establishment. Some SMEs are pretty solid. It may just be that their set-ups have simple processes and few employees.
However, the SMEs sector has lamentably failed to grow owing to several factors such as most businesses being started by accidental entrepreneurs who have been forced into business because they have been forced out of employment or cannot find a job.
As a result, there is no thorough investigation of the business model but just coping from the next person.
There is no innovation injected into their business or processes as a consequence of under-developed entrepreneurial and business skills.
SMEs also face limited and expensive finance sources.
This is because most financial houses have not been lending money to SMEs. Most of them have depended on the Citizens Economic Empowerment Commission, whose funding model may not appeal to most SMEs seeking short-term funding for purposes of cash flow.
There is hardly any commercial bank that has a dedicated department or structure for SMEs finance and support.
And yet SMEs constitute the bulk of market players in Zambia, nearly 90 percent.
Economist Chibamba Kanyama says if Zambia has to treble or to even quadruple its gross domestic product within the next 10 years, SMEs should have a central role in growing the economy.
Mr Kanyama says the current initiative to create the Zambia Credit Guarantee Scheme (ZCGS) will unlock the capital raising capacity for these enterprises.
“There is a lot of innovation among these market players to the extent that if just 35 percent were to leverage this new window, we are able to create well over 10,000 meaningful jobs in the next three-four years by SMEs. What this will do is that the credit guarantee scheme will act as a form of insurance for SMEs, enabling them to directly engage commercial banks for financial support,” Mr Kanyama says.
He also says there are many other benefits; mentorship platform for SMEs by both the ZCGS and commercial banks to these enterprises.
With the ZCGS coming on board as a guarantor, SMEs should ensure money is used for the intended purpose.
There is a potential danger that once entrepreneurs know they are backed by a public institution to access funds from commercial banks, they may transfer their business risks to the scheme.
If not well managed through systems of good corporate governance and due diligence mechanisms, the ZCGS risks losing face with commercial banks and then transfer all liabilities to taxpayers.
That is why there is need for those administering the facility to ensure that only credible SMEs are considered for sustainability.

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