The challenges faced by small enterprises in Zimbabwe

women selling vegies

It is well known to economists and development practitioners that in any given country the majority of economic activities are carried out by small to medium enterprises (SMEs) and that the best way of fighting poverty is to capacitate small businesses. 

The SMEs include the corner vendor, the village cobbler, the growth point grocer shop, the backyard chicken producer, the cottage tailor and any other businesses that feel small. If you look at an individual vegetable vendor you could see an insignificant person but if you imagine that there are, say, a million of them in Zimbabwe and that each one of them sells an average of $2 worth of veggies a day (which gives us a whooping $2 million a day and a staggering $728 million per year) then you will begin to see that, small as they are in their individual capacities, collectively they are a special.

The first obstacle that SMEs face is that of lack of access to capital from financial institutions. The causes of that are multiple. They include (but are not limited to) the perception by financiers that financing SMEs constitute a higher risk, lack of collateral which bankers insist on having if they are to give loans to SMEs, the fact that the banks do not have departments that are adequately resourced to deal with the financial needs of SMEs who are either serviced through the retail banking staff who do not have enough skills to deal with business banking or through banks’ microfinance departments which by and large are treated as social responsibility projects by banks, absence of business track record due to the fact that most SMEs are informal businesses which sometimes do not even bank their sales revenues, perceived lack of business management skills and lack of know-how on how to raise capital from banks.

In instances where SMEs do get the loans from banks the terms (which include interest rates) are usually very stringent. Because of this lack of access to finance from deposit taking institutions SMEs end up borrowing from money lenders whose average interest rates of 30% per month are too heavy for any business’ cash flows to carry and hence put SMEs in unnecessary financial burden and distress.
Related to the foregoing obstacle are the twin evils of lack of access to credit terms from suppliers and insistency of large corporate clients on getting credit terms from small businesses. Getting credit from your suppliers is the cheapest source of finance for a business. 

http://www.herald.co.zw/editorial-comment-time-to-harness-informal-sector/