•BANK of Zambia Governor Michael Gondwe (left) and Finance Minister Alexander Chikwanda oversee the affairs of Zambia’s financial sector to ensure businesses flourish.
By MAIMBOLWA MULIKELELA –
THE promotion of a dynamic operating environment for Small and Medium Scale Enterprises (SMEs) is increasingly seen as a priority in Zambia’s economic development agenda.
SMEs are a primary driver for job creation and Gross Domestic Product (GDP) growth and can contribute to the economic diversification and social stability of the country.
They also play an important role for private sector development.
It must be emphasised that the utilisation of financial products and affordable credit does not only promote the growth of the SMEs themselves but also their active participation in the economy.
Hence, the need for the Government to invest in financial education among the SMEs in order for them to effectively contribute to the economic development of the country.
In the past, SMEs lacked access to finance because the SME market was perceived by the banks as risky, costly and difficult to serve.
However, with advances in information and communications technology, the cost differential of serving poor customers particularly, the SMEs was diminishing and banks now recognise significant opportunities in the SME sector.
This is so because SMEs are now seen as an engine for economic growth.
And the National Strategy on Financial Education for Zambia sets out the direction and framework for improving financial literacy among Zambians.
It outlines programmes, leadership, funding model, action plans, milestones, monitoring and evaluation plans.
The Bank of Zambia (BoZ) is of the view that financial literacy was important in ensuring that modern banking methods are widely used by the target market.
This is so because financial education was critical in shifting public attitude and ensuring that modern banking methods are widely utilised.
Central Bank governor Michael Gondwe pointed out that financial education was important, hence the need for all banks to sensitise their customers on innovative products they offer in order to promote financial inclusion.
Most often, poor financial choices are made as a result of lack of understanding of financial matters.
This could result in a number of negative outcomes, including a lower level of financial wealth and imprudent debt levels.
Dr Gondwe said financial literacy education makes the financial market place effective, efficient and better equips consumers to make smart financial decisions.
However, the Association of Chartered Certified Accountants (ACCA) Global Forum for Small and Medium Sized Enterprises (SMEs) believes governments should encourage financial literacy among the small business for them to fully develop.
This will help remove the current uncertainty in the regulations.
The forum for SMEs aims to find out what factors give rise to financing innovations, what measures could help them reach more businesses, and what obstacles are holding them back from their potential.
According to the latest policy paper titled; ‘Innovation in access to finance for SMEs’, it was important that governments invest in financial education, infrastructure and clearer regulation if they want to help finance small businesses.
ACCA Global Forum for SMEs chairperson Rosanna Choi said the association conducted a research that revealed that capital and liquidity regulations are forcing banks away from traditional lending to small businesses.
Ms Choi pointed out that: “Our research suggests a worrying lack of financial awareness among the world’s entrepreneurs, as the SME sector’s most trusted financial advisers, finance professionals have proven they can lead the drive for financial education, and we call on policy makers to engage the profession more fully in their efforts.”
She said the forum does not view regulation as an enemy of financial innovation but of course the bank’s ability to finance businesses has been hit by regulation.
In some cases, this has been vague or ill-thought out saying other providers are certainly taking advantage of the banks’ regulatory weaknesses.
But it is clear to us that smart regulation can positively spur innovation by building the much needed financial infrastructure and offering greater certainty to financial providers and users.
On the other hand, head of ACCA Zambia Mukaba Mukaba pointed out that one of the common themes emerging here is that owning a platform where SMEs do business makes you a great potential to financial providers.
It was encouraging to note that SMEs from Alipay in China and Peer to Peer lenders in the United Kingdom have combined this advantage with the right financial skills and access to the capital markets to create extremely powerful challengers to the banks.
In the meantime, MPH Chartered Accountant Zambia managing partner and forum member Hastings Mtine said finance professionals have knowledge to help innovation businesses.
He pointed out that businesses and Entrepreneurs have generated anywhere near as much data about themselves as they do today yet the financial sector is only just beginning to catch up with the volumes and scope of relevant information and its potential for informing investment and lending decisions.
SMEs need financial support in order to meet their growth. This financial support should be provided according to the specific needs of SMEs.
For example, there has to be adequate credit support at an affordable cost. Credit to SMEs must be delivered on a timely basis. This is very important, as smaller businesses not only face a financial crunch, but also work under pressure of time.
One of the major trends that we are currently witnessing in this domain is that SMEs are adopting newer means to raise capital for their business.
It is important that the Government continues to promote a broad-based development of the financial sector under the Financial Sector Development Plan (FSDP).
This has helped the financial institutions across the country to expand, strengthen corporate governance framework and developed the payments system and common platforms for expanding financial services particularly to the unbanked.
