Friday, December 28, 2012

Let's turn our attention to small enterprises

Let's turn our attention to small enterprises
By The Post
Fri 28 Dec. 2012, 10:00 CAT

Everything big starts with something small. Nothing great is created suddenly. Nothing can be done except little by little. People who think they are too big to do little things are perhaps too little to be asked to do big things. Small opportunities are often the beginning of great enterprises.

With a little thing lies a big opportunity. Small things make a difference; therefore, do all that it takes to be successful in little things.

When we are faithful in those small opportunities, God says to us, "You have been faithful in handling this small amount…so now I will give you many more responsibilities. Begin your joyous tasks I have assigned to you."

You never do great things if you can't do small things in a great way. All difficult things have their beginning in that which is easy, and great things in that which is small.

One of the major differences between people who have momentum and those who don't is that those with momentum are growing by taking advantage of small opportunities. The impossible, many times, is simply the untried.
Small and medium enterprises in Zambia have difficulties in growth due to lack of finance. They hardly grow beyond start-up stage. Others go out of business at a very early stage.

And as Bank of Zambia governor Dr Michael Gondwe has correctly observed, there is need for the establishment of venture funds in the country to ease access to funding of small and medium businesses who still have great difficulties accessing finance from commercial banks.

Small and medium businesses have few alternatives of accessing finance other than relying on their retained earnings to finance their investments.
Lack of access to credit is a major constraint inhibiting the growth of small and medium enterprises in our country. The issues and problems limiting small and medium enterprises' acquisition of credit include lack of tangible security, coupled with an inappropriate legal and regulatory framework that does not recognise innovative strategies for lending to small and medium enterprises.

Limited access to formal finance due to poor and insufficient capacity to deliver financial services to small and medium enterprises continues to be a constraint in their growth and expansion.

Our commercial banks generally perceive small and medium enterprises as high-risk and commercially unviable. As a result of this, only a few small and medium enterprises access credit from commercial banks in the country.

There has been political pressure on our commercial banks, urging them to lend to small and medium enterprises. But this pressure has not yielded much. There are serious challenges commercial banks face in lending to small and medium enterprises.

In addition to lack of security, there is also a serious culture of not paying back debts in our country. Those from the small and medium enterprise sector who happen to have access to commercial bank credit often fail to pay back. Some of them misuse, misapply the credit. They use the money they have borrowed for business on non-business expenditure - they buy expensive automobiles, construct mansions and engage in other wasteful spending. And this leaves very little money for the business activities the funds have been advanced for.

And it is time we started to address, as a nation, the conduct of business under limited liability status. If this culture of not paying debts is not seriously addressed, even venture funds will fail to rescue or provide finance to our small and medium enterprises.

The government is right in trying to pay special attention to the development of small and medium enterprises. Countries throughout the world are nowadays turning their attention to small and medium scale enterprises. This is because attempts to promote economic progress by establishing large industries have usually failed to improve the lives of the majority of the populations concerned.

Therefore, small and medium enterprises are now viewed as important in even and equitable development. Small and medium enterprises are not only seen as providers of goods and services but also as drivers in promoting competition, innovation and enhancing the enterprise culture, which is necessary for development and industrialisation. Small and medium enterprises seem to be efficient and effective in responding to the challenges of creating productive and sustainable employment opportunities, promoting economic growth and poverty eradication.

There is no doubt that, if well nurtured, small and medium enterprises will play a significant role in contributing to our national goal of wealth creation and making Zambia a middle-income country by 2030.

Therefore, access to finance by small and medium enterprises is an important ingredient to development. And the financial constraints being faced by small and medium enterprises are likely to affect business creation and improvement. We cannot continue with this situation where small and medium enterprises in Zambia have difficulties accessing both credit finance and equity.

Venture capital is one source of non-commercial bank financing options for financing small or start-up businesses. Venture capitalists are organised providers of financing for winning but risky business proposals by small and medium enterprises that have a promising, yet unproven idea.

If the venture capitalists are convinced that a business idea is promising, they will take an ownership stake in the business whose growth has been constrained by shortage of capital or increased cost of borrowing and provide the necessary finance.

There is no doubt increased venture capital finance will have a significant impact on the development of small and medium enterprises in our country. And we shouldn't forget that small businesses don't remain small forever, they grow. And small businesses have been and are the stepping stone of industrialisation.

And as we have already pointed out, lack of finance has been a major contributor to the small and medium enterprise failure in Zambia. The encouragement, by the government and the Bank of Zambia, of venture capital finance will greatly help increase the number of small and medium enterprises in our country and help Zambia achieve its 2030 vision.

Continued reliance on commercial banks to finance small and medium enterprises will not achieve much positive result. It may help consolidate the few well-managed and established small and medium enterprises who have accumulated some assets to pledge as security for credit but it will certainly not do for start-up ones. Initiatives are needed for the setting up of venture funds. And the government should start serious work in the creation of the necessary environment and incentives for the establishment of venture funds.

The Development Bank of Zambia, which the government wholly owns and controls, has not functioned that much as an effective venture fund. And in the process, it has lost a lot of money by trying to lend to very risky undertakings without positioning itself as a venture fund.

And the other schemes, such as the Citizens Economic Empowerment Commission, have been a disaster because they have not been lending in a manner that can be said to be prudent. And moreover, they did not also have the discipline and structure of a venture fund and, as a result, and also given our culture of not paying debts, have not done well and have lost money.

What is needed are more venture funds. And these institutions are necessary in bridging the levels of access to finance, and they should be top of our government and Central Bank's priority.



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