A local shoe maker can not hire more employees to expand his business because banks have not made it easy for him to access funds. For many Zambian Small and Medium Enterprises –SMEs- interest rates ranging from 25% to 30% on loans by banks are scaring them to borrow money for expansion.
A Zambian Shoe maker has called on the Bank of Zambia –BOZ- to regulate banks so as to enhance access to funds by Small and Medium Enterprises –SMEs-. Kingsley Mwewa who operates his workshop in the Zambian Capital, Lusaka says many local banks do not have a provision for SMEs to borrow money. He says banks’ requirements for one to get a loan are too harsh for businessmen like him. “I have tried to get a loan from the bank but I can not afford the collateral which they are asking for,” says Mwewa. Mr. Mwewa’s story is like that of many business people in the country.
Their operations are going through stagnation because of what they term being sidelined by giants in the financial sector. Meanwhile Bankers Association of Zambia –BAZ- says its members have attached stringent measures toward loans because many SMEs have defaulted in the past. Association Vice Chairperson Mizinga Melu says the core of banks is to make a profit hence defaulters force institutions out of business. “ Statutory measures by government have greatly affected our rates hence many banks still find it difficult to reduce their rates compared to other countries in the region,” she says.
Could Islamic banking aid SMEs?
The Central Bank says the country lacks competition in the banking sector to force the rates downwards. BOZ Governor Caleb Fundanga further adds recovering of loans from borrowers who fail to pay back through the Credit Reference Bureau will help in lowering interest rates. “The introduction of Islamic Banking which does not provide for borrowers to pay interest on loans would work well in Zambia. However the Bank of Zambia can only facilitate for this if an interested firm requests for its registration,” Dr. Fundanga says.
And Private Sector Development Association –PSDA- President Yosouf Dodia says high interest rates are retrogressive on economic development. He says the SMEs are the economic drivers of Zambia hence need to be considered in access to finance. “More than 80% of the employed population in Zambia is in the informal sector which is being run by SMEs.” Brian Mwale
A Zambian Shoe maker has called on the Bank of Zambia –BOZ- to regulate banks so as to enhance access to funds by Small and Medium Enterprises –SMEs-. Kingsley Mwewa who operates his workshop in the Zambian Capital, Lusaka says many local banks do not have a provision for SMEs to borrow money. He says banks’ requirements for one to get a loan are too harsh for businessmen like him. “I have tried to get a loan from the bank but I can not afford the collateral which they are asking for,” says Mwewa. Mr. Mwewa’s story is like that of many business people in the country.
Their operations are going through stagnation because of what they term being sidelined by giants in the financial sector. Meanwhile Bankers Association of Zambia –BAZ- says its members have attached stringent measures toward loans because many SMEs have defaulted in the past. Association Vice Chairperson Mizinga Melu says the core of banks is to make a profit hence defaulters force institutions out of business. “ Statutory measures by government have greatly affected our rates hence many banks still find it difficult to reduce their rates compared to other countries in the region,” she says.
Could Islamic banking aid SMEs?
The Central Bank says the country lacks competition in the banking sector to force the rates downwards. BOZ Governor Caleb Fundanga further adds recovering of loans from borrowers who fail to pay back through the Credit Reference Bureau will help in lowering interest rates. “The introduction of Islamic Banking which does not provide for borrowers to pay interest on loans would work well in Zambia. However the Bank of Zambia can only facilitate for this if an interested firm requests for its registration,” Dr. Fundanga says.
And Private Sector Development Association –PSDA- President Yosouf Dodia says high interest rates are retrogressive on economic development. He says the SMEs are the economic drivers of Zambia hence need to be considered in access to finance. “More than 80% of the employed population in Zambia is in the informal sector which is being run by SMEs.” Brian Mwale
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