How Credit Access in Zambia Can Boost Employment Rates
Credit access in Zambia is limited with only 38 percent of adults having some level of formal financial inclusion. While this number represents progress — as that percentage used to be a mere 23 percent — it also indicates that there is still room for development in the private and financial sector of Zambia.
The Financial Sector Deepening Zambia (FSDZ) is making a substantial effort to increase the availability of financial services and credit access to individuals in Zambia. By working with financial service providers, policymakers and civil society, FSDZ is creating an environment of greater financial inclusion in Zambia.
The Root of the Lack of Credit Access
One of the largest economic drivers in Zambia and several other developing countries are Small and Medium Enterprises (SMEs). SMEs are pivotal to increasing the economy, as they often provide opportunities for low-income people and contribute to Zambia’s GDP by creating growth opportunities. In Zambia, the SME sector comprises approximately 97 percent of all businesses.
However, a majority of SMEs in Zambia face obstacles when attempting to gain support from Financial Service Providers like banks and microfinance institutions to grow their portfolios. According to a business survey conducted in Zambia, a majority of SMEs do not belong to a formal business association or network. Due to this, business owners and farm owners often can only rely on their limited network of friends and family for business, which is not a sustainable growth model.
Conversely, financial institutions emphasize that SME owners often do not have the capacity to prepare bankable business proposals, which was a large constraint to accessing finance. Better relationships between Financial Service Providers and owners of SMEs may create a path of greater understanding and thereby greater financial inclusion.
Long-Term Effects of Enhancing Zambia SMEs Access to Finance
Improving credit access in Zambia and addressing its financial inclusion strategy is key to not only increasing formal financial inclusion but also to growing and developing Zambia’s ever-changing economy. Increasing financial literacy among small and medium enterprise business owners will allow them advocate for themselves among financial institutions. Organizations like International Trade Centre (ITC) work to do just that, facilitating access to financial supply for SMEs with high growth potential.
So far, ITC has provided 105 growth-oriented small or medium enterprises with business development training and individual counseling that improves business management. All of the SMEs that underwent training developed growth strategies that helped them increase sales, invest in new technologies and hire more staff. Through the timeframe of the project, 50 percent of the SMEs that received support and training were able to access formal finance.
The Ripple Effect
Increasing financial inclusion in Zambia will have a ripple effect: if Financial Service Providers provide access to services to owners of SMEs, then SMEs will have more room for growth. If SMEs grow their businesses, then there will be more opportunities for employment, especially for the country’s poor, thereby decreasing poverty rates.
There is still much that needs to be done for Zambia to become more stable as an economy. However, if business owners receive more access to formal financial institutions, then credit access in Zambia will produce many opportunities for its citizens, lead to a more robust economy and alleviate poverty rates.
– Shefali Kumar