The need for small and medium-sized companies (SMEs) to access money for their businesses is well known worldwide, but in Zambia it remains almost wholly dependent upon banks, whose ability to lend has become increasingly impossible especially for SMEs.
In this situation, alternative finance has an increasingly important role to play if SMEs are to continue reducing poverty in Zambia.
SMEs are often referred to as the backbone of the economy, as they help the government to reduce poverty in the country. They contribute largely to GDP growth through their collective importance and their ability to innovate and grow. According to available statistics in Zambia, SMEs account for more than 85 per cent of employment, this means that many people have entered into different businesses and majority of those are the youth. However, their access to funds is a recurring barrier for a SMEs to grow their businesses.
The availability of alternative finance can reduce dependence on bank lending as the main source of finance to the real economy and SMEs. The growth of alternative finance could therefore increase the resilience of the financial system and the wider economy in by reducing this heavy dependence on banks.
Many SMEs have potential but they lack access to finances. In Zambia money lending institutions have a lot of conditions which many SMEs like One Banja cannot fulfill. The interest rates are very high when it comes to bank loans. The alternative finance will help the SMEs to continue with their businesses rather than waiting for the banks or lending institutions to offer those finances.
Alternative finances is when the SMEs find other sources of finances for their businesses for example One Banja won funding from a competition by Nyamuka Zambia, a company helping the SMEs.
SMEs in Zambia need to use services like those offered by Challenges Worldwide to get more knowledge on how they go about their business with Challenges College and Challenges Worldwide ICS volunteers who are trained by CMI (Chartered Management Company) offering vocational skill building and on the ground consultancy and recommendations to grow the enterprise. On top of that, by reporting their finances through Challenges Marketplace ( Beta) those who perform well may receive funding from outside investors to help them accelerate their business.
It is a well known fact that SMEs are essential to the development of the country and if helped they can contribute to the reduction of poverty in Zambia. Every SME should be innovative in every part of the business including the being financially stable. Consultancy is another way of gaining more knowledge and this can help the SMEs to know other channels where finances can be sourced.