Credit Scheme

At last we are beginning to take our destiny into our own hands!

The recently launched National Credit Guarantee Scheme for Micro, Small and Medium Enterprises (MSME’s) marks a significant move in the right direction.

The initiative is however, just one link in the MSME development chain because access to money is not the only issue that is a barrier to development of the sector.

Although the Government has focussed on a program to remove barriers to doing business by undertaking an exercise to reduce the number of licences required to run a business, several other considerations are still a major concern towards improving private sector performance in the economy.

The issue of good business proposals is one key aspect of business success. This was alluded to by the Zambian Commerce Minister and flagged by the Development Bank of Zambia (DBZ) Chief Executive when he commented that the Credit Guarantee Scheme should not be misunderstood to be lowering the bar on good credit standards.

The realisation by the DBZ that most MSME’s do not maintain credible financial records should be a challenge to the institution to develop mechanisms that will motivate their customers to meet the basic benchmarks for accessing the Credit Guarantee services.

It is evident that both the MSME sector and the informal sector do not run their businesses at the same levels as the larger companies. This therefore suggests that launching the Credit Guarantee scheme without putting in place a program to mentor businesses to adopt good business practices and to develop bankable business plans, will undermine the success of the scheme.

Some easy to understand and implement programs must be designed to attract businesses to evolve from brief case enterprises to accountable institutions. Simple accounting should be advocated for, and systems for the sourcing of quality data for the business plans and strategic development plans should be offered, so that the MSME sector is usefully armed to not only access financing, but to successfully and sustainably build their businesses.

In an effort to develop the MSME sector, Government must sensitize the Central Statistics Office (CSO) and the banking industry to produce relevant data for better business decision making.

For example, an emerging MSME would want to know what size of market is available in a specific geographic area and the information should be available from the CSO surveys, Patents and Companies Registration Office business databases, and possibly Zambia Revenue Authority customs imports or exports reports.

Much of the failure of MSME’s is due to poor data quality for decision making.

This dilemma is not confined to the MSME sector, but is prevalent across the economy and affects both the private sector and the public sector.

The challenge of accessing quality information will be a major factor that will determine whether the Credit Guarantee Scheme will enhance economic development in Zambia.

The opportunity exists for partnerships to be established amongst the key players to collectively address the weaknesses that result in business failures.

Business associations have vast information on the peculiar needs of various economic sectors. This information will be useful to DBZ as they roll out the Credit Guarantee Scheme. The various Government statutory bodies and their parent Ministries have a very active role to play in facilitating better business practices through reducing the red tape and providing relevant information from Government statistics.

The Cooperating partners have the potential to align their programs in Zambia to capacity build the MSME sector as the ILO has done through their Mind Your Own Business program.

The banking industry is challenged to evolve their services to include account officers that will mentor the customer to run their businesses more professionally and meet the benchmarks of good business practices.

In a nutshell, the Credit Guarantee Scheme is a very good initiative but like every good idea, the success depends on what investment the promoter is willing to put into the program.

The indicators are clear. DBZ must immediately engage with various partners to address the key challenges of launching a guarantee scheme.

The investment that DBZ will put into ensuring the success of the guarantee scheme will determine the future of guarantee schemes in Zambia.

Addressing the risks of offering a guarantee scheme and putting in place mitigating factors, will decide whether this initiative will be sustainable, or whether we will throw the baby out with the bath water.

Published 25 August 2009