Zambia's credit-guarauntee schemes
Thesis (MDF)--Stellenbosch University, 2014.
Small and medium enterprises are recognised around the world as very important to a country’s economic wellbeing. In developing countries, small and medium-sized businesses are seen as effective vehicles that can quickly deliver much needed economic development, increased employment, wealth creation and, ultimately, reduction in the poverty levels. However, these businesses fail to deliver the much-touted economic and social-welfare benefits. This failure is attributed to the many challenges that small and medium enterprises face, among which is a critical lack of access to bank financing. Credit-guarantee schemes in sub-Saharan Africa have over the past decades become a preferred intervention to try and get more bank financing flowing to small and medium enterprises. In 2009, the Government of Zambia implemented the National Credit Guarantee Fund as its intervention measure to unlock constrained bank credit to the country’s small and medium enterprises. Experience with credit-guarantee schemes in sub-Saharan Africa, including Zambia, has been rather disappointing. This study therefore aimed to review the Zambia National Credit Guarantee Fund with respect to its operational design, implementation and usage, evaluating the extent to which the design and implementation met international best practice. The study also sought to find out whether the design of the scheme sufficiently considered the local context of small- and medium-enterprise financing and whether it was attractive enough for the local commercial banks in Zambia. Using an extensive literature review, survey questionnaires sent to all commercial banks registered in Zambia as well as structured interviews of senior banking and government officials, the study found that, despite the Zambian credit-guarantee scheme having proper and adequate design that conformed to international best practice, it was unable to attract the needed participation of the local commercial banks. We conclude that, while proper and adequate designs of credit-guarantee schemes are important in the success of the schemes, this by itself will not attract the participation of commercial banks in an economy like Zambia’s. We infer from the results of the study that certain other interventions, such as the improvement of the financial- and business-management capabilities of small- and medium-enterprise management, must be put in place before mechanisms such as welldesigned credit-guarantee schemes can be expected to achieve their intended aim.