Are banks willing to give loans to small and medium sized enterprises? Should the informal sector pay taxes? How can the country's economy grow? Listen, watch and read our dossiers on Acces to Finance, the Informal Sector and Business Empowerment.
Mar 6, 2010
Dossiers
Are banks willing to give loans to small and medium sized enterprises? Should the informal sector pay taxes? How can the country's economy grow? Listen, watch and read our dossiers on Acces to Finance, the Informal Sector and Business Empowerment.
Mar 4, 2010
Where is the access to finance?
The role of financial institution in lending money to small enterprises in Zambia is a sticky point. Banks promise to be helpful (…lets dare to care….) , but still the most people wont have a chance for a loan.Its a busy afternoon on Buseko market in Zambia's capital Lusaka. Patrick Zangi is standing in the sun and cuts aluminium bars. The 52 year old man constructs windows and door frames. He has been in the business for more than 35 years but he has never been able to expand it. Patrick blames it on the banks.”They don’t give us information about their procedures and offers.”
Many small and medium enterprise in Zambia are facing difficulties in obtaining loans from financial institutions due to high cost of interest rates. The range is up to 30 percent from the bank, and 15 percent from micro finance institution. That is why Zambian government established a citizen economic empowerment Commission (CEEC) to assist the smes in terms of lending,
Victoria Chirwa of Zambia Chamber of Small and Medium Business Associations critises the work of the CEEC. “We have problem with CEEC cause their condition is too daft the interest rate is reasonable, but the procedure is combasant.”Victoria Chirwa also don’t like that the CEEC demands a business plan,a bank account and collateral among other things. “Only few people can provide all the requirements for CEEC loans.”Mabel Mungoma, the CEEC director general, defends the strict policies of her commission. “The success is not about how many people we funded,it is in how many business are standing after a period .”The CEEC is very careful about giving out loans. In the beginning they made bad experiences with people not paying back. says Mabel Mungoma.
Patrick's business of making iron window frames has been stan
ding for the very long period of over 35 years, yet he has never applied for loan. Patrick is worried about the costs of a loan, he doesn’t want to take one even if he meets the requirements of the CEEC. Like Patrick many small business people are deeply frustrated about the banks, they don’t believe in a change, and for them CEEC does not provide the solutionAli Falaki
Street vending in Lusaka
Time and again the Zambian government has tried to chase vendors from the streets but they keep coming back. The central question is: what makes the vendors come back to the streets?Mulenga Katongo wears a simple traditional wrap and a stained top. She balances a tray of bananas and oranges on her head. Mulenga tries to sell her fruits at city market in Lusaka. On most days the woman in her early thirties walks on the streets to offer her merchandise. Today it is raining and she has chosen to come to the market because there is a shelter to protect her from the rain. But Mulenga is not at ease - her business is illegal. For her it’s not allowed to sell neither in the street nor walking around in the market offering her merchandise. Mulenga suffers from the situation. “We can’t have a situation where there are no vendors in town. What will we eat? We make our money in the streets.” Mulenga says that she couldn’t sell from the markets. It’s too expensive. “There’s a lot of corruption going on”, says Mulenga.
Mulenga has been selling fruits on the streets for three years now as a way of helping the husband sustain the family. They have to pay their children’s school fees and provide their five children with basic needs like many other vendors.
Working with fear
The battle lines between Lusaka city council and street vendors seem to be drawn. Chanda Makanta council public relations manager says, ”it’s very unfortunate that people believe that when they sell on the street they make more money than they would in the market.” But why do the council and the government want these people out of the street despite the hard economic situation the country is facing? Shouldn’t the Zambian authorities be glad that the unemployed find their way out of poverty?
On a normal day, Lusaka streets are crowded with vendors competently balancing trays with fruits and vegetables mainly on their heads. They carry on their work amidst fear of being arrested by police and the council.
Way forward
Is it that these people want to be on the streets and not designated market places simply because they want to reach out to their customers and avoid paying council levy of about 3200 kwacha per day? Mulenga argues, in her opinion the markets are not enough to accommodate all the people selling and she says it is very difficult to acquire stands in the market.
Mercy Phiri from the Lusaka district business association shares the concern of the vendors: “The markets’ space here is not enough and those in top most positions grab the stands first. People who want to get a stand have to rent from those few selfish individuals, who hike the prices and this pushes marketers back to the streets.”
Mercy seems to have a solution for the authorities: “If the government can legalise one street in the town center to allow these vendors to conduct their business especially in the evening when most people are knocking off from work, it would help the vendor. They could even collect levy from there.”
But until the situation on the market changes or the Lusaka city Council declares a street a legal vending place, Mulenga will continue carrying bananas and oranges on her head – always prepared to run away from the police.
Caroline Michelo
The frustrated bio fuel industry
As a landlocked country Zambia has to import 100% of its fuel stocks – a dangerous dependency for the country. Will the amendment of the energy policy influence growth in the bio fuel industry in the country?On his farm in Lusaka Tyson Chisambo bends down to inspect his small Jatropha stalks spread around his knees like a sea of green. He has a nursery with 2 million seedlings on a 2 acre land and also a 10 acre Jatropha plantation in Chilanga.
Jatropha is an energy crop, when crushed it produces fuel, which can be processed into bio ethanol-petrol and bio diesel. Chisambo says he has a processing plant that can crush Jatropha seeds but currently the plant is not working as there is no one trading in bio fuels.
Bio fuel mix
Chairman for the Society Forum for Bio Fuel in Zambia Marriot Nyangu says the government should prepare a value chain, which includes production and marketing instead of only advocating for the growing of Jatropha plants.The government of Zambia in 2007 drafted a law that forces oil companies to mix bio fuel with the regular petrol for sale at filling stations. This is called a blending ratio. Meanwhile the amendment of this law is still waiting for adoption by the Zambia Bureau of Standards (ZBS) in Lusaka.
This is a problem many Jatropha farmers are facing in Zambia. When the government amended the energy policy to support the bio industry as a sector in 2007, farmers like Chisambo jumped to the opportunity.
Charles Mulenga, Assistant Director at the Department of Energy says government is concerned about the supply of Jatropha in the country: "The study of the extent of cultivation of Jatropha in the country found out that only 10,000 hectares of land is plantation. That is not enough to enable us to come up with a mandatory statement of blending".
The government is currently in talks with the Bio Fuel Association of Zambia and stakeholders about the bio fuel industry. "The growing of Jatropha if encouraged within the outlining districts in the country, the oil produced will not only cater for their oil needs but also build processing plants that will brings jobs" claims Chisambo.
The energy minister Kenneth Konga however disclosed that government is floating shares of the only petroleum refinery Indeni on the stock exchange in-order to boost the energy sector.
Mulima Situmbeko
Links
Jatropha curcas in Zambia
China Asks Zambia To Plant 2 Million Hectares of Jatropha
Forests and the Biodiversity Convention
Access to finances for Zambia
Zambia has a large small and medium enterprise sector. But these businesses need loans from then banks to grow. The million-dollar question is: are banks willing to lend money to them?
It is a hot day at Buseko market in Zambia’s capital Lusaka. Most people gather in the shades of the mango trees. However, the heat of the afternoon does not discourage Moses Mwale, a 52-year-old carpenter at Buseko market. Moses works on a small piece of wood. He looks tired. He must be – the air in his small shop is sticky and he has been working all day.
When he is done working on this particular piece of wood, it will fit perfectly on the left arm of the partially made chair in the corner of the room. Moses loves his work. He would like to expand his business, but there is a problem. Moses says sometimes customers need the finished products in a short time but he ends up loosing business because of he depends on manual equipment. “I need a loan so that I am assisted in getting machinery to ease the work we do”, says Moses Mwale
Growing competition
Whether people are unable to get loans or fearful about getting loans, the banking sector has been dominated by four major banks. Private sector development chairperson Yousuf Dodia says the rules and the benchmarks in giving these loans have been set by the four major players. “This has been the scenario for many years, but in the last 24 months we have seen four new banks come in and these banks are mainly African banks. So the group of competitors in the banking sector has grown quit a lot,” Dodia says.
Businesses like Moses Mwales still depend on the government to take responsibility. Moses says the government should encourage small businesses by softening up loan restrictions from banks, but bank of Zambia head of public relations Kanguya Mayondi says Zambians do not have a healthy borrowing culture. “When people hear about borrowing it sends chills in peoples minds, but the only chills it should send is through our conscience - are we ready to pay back?,” asks Kanguya.
Dark cloud of competition
With 2010 bringing close the implementation of the COMESA customs union it will mean zero tariffs for goods moving among member countries. What this means is that goods coming into Zambia from Kenya or Zimbabwe will come in duty free and likewise goods manufactured here in Zambia will go into these countries duty free.
Banks can help in the financing of small manufacturering businesses like Moses Mwale, who does not feel like a potential bank client, probably because of high interest rates. This is true for most SMEs in Zambia unless the government steps in and takes advantage of the coming competition.Yousuf Dodia says the government should see the dark cloud of competition within the region and support the private sector in a more aggressive way.
Stephen Mdoma
It is a hot day at Buseko market in Zambia’s capital Lusaka. Most people gather in the shades of the mango trees. However, the heat of the afternoon does not discourage Moses Mwale, a 52-year-old carpenter at Buseko market. Moses works on a small piece of wood. He looks tired. He must be – the air in his small shop is sticky and he has been working all day.
When he is done working on this particular piece of wood, it will fit perfectly on the left arm of the partially made chair in the corner of the room. Moses loves his work. He would like to expand his business, but there is a problem. Moses says sometimes customers need the finished products in a short time but he ends up loosing business because of he depends on manual equipment. “I need a loan so that I am assisted in getting machinery to ease the work we do”, says Moses Mwale
Growing competition
Whether people are unable to get loans or fearful about getting loans, the banking sector has been dominated by four major banks. Private sector development chairperson Yousuf Dodia says the rules and the benchmarks in giving these loans have been set by the four major players. “This has been the scenario for many years, but in the last 24 months we have seen four new banks come in and these banks are mainly African banks. So the group of competitors in the banking sector has grown quit a lot,” Dodia says.
Businesses like Moses Mwales still depend on the government to take responsibility. Moses says the government should encourage small businesses by softening up loan restrictions from banks, but bank of Zambia head of public relations Kanguya Mayondi says Zambians do not have a healthy borrowing culture. “When people hear about borrowing it sends chills in peoples minds, but the only chills it should send is through our conscience - are we ready to pay back?,” asks Kanguya.
Dark cloud of competition
With 2010 bringing close the implementation of the COMESA customs union it will mean zero tariffs for goods moving among member countries. What this means is that goods coming into Zambia from Kenya or Zimbabwe will come in duty free and likewise goods manufactured here in Zambia will go into these countries duty free.
Banks can help in the financing of small manufacturering businesses like Moses Mwale, who does not feel like a potential bank client, probably because of high interest rates. This is true for most SMEs in Zambia unless the government steps in and takes advantage of the coming competition.Yousuf Dodia says the government should see the dark cloud of competition within the region and support the private sector in a more aggressive way.
Stephen Mdoma
SHOE MAKER BLAMES BANKS FOR HIS INABILITY TO EXPAND
Getting a loan from a commercial bank or micro finance institution is usually not a problem in Zambia - but what is, is the cost of borrowing. It costs up to 30 percent to borrow money from a commercial bank and 15 percent from a micro finance institution.
Kingsley Mwewa, 50, makes shoes in a market stall measuring just two square meters of floor space. An old sewing machine rattles everyda
y from his little stall as one pair of shoe after the other is produced. A pile leather material, shoes (old and new) and shoe soles are disorderly heaped on shelf on the opposite wall to a huge stall window where Mwewa displays the latest produced shoes. The leather, glue, rubber and sweat forms a cocktail of smells that is difficult pin point in description.
But Mwewa and his teenage assistant have been working in this little stall for the last eight years and the only problem their business has is not the smell or the floor space it is access to loans to expand the business. “It’s very difficult to get a loan from commercial banks,” Mwewa says. “They will ask you for collateral and even the interest rates are very high. The only people who can give you a loan are the microfinance institutions but they charge even higher interest rates.”
But its not only small business people that complain about the lack of access to finance. Zambian President Rupiah Banda recently cautioned banks that the high lending rates hinder the growth of small business and therefore limit employment opportunities for Zambians. He said this at the official launch of the First National Bank in November 2009. First National Bank was the fifth bank to open shop in Zambia in less than one year.
The reason why small businessmen like Mwewa as well as economists and politicians complain about lending rates in Zambia is that the inflation rate which is a major factor in determining the interest rates that the banks charge is at 9.8 percent. Why then is access to finance so expensive at 30 percent when inflation is barely 10 percent? But commercial banks claim the cost of doing business in Zambia is very high and that is reflected in the cost of borrowing.
From her glass demarcated office at the top of the most prestigious bank in Zambia, Mizinga Melu, the Managing Director of Standard Chartered Bank and also Vice chairperson of the Banks Association of Zambia, looks closely into her computer screen to analyze the latest financial data sent to her e-mail box.
“Yes, inflation has come down, but If you look at the statutory reserves banks are required to have with central bank and the cost of some of the fixed deposits … they cost quite a bit,” Melu says. “We also have to pay a high cost for the telecommunication and other expenses which all have to be reflected in the lending rates.” She adds that although the average lending rates in the country are between 25 and 30 percent, some people (companies and individuals) can access loans at rates as low as 15 percent.
Poor credit culture
The background to special treatment is the poor loan repayment culture in Zambia. Until two years ago, Zambian businessmen and farmers would borrow money from banks without the slight intention of paying back. Others would hoop from one bank to the other borrowing money and simply disappear.
To nab this culture, the Bank of Zambia created the Credit Reference Bureau, an institution that tracks activities of borrowers and shares that information with lenders with the intention of keeping bad characters out of the financial system. Although it has been in existence for the last two years, the Bureau has done very little to help synchronize the lending rates and the inflation rate.
Economic analyst, Yusuf Dodia says the problem is bigger than the credit reference bureau. “Although the country has 17 of banks there sector is largely dominated by four banks with a network of branches spread throughout the country. The problem is that there is no competition to push lending rates down.” Mr. Dodia says.
Mr. Dodia however predicts that in the next two years the competition among banks will impact on lending rates.
Central Bank dates Islamic Banks
The central Bank which regulates financial institutions is currently plotting several plans to compel commercial banks lend money cheaply. The Bank of Zambia wants bring to the market Islamic banking.
“Islamic banks do not charge interest on money borrowed,” Caleb Fundanga, the Bank of Zambia Governor says. “What they do is that the loan is converted into shares in the project the borrower wants to invest in.”
But until Islamic banking is introduced, Mr. Mwewa banks on customers support not financial institutions to make his shoe making business grow. He plans to employ five other people but this is a long term vision.
“I believe my shoes will be worn the world over …and I want my grandsons and daughters to take over this business and what I believe in is that it will grow!” Mwewa declares.
It’s a dream many small businessmen and women in Zambia have. But these dreams would have been easily realized were it not for the unaffordable lending rates that banks charge on loans.
Kingsley Mwewa, 50, makes shoes in a market stall measuring just two square meters of floor space. An old sewing machine rattles everyda
y from his little stall as one pair of shoe after the other is produced. A pile leather material, shoes (old and new) and shoe soles are disorderly heaped on shelf on the opposite wall to a huge stall window where Mwewa displays the latest produced shoes. The leather, glue, rubber and sweat forms a cocktail of smells that is difficult pin point in description.But Mwewa and his teenage assistant have been working in this little stall for the last eight years and the only problem their business has is not the smell or the floor space it is access to loans to expand the business. “It’s very difficult to get a loan from commercial banks,” Mwewa says. “They will ask you for collateral and even the interest rates are very high. The only people who can give you a loan are the microfinance institutions but they charge even higher interest rates.”
But its not only small business people that complain about the lack of access to finance. Zambian President Rupiah Banda recently cautioned banks that the high lending rates hinder the growth of small business and therefore limit employment opportunities for Zambians. He said this at the official launch of the First National Bank in November 2009. First National Bank was the fifth bank to open shop in Zambia in less than one year.
The reason why small businessmen like Mwewa as well as economists and politicians complain about lending rates in Zambia is that the inflation rate which is a major factor in determining the interest rates that the banks charge is at 9.8 percent. Why then is access to finance so expensive at 30 percent when inflation is barely 10 percent? But commercial banks claim the cost of doing business in Zambia is very high and that is reflected in the cost of borrowing.
From her glass demarcated office at the top of the most prestigious bank in Zambia, Mizinga Melu, the Managing Director of Standard Chartered Bank and also Vice chairperson of the Banks Association of Zambia, looks closely into her computer screen to analyze the latest financial data sent to her e-mail box.
“Yes, inflation has come down, but If you look at the statutory reserves banks are required to have with central bank and the cost of some of the fixed deposits … they cost quite a bit,” Melu says. “We also have to pay a high cost for the telecommunication and other expenses which all have to be reflected in the lending rates.” She adds that although the average lending rates in the country are between 25 and 30 percent, some people (companies and individuals) can access loans at rates as low as 15 percent.
Poor credit culture
The background to special treatment is the poor loan repayment culture in Zambia. Until two years ago, Zambian businessmen and farmers would borrow money from banks without the slight intention of paying back. Others would hoop from one bank to the other borrowing money and simply disappear.
To nab this culture, the Bank of Zambia created the Credit Reference Bureau, an institution that tracks activities of borrowers and shares that information with lenders with the intention of keeping bad characters out of the financial system. Although it has been in existence for the last two years, the Bureau has done very little to help synchronize the lending rates and the inflation rate.
Economic analyst, Yusuf Dodia says the problem is bigger than the credit reference bureau. “Although the country has 17 of banks there sector is largely dominated by four banks with a network of branches spread throughout the country. The problem is that there is no competition to push lending rates down.” Mr. Dodia says.
Mr. Dodia however predicts that in the next two years the competition among banks will impact on lending rates.
Central Bank dates Islamic Banks
The central Bank which regulates financial institutions is currently plotting several plans to compel commercial banks lend money cheaply. The Bank of Zambia wants bring to the market Islamic banking.
“Islamic banks do not charge interest on money borrowed,” Caleb Fundanga, the Bank of Zambia Governor says. “What they do is that the loan is converted into shares in the project the borrower wants to invest in.”
But until Islamic banking is introduced, Mr. Mwewa banks on customers support not financial institutions to make his shoe making business grow. He plans to employ five other people but this is a long term vision.
“I believe my shoes will be worn the world over …and I want my grandsons and daughters to take over this business and what I believe in is that it will grow!” Mwewa declares.
It’s a dream many small businessmen and women in Zambia have. But these dreams would have been easily realized were it not for the unaffordable lending rates that banks charge on loans.
FACTS
By Joshua Jere, Brian Mwale, Hadijah Nabbale
CONSTRUCTION BOOM CREATS EMPLOYMENT IN ZAMBIA.(fact box)
Zambia has about 4,700,000 people in the labour force.
According to the Ministry of labour, about 85.5 % are in employment.
The construction industry currently offers jobs for more than 40 thousand people.
Permanent secretary from ministry of labour adds that they expect more people to be employed in the field and starting training programme.
The construction industry happened to be one of the major sectors in Zambia.
Last year it contributed about 7.5% of the gross domestic products (GDP).
According to the Ministry of labour, about 85.5 % are in employment.
The construction industry currently offers jobs for more than 40 thousand people.
Permanent secretary from ministry of labour adds that they expect more people to be employed in the field and starting training programme.
The construction industry happened to be one of the major sectors in Zambia.
Last year it contributed about 7.5% of the gross domestic products (GDP).
Subscribe to:
Posts (Atom)
