Abstract
SMEs are an integral part of the economy in Malawi. The paper assesses the access to finance by SMEs from financial institutions in Malawi by highlighting the obstacles that SMEs face in their effort to raise finance. The quantitative research approach was adopted in conducting the study. Questionnaires were circulated to 100 SMEs in the City of Blantyre-Ginnery Corner and the SMEs were selected using the random sampling techniques. The following major findings were revealed.  There are financial institutions that are willing to provide funds to SMEs for growth and expansion but most Malawian SMEs fail to meet the lending requirements demanded by these institutions. Chief amongst these is the inability by most SMEs to provide collateral or security and audited financial statements for their businesses. On the other hand, for the small number that is able to access finance, they are faced with high interest rates which make it very difficult for them to grow. The other constraints include lack of finance, stiff competition in the sector, high taxes and corruption and bribes to access contracts. Another interesting revelation is that SMEs relationship with their bankers is not healthy. Most SMEs consider their relationship to be average despite recent focus by the banks on SMEs businesses. The study recommends the enforcement of the Credit Reference Bureau Act 2010 to help financial institutions identify and lend to creditworthy SMEs; banks should soften their adverse risk attitude of over reliance on collateral rather than on business cash flows. The government should also consider provision of tax incentives to banks’ lending to SMEs; stabilisation of the economy to achieve lower inflation and interest rates and formulation of government policy on SMEs that would compel Ministries, Departments and Agencies to allocate a proportion of contracts to SMEs in any tender. Lastly, financial institutions should revisit their approach to SME banking.
Highlights
Evidence about the critical role played by the small and medium enterprises (SMEs) and the contribution they make to the socio-economic development of economies has been well documented
In terms of the annual turnover, for the 48 participating SMEs 21 of them recorded an annual turnover of over MK10 million representing 43 percent of the total respondents which is concentrated typically in the agricultural, general business services and transport sectors of the economy, 15 representing 31 percent of them had an annual turnover ranging between MK500, 000 and MK4 million, 8 representing 17 percent had an annual turnover ranging between MK4 million and MK10 million and only 4 participant SMEs representing 9 percent had an average annual turnover of less than MK500, 000
The results show the annual turnover for the 48 participating SMEs in the study where 21 of them recorded an annual turnover of over MK10 million representing 43 percent of the total respondents which is concentrated typically in the agricultural, general business services and transport sectors of the economy, 31 percent of them had an annual turnover ranging between MK500, 000 and MK4 million and 17 percent had an annual turnover ranging between MK4 million and MK10 million with only 4 participant SMEs representing 9 percent had an average annual turnover of less than MK500, 000
Summary
Evidence about the critical role played by the small and medium enterprises (SMEs) and the contribution they make to the socio-economic development of economies has been well documented. SMEs generate 60 percent of employment worldwide and provide jobs to roughly 80 percent of the workforce in the developed world. Another important finding was that 50 percent of global Gross Value Added (GVA) is contributed by SMEs. In Malawi, the findings by the comprehensive 2012 FinScope SME survey that 1,050,320people were employed by just around 41 percent of the country’s SMEs attest to the pivotal role of SMEs in the Malawian economy. The contribution of small and medium scale businesses to socio-economic growth and development of nations takes many forms including boosting public revenue collections through various forms of taxation, provision of goods and services to the general public and, more importantly, poverty alleviation through creation of employment and economic empowerment of citizens. Informal credit systems tend to be the primary source of credit. Kazooba (2006) and World Bank(2009) reveal that poor transportation, inadequately educated workforce, unreliable power supply are among a host of factors inhibiting the growth and ijbm.ccsenet.org
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