Assessing the Challenges Affecting SMEs' Access to Bank Loans in Zambia, a Case of Lusaka Town Centre

Abstract

This research aimed to evaluate the difficulties SMEs face in obtaining credit from banking institutions. Using a descriptive research design, primary data was collected from various SME respondents through a structured, self-administered questionnaire. The literature review, sourced from journals and other materials, provided a deeper understanding of the subject. Data analysis was conducted using frequency tables and descriptive graphics with the assistance of SPSS for data entry, coding, and analysis of quantitative data from closed-ended questions. The findings revealed that while access to credit positively influenced SME performance by enabling proprietors to increase business stocks or acquire assets, significant challenges impeded access to credit. These challenges included inadequate collateral, limited borrowing capacity, high interest rates and processing fees, and stringent terms and procedures. These barriers hindered SMEs' ability to expand, improve cash flow for reinvestment, and ultimately reduced profitability. To address these issues, the researcher recommended that the government, through the Bank of Zambia, consider capping interest rates for SMEs or providing subsidized loans. Additionally, they suggested strengthening the Zambia Credit Guarantee Scheme Limited to offer loan guarantees for SMEs, recognizing their crucial role in the economy. The study recommended that Government create interest Rate Caps where the government should work with the Bank of Zambia to establish an interest rate ceiling for SMEs, making loans more affordable and promoting business growth and stability. Develop subsidized loan programs for SMEs to lessen the impact of high interest rates and processing fees, thereby helping them secure the capital needed for expansion and operational improvements. Enhancing the Credit Guarantee Scheme requires you to improve the structure and operations of the Zambia Credit Guarantee Scheme Limited to provide SMEs with easier access to loan guarantees, addressing issues related to inadequate collateral and limited borrowing capacity.