Exploring the risk factors to formal financing for artisanal and small-scale mining operations

Abstract

This article explores the risk factors limiting access to formal financing in the artisanal and small-scale mining (ASM) industry. It is argued in this study that to tackle the funding constraints in the ASM industry a bottom-up approach that captures the perspective of the miners who are engaged in these activities themselves is required. This involves understanding more about the limiting factors that inhibit the miners’ access to formal lending from the perspective of the miners themselves. This will provide better guidance when formal lenders scrutinize the documents for issuing loans to this group of miners. This study draws data from participants in the mining industry and from formal lenders who lend to operators in the industry, using grounded theory. Results of the analyses of the study data helped to underpin the credit risk factors that limits access of ASM operators to formal sources of funding. With the knowledge of these risk factors, lenders are aware of the critical areas for due diligence, which minimises their risk exposure and can potentially encourage loan issuance to this sector. Adequate funding for the ASM industry will improve their contribution to the national economic development. With access to formal financing which this study promotes, ASM companies are enabled to achieve safe and healthy operations, with reduced negative impact on the environment. Also, formal financing will limit the prospect of vested interests of informal financiers in the industry, thereby increasing the earnings of the miners from the operations and improving their living conditions. Thus, a well-financed ASM sector can help developing nations across the world to move closer to meeting key targets linked to the Sustainable Developments Goals (SDGs), especially SDG1 (end poverty), SDG2 (zero hunger), SDG8 (decent work and economic growth) and SDG10 (reduced inequality).