Investigation of Factors Which Hinder SMEs’ Formalization in Chilenge Market of Lusaka District

Abstract

The aim of the study was to investigate factors which hinder SMEs’ formalization in Chilenge Market of Lusaka District and research objectives were to identify factors that promote SMEs to operate in the informal economy; to analyze the competitive advantage that formal SMEs have over informal SMEs; and to find out if the legal environment supports informal SMEs’ transition to the formal economy. The study employed a descriptive research design with a sample size of 595 SMEs who were operating from Chilenje Market in Lusaka. Quantitative data were collected by using the questionnaire and were analyzed by using SPSS. The study concluded that the level of education for enterprise owners; awareness of government services; awareness of government services and the procedures involved in accessing government support; cost of formalisation for registered businesses; levels of satisfaction for government services; and laws and policies on enterprise formalisation were directly linked to enterprise owner’s decisions to either formalise their businesses or not. The study recommends that the government should consider offering business training for owners of SMEs for them to be able to make well informed decisions that can improve and lead to business growth. The study further recommends that the government should provide incentives to financial institutions that provide affordable credit for SMEs and start-up businesses; coming with up a communication strategy so as to improve communication of government support and services for SMEs; and proper implementation of laws and policies that that are meant to support SMEs and facilitate graduation of SMEs from informal to the formal economy.