Small and Medium Enterprises Government-aided Financing in Zimbabwe: A Theoretical Perspective

Abstract

Small and Medium Enterprises (SMEs) play a crucial role globally in economic development. Thus, its financing becomes key as SMEs play an important role in employment creation, contribution to Gross Domestic Product, export competitiveness and also uplifting the standards of living of people. The paper builds on data collected through a review of various sources and provides in-depth analysis in the context of Zimbabwe as part of an ongoing study on government-aided institutions financing of the SMEs in general and in Zimbabwe in particular – giving new dimensions and perspectives. The study has established that financing models lack situational inclusivity and flexibility to adapt to the new needs of an emerging SMEs sector as key to the success of the SMEs sector in Zimbabwe. The paper further shows that the SMEs financing on the overall is negligible yet SMEs play a major role in contributing to the economy and the extent of Government support is missing the opportunity to accelerate growth of the sector. In the review, the empirical evidence from literature also shows that the efficacy of government-aided institutions in SMEs financing SMEs is undermined by regulatory and policy environment in the financing process of the SMEs. Thus, this paper recommends inclusivity and flexibility in SMEs financing through a review and elimination of funding gridlocks and conditionalities that are attendant, including collateral and administrative charges that are applied by the institutions. The materiality of this flexibility and review is to stimulate growth of the sector to contribute meaningfully to broad-based socio-economic development.