HISTORICALLY, the small business sector in Zimbabwe has traditionally played the important role of providing not only those goods and services that would be otherwise unsuitable for large formal businesses such as hair salons and car wash parlours, but also being a key channel to providing a large distribution network for the large formal businesses.
One does not need to look very far in any direction in present- day Zimbabwe, to notice that the major distribution networks for the largest companies in the telecoms and beverages sector consist largely of informal traders, micro and small businesses, highlighting the importance of this small business sector.
What challenges are small businesses facing and what are the banks doing about it?
In serving the small business sector, banks have observed some key challenges faced by players in the sector.
Some of the observations have recently been formalised in the form of an exhaustive research study that the body of banks in the country has carried out in pursuit of understanding the inner workings of the small business sector, with the ultimate aim of responding more appropriately to the financial needs of this sector.
Banks have observed aside from the traditional issues surrounding small businesses, a key weakness in the sector is the fragmented and fractured structure of the MSME sector.
A low level of self-organisation
This attribute, which also unfortunately contributes to the fuzziness of the lens through which policymakers and other stakeholders view the sector, is a major constraint to effective delivery of financial services to the wide array of micro and small businesses.
The apparent disorderliness that characterises MSME operations at the business level and the sector at large normally evokes negative emotions about the sector from the various stakeholders, be it the general public, government, local authorities, bankers and many others.
The negative views solicited negate and cloud the important economic role the MSME sector plays in the economy.
The power of self-organisation!
There is no better way of stating a well-known truism, which says “There is strength in numbers”.
Part of the solution to the negative perception problem for the informal sector players lies in what we can aptly call “the power of self-organisation”.
Many formal sector players, particularly banks, would like to encourage MSMEs to be organised in accordance with their specific subsector or product clusters, either by location or simply through association and membership to an organised voluntary self-regulating body. Such bodies should typically be financed through regular members’ contributions or some other mechanism that creates and instils a sense of ownership, belonging and accountability in the members of the structure.
Admittedly there are some such bodies, but more should be done in the MSME sector.
This strategy would help
MSMEs on a number of fronts.
What is Self-Regulation? How will SMES benefit from it?
The ability to self-regulate members according to a constitution of membership always results in stakeholders taking MSME enterprises seriously.
Membership bodies take exception to errant behaviour by members, encourage a sound business and moral code in their members, building a successful common basis for the success of individual enterprises and the collective whole.
Speaking with one large voice
This is an important aspect when engaging other stakeholders.
For example, negotiating with local authorities for operating spaces and facilities becomes easier.
As we discuss this topic, there has been a growing public outcry about the chaotic manner in which micro businesses are setting up shop, even on street pavements.
This would be avoided if the entrepreneurs had a self-regulatory system that also fits in with existing city by-laws.
Such organisation would also even be able to lobby for favourable changes to the by-laws where these are seen to be unconducive for some operations.
Further, licensing conditions will become easier if MSMEs are speaking with a unified, purposeful representative voice, rather than resorting to the current approaches.
However, care must be taken not to reduce the SME structure into cartel-like arrangements which will naturally face stakeholder resistance and forestall progress.
Pooling and raising own resources as “savings”
Small business clusters have the ability to pool and mobilise financial and entrepreneurial resources making them attractive partners for a variety of formal business service providers.
A clear example in our midst is the local informal funeral insurance entities commonly known as burial societies.
Some housing co-operatives also fall into this category.
Members successfully mobilise resources to augment formal sources of finance.
Such initiatives by small business organisations will portray an image that they are purposeful and serious, making them attractive partners for the banks and other businesses.
Just to use an example, it is much easier to approach a bank as an Association of Carpenters, who have amassed say $2 000 in own savings and then the bank to top up this amount with another loan of
$4 000 so that members can buy a new woodworking machine for
$4 000 and use the $2 000 for buying materials.
The machine can be used by the members who work together in a cluster, removing the need for everyone to have their own machine.
How do clusters promote market linkages?
Well-organised SME sector organisations not only improve accountability and order within the membership, but make it easier for stakeholders to identify opportunities for market linkages amongst players in the MSMSE sector itself and also between the MSMSE sector and the formal sectors.
For example, a well-organised furniture-making association at Glen View would be more likely to be able to clinch a large order to supply lounge suites to a large local furniture retailer than single members negotiating individually.
In short, if the MSME sector self-organises into strategic value clusters, it also becomes possible for formal businesses to quickly and easily identify potential areas of value chain linkages with other key stakeholders.
Banks will, for example, be able to structure more suitable and sustainable value chain financing tools necessary for the growth of the MSMSE sector.
The unified approach to problem-solving and the pursuit of opportunities is strengthened through the increased bargaining power.
In addition, members of well-structured MSME entities will benefit from behavioural transformations as all members exhibit much higher commitment to the fulfilment of contracts.
Members also benefit from the ability of the entities to mobilise resources internally and negotiate favourable terms of trade and finance with external partners.
Banks are therefore encouraging small businesses to belong to identifiable associations that will be able to attract investors and other soft capital to the sector as their businesses become organised and accountable.
Overall it becomes easier for economists and policymakers to measure and accurately determine the contribution of the informal sector to the economy as well as for service providers to work together with MSME business to achieve growth.
Clive Mphambela is a Banker. He writes in his capacity as Advocacy Officer for the Bankers’ Association of Zimbabwe. BAZ expressly invites players in the MSME sector and all other stakeholders to give their valuable comments and feedback related to this article to him on email@example.com or on numbers 04-744686, 0772206913