Harnessing economic potential of SMEs


Zimbabwe’s economy underwent a rapid informalisation during the hyperinflation years which saw the country somewhat de-industrialise.

by Clive Mphambela

Many formal jobs were lost and many people have been absorbed into the informal sector. This has necessitated a major transformation of how business in Zimbabwe should be done going forward.

Many will recall that according to a government PICES (Prices Incomes, Consumption and Expenditure Survey 2012) report, while unemployment by conventional definitions was estimated at about 80%, the PICES report put those “gainfully engaged”, not necessarily employed at over 90%.

For many economists, the seemingly discordant figures told a story of an economy that has become highly informal in structure and that Zimbabwe has in fact, developed a significant grey or unrecorded economy.

What is the value of the resources circulating outside the formal system?

One just has to see the level of financial activity at Road Port —the cross-border bus terminal, or at the Gulf Complex in downtown Harare’s Market Square. Huge amounts of money are exchanged between traders every day. The million dollar question is: Where does all this money go?

The finscope survey on financial inclusion estimated that the informal sector had as much as $7,4 billion circulating outside the formal financial system. This — for bankers — presents both an opportunity and a challenge, especially if we consider the same survey highlighted the extent of financial exclusion in the economy. There is a significant 54% of the adult economically active population that is unbanked or unserved by the formal financial system.

These statistics, after being thrown about, ignited boardroom discussions in banks, but also suggested at least that the informal economy is as big as the measured economy. That presents opportunities. The Bankers‘ Association of Zimbabwe (BAZ) and its member banks commissioned an in-depth study called “Harnessing Resources from the Informal Sector for Economic Growth”. This study helped banks to understand some of the inner workings of the informal sector and hopefully will shape how banks should respond to this “New Normal”.

While banks need to attract fresh investment capital to shore up their own reserves, the informal sector can also play a big role as banks take measures to transform this sector into a significant customer base.

Why is financial inclusion an important aspect of financial sector development?

Ongoing efforts by banks at pushing financial inclusion in the economy speak to the need to bring as many people as possible under the ambit of formal financial services.

Fortunately, we have already seen a significant multi-stakeholder activity aimed at bolstering financial inclusiveness, of which the banks are playing an anchor role. We have seen efforts of various government departments and arms now talking about formalising or harnessing the power of the informal economy.

This can only be done through an appropriate mix of policy interventions, chief among which is a financial inclusion strategy the government can champion through the banking system.

Informal enterprises must first be encouraged to open and run bank accounts. The owners and managers must be trained in financial skills through financial education and business literacy programmes to strengthen their capacity to run and grow their small businesses.

Through the results of the bankers’ recent research study, banks are now more aware of the issues that need to be tackled and at what scale.

The long and short of it is that driving financial inclusion is a bankable reality and not just a social cause.

Why is it important for informal sector players to partially formalise their operations?

The challenge remains that for the informal sector players to become remotely bankable, they must at least partially formalise their operations. This way they can be structured and identified into visible clusters and/or value chains that banks can participate in.

While banks have seized financial inclusion as a business imperative for all classes of unbanked citizens, government efforts at formalising the informal sector can only be achieved by first ensuring that the micro, small and medium enterprises sector becomes banked as a first step.

There must be a deliberate and clear policy to encourage, but not coerce people to use the formal financial system.
But what is the role of the government?

The government must provide a suitable regulatory framework that incentivises small business players to regularise their operations.

Regulations governing registration, licensing and taxation of small businesses must be easy and flexible.

Basic infrastructure to facilitate the growth of small businesses as well as the desired financial capacity and education must be easily accessible. In conclusion, therefore, only a well-structured financial inclusion policy framework led by the government, but driven by the private sector, is the surest way of harnessing the economic power of the informal sector.

l Clive Mphambela is a banker. He writes in his capacity as advocacy officer for BAZ. BAZ expressly invites other stakeholders to give their valuable comments and feedback related to this article to him on clive@baz.org.zw or on numbers
04-744686, 0772206913