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A policy agenda that formalises Micro, Small and Medium Enterprises (MSMEs) needs to be determined by the government to boost their prospects in getting access to finance.

This can be done through the Ministry of Small and Medium Enterprises Development as formalisation can give a boost to the prospect of MSMEs getting access to finance, according to the Zambia Association of Manufacturers (ZAM).

ZAM Policy Analyst-Data and Evidence, Kasonde Chituta, said with strengthened governance structures, proper record keeping and compliance with regulatory obligations the Government would then have assisted to strengthen the criteria for MSME’s accessing loans.

“Once done, the government can then allocate more funds for loaning SMEs through the Citizen Economic Empowerment Commission (CEEC).

“As an association, ZAM works with SMEs to help them build systems, improve their record keeping and also be compliant with regulatory requirements,” Mr Chituta said in his write-up on Unlocking SME Finance through Enterprise Formalisation.

He observed that in as much as lack of collateral and high interest rates were posited as the biggest hindrances to MSMEs accessing finance, lack of business formalisation presented an even bigger risk if not addressed properly.

Once formalised, he said, MSMEs were covered by the law, adhere to good corporate governance practices and subscribe to generally accepted accounting practices in order to be compliant with statutory requirements.

“Additionally, they obtain proper record keeping as required by statutes and are in the process helped to keep their house in order. Therefore, formalisation can give a boost to the prospect of MSMEs getting access to finance,” Mr Chituta said.

He stated that most informal MSMEs also lacked good corporate governance structures, as they were mainly sole proprietorships without an active board of directors.

Mr Chituta said that meant the decisions in most of these MSMEs were made by the owner without any structured process or controls.

“Without corporate governance; the structure of rules, practices, and processes used to direct and manage a company, the risk of non-continuity of the company beyond the life of the owner is extremely high.

“Therefore, having good corporate governance allows for and gives confidence to money lenders and grant giving institutions to give financing to a business,” Mr Chituta stated.

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