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Abstract: Financial exclusion is regarded as major constraint of firm growth. Micro, Small and Medium Enterprises
are fraught with poor access to finance and incentives for growth in African countries. But the problem is more
severe in African countries where SME policies and programmes are pursued by public and private sectors as well
as development partners but yet the performance of the enterprises is at dismal. The objective of this paper is to
examine the major hindrances affecting finance policies and programmes as that affect access to finance and the
growth of SMEs in some African countries. In fact the general assessment of the SME policies and programmes in
Ghana, Zimbabwe, Uganda, Tanzania, South Africa and Nigeria shows that the programmes failed to produce
fruitful results as a result of policy inconsistencies, Inadequate infrastructure, corruption, lack of political will
among other problems. These affects availability and accessibility to finances and SMEs growth. It is in view of
these the paper recommends that Economic reform policies and strategies should be developed in consonance with
the operating environment of SMEs and circumstances and also Within the ambit of support policies and
programmes; the SMEs should be restructured along cooperative lines and trade specialization.
Key words: SME, Finance, Policy, Programme, Africa
1. Introduction
There has been a gradual and global shift in the paradigm on how SMEs should be supported through
institutional structures. Initial efforts, perceived the SME sector through paternalistic lenses and identified it as an
entity to be protected (OECD, 2004). The OECD, 2004 also reports that lessons learned, and advances especially, in
biotechnology, information, communication and materials technologies and efforts to liberalize, shifted the
paradigm to one of SME promotion, starting in the 1980s. The organization confirmed that the result was an
enhanced focus on specific sub-sectors and activities; with considerably larger amounts of assistance and subsidies
going to high technology oriented manufacturing and service firms and entrepreneurship development. With the
advent of globalization and trade liberalization, the paradigm shifted again, and is now, one of facilitation, where a
holistic approach to competitiveness takes priority.
The recent paradigm shift in policies on SMEs support and financing followed the UN declaration of 2005
as year of micro-credit. The philosophy was to encourage small business operators access to finance and improve
their income level, create jobs and reduce poverty. This is peculiar to underdeveloped nations, because small and
medium enterprise support activities in the industrialized nations are only geared toward encouraging
industrialization and SMEs participation in economic development.
In African countries, series of policies and support programmes led by public and private sectors as well as
donor agencies geared toward creating conducive atmosphere and enabling environment for SMEs development.
Reports indicate that the SMEs sub sector is still underperforming and the problem attributed mostly to poor access
to finance. It is against this background that this study seeks to review the support policies and SMEs finance
programmes in selected African countries with a view to assessing the outreach and success of the programmes and
specifically the effect of the policies and programmes on the target enterprises.
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Overview of Small and Medium Enterprise Financing in some African Countries
encountered in Nigeria where series of government policies and programmes designed to develop the SMEs
subsector was hurdled by corruption and inconsistent policies.
In Ghana, this failure did not discourage government from initiating other policies that were in line with
SMEs support and development, because Andah (2005) points out that the support for SMEs in Ghana was even
intensified in 1990s following the establishment of the National Board for Small Scale Industries (NBSSI). The
major financial scheme operated by the NBSSI was a credit line financed by the World Banks small and medium
enterprise project. The fund offered credit to enterprises in all sectors of the economy except primary agriculture,
real estate and trading. The government also established a credit assistance scheme under the Programme of Action
to Mitigate the Social Cost of Adjustment (PAMSCAD), which was intended to cushion the effects on small scale
businesses of the Structural Adjustment Programme (SAP). The credit facility, which was managed by the NBSSI,
was intended to assist entrepreneurs in procuring scarce but essential raw materials.
The NBSSI, in conjunction with Barclays Bank of Ghana limited also implemented an EMPRETEC Ghana
programme aimed at raising funds for small and medium enterprises through the organization of venture fund where
entrepreneurs were given the opportunity to establish business contact with potential investors. Surprisingly, Adams
& Pischke (2005) confirm that surveys carried out to assess the viability of these progrmames revealed that the
initiatives to help finance SMEs failed to make the desired impact anticipated. One of the reasons for this apparent
failure was that SMEs had limited awareness of credit schemes available to be accessed. Also, the schemes were
focused on urban based SMEs. It has been estimated, for example, that only five percent of the beneficiaries of
NBSSI credit for small scale businesses came from rural areas.
In addition to the governments effort to provide financial resources and capacity building for these SMEs,
a number of Non-Governmental Organizations (NGOs) and other institutions are also contributing in providing
support for these enterprises. In-spite of the roles and advantages that Micro and Small Enterprises (MSMEs) have,
yet most of these industries are collapsing since they have not performed creditably well and have therefore not
played the expected vital role in the economic growth and development of Ghana (Adjei, 2012),. This situation has
been of great concern to the government, citizenry, operators, practitioners and the organised private sector groups.
Year in year out, governments, non-governmental organizations and other donor countries have made budgetary
allocations, policies and pronouncements with the aim of promoting the growth of SMEs due to the crucial role of
the SMEs sub-sector of the economy.
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It is worth nothing that in respect of outputs, SMEs in Zimbabwe competed aggressively with imports.
Despite liberalization the SME sector continues to face barriers to entry, forced by oligopolistic behaviour and by the
fact that Large Scale Enterprises (LSEs) enjoy economies of scale. Macro-economic policies on SMEs in Zimbabwe
include fiscal and monetary policies such as; cutting government spending to reduce the budget deficit, removal of
subsidies to parastatals, implementation of cost recovery measures for government-provided social services
especially in health and education; and monetary policy in the past was administrative, but was to become more
market driven, in particular, interest rates were to be determined by supply and demand for money so that real
interest rates were to be positive.
Even though the above measures were supposed to benefit the SME sector, it was realized that some
actually worked against SMEs development. These measures reduced domestic demand as most people were
retrenched from the government. Domestic income was eroded by the retrenchments and this imposed a demand side
constraint on the development of SMEs. The fall in real incomes decreased the demand for SME products.
The government established many institutions to help with financial and institutional support to the SMEs
e.g. the Zimbabwe Development Bank (ZDB), VCCZ, CGCZ and SEDCO to offer financial services to SMEs
(Matshalaga, 1998). During the 1992/3 fiscal year, as part of the social dimension of ESAP, government provided
Z$100m in addition to the SDF which is disbursed through commercial banks, SEDCO and finance houses (Masuko,
1998).
Although a number of institutions have been set up to assist SMEs, the criteria used for the selection of
beneficiaries, such as collateral security, leaves out a lot of deserving cases (ILO, 1985). The beneficiaries are also
supposed to draft out project proposals and this leaves out the illiterate entrepreneurs. The mere location of the
financial institutions in the major cities with no branches in small urban centres shows that the institutions do not
serve the interests of SMEs in small urban centres (Matshalaga, 1998).
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Overview of Small and Medium Enterprise Financing in some African Countries
SMEs. Business in Development Network (2008) clarifies that access to financial services is a great constraint for
SMEs in Uganda. In addition, compared to large companies, SMEs have most difficulty in accessing finance. Poor
access to finance affects the performance of SMEs in Uganda. According to Stella (2012), SMEs still report
stagnated and or reducing profits, sales growth, market share, low return on investment and low value for money
which has made them less competitive on both local and international markets.
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Overview of Small and Medium Enterprise Financing in some African Countries
Financial Services Board and the South African Reserve Bank, which have to ensure inter alia that SMEs have
reasonable access to finance. Lastly, the Competition Commission has to ensure that the various players compete on
a level playing field. Effective cooperation between different government departments is critical to ensure that
public policy addresses any market failures, without introducing new distortions or different obstacles.
It has been noted that the Government support programmes for SMEs in South Africa fail to achieve the
objectives they are set up to achieve. Mehembe (2011) argues that reasons for the failure of Government support to
small businesses identified include: lack of awareness (outreach); uneven distribution (concentration in metropolitan
areas); the high cost of searching for support services which has not been mitigated by effective information on how
and where to access support; and cumbersome administrative requirements of Government programmes resulting in
user fatigue and high levels of disappointment.
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Overview of Small and Medium Enterprise Financing in some African Countries
government has used tariffs that have been adjusted periodically at various times to reduce production costs and thus
support the SME sub-sector. Also, the introduction of a second-tier window on the capital market, to provide long-
term finance for enterprises that cannot satisfy the requirements in the first-tier window has left a meaningful mark
in the development of the SME sub-sector. In terms of fiscal incentives, a number of tax measures aimed at
ameliorating the problems of SMEs have been put in place. This includes, Tax relief to all small and medium
enterprises during the first six years of operation and Pioneer status involving non-recoverable tax relief for firms.
And in the area of infrastructure, the activities of the Directorate of Foods, Roads and Rural Infrastructure (DFRRI),
National Directorate of Employment (NDE), Petroleum (Special) Trust Fund (PTF) and the various poverty
alleviation programmes of the governments have been set up at various times to address the socioeconomic
problems in the country.
Specifically, Elumilade, et al. (2006) discover that the programmes failed because of what could be
summarized as politics of personal rule, in which the rivalries and struggles of powerful and willful persons, rather
than impersonal institutions, ideologies, public offices, or class interests, are fundamental in shaping political life
and the master and servant relationships. Oni, et al. (2012) stated that, even though the establishment of business
enterprises particularly SMEs has been a resort to gainful employment, unfortunately, several problems have
presented limitations to most of the Nigerian entrepreneurs so much such that not only is the growth of their
enterprises affected but survival threatened. Among these numerous limitations are the problems of readily access to
capital, lack of managerial acumen, poor or absence of infrastructural facilitiesespecially power to support smooth,
effective and efficient operations.
i. Economic reform policies and strategies should be developed in consonance with the operating
environment of SMEs and circumstances thereon; for instance, the Structural Adjustment Programmes
(SAP) executed by countries such as Nigeria and Zimbabwe are plagued with a number of sectoral
dislocation and ambiguities; the Structural Adjustment Package are too ambitious and idealistic.
ii. Within the ambit of support policies and programmes; the SMEs should be restructured along cooperative
lines and trade specialistion. The development of cooperative societies among entrepreneurial and trade
lines will go a long way to provide basis for financial incentives of advancing credits and loans for
sustenance and expansion of SMEs product.
iii. The development of industrial development centres within a wide geographical spread to the rural
communities will go a long way in improving industrial extension services. Similarly the establishment of
technology incubation centres in rural community that has a population of 100 persons will facilitate a
greater internalization and receptivity to business ideas and innovations.
iv. Monetary and fiscal policies of public and private sectors should be streamlined in such a way that it
encourages SMEs operation. For instance, multinational companies and other industrial concerns declare
huge profits on annual basis and retain a reasonable amount of such profit as retained earnings. Part of
that retained earnings should as a matter of public policy be used to fast track the growth and development
of SMEs. Thus, the strapping of NERFUND in Nigeria is considered policy misdirection.
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