Small Business Performance: Does Access to Finance Matter?

This paper reports on the determinants of small business access to finance (both formal and informal) in five countries in the Southern African Development Community (SADC) region using data from FinScope surveys. The countries of study were Lesotho, Malawi, Mozambique, Zambia, and Zimbabwe. It also reports on the link between access to credit and performance. Some of the key findings derived from the research were:

• Lack of access to finance is the primary obstacle to start-up and growth. For large proportions of small businesses, lack of access to finance is a serious obstacle to start-up and growth.
• Majority of businesses in the medium, small and micro-enterprise (MSME) sector are micro-enterprises whose economic contribution is limited. A large proportion of MSMEs in the five countries in the SADC region are micro-enterprises with the owner being the only employee. This means that the economic contributions of the MSME sector are limited.
• Promoting alternative financing schemes for start-ups will help small firms to start operations with adequate capital. Most small business owners use their own savings to start up businesses, and this limits their operations and often leads to failure. Alternative start-up financing techniques such as venture capital or government guarantee schemes are likely to alleviate financial constraints that small businesses encounter at start-up phase.