This document provides an analysis of the financial barriers to indigenous enterprise formation and growth in Zambia. It includes sections on the background, research problem, questions and objectives. The author conducted primary research through questionnaires distributed to entrepreneurs, financial institutions, and government agencies in three cities. The findings suggest that difficulties accessing credit, lack of support systems, and entrepreneurial/economic factors pose significant barriers. Recommendations include establishing schemes to reduce these barriers and improve access to information about financing options. The hypothesis that barriers negatively impact enterprise formation was supported.

1. Analysis of Financial Barriers to Indigenous Enterprise
Formation and Growth
Gift H. Nachibanga
2012

2. TABLE OF CONTENTS
 Background
 Research problem
 Research Questions
 Research Objectives
 Scope of the Study
 Literature Review
 Methods to answer the questions
 The Conceptual Framework
 Hypothesis
 The Findings
 Evaluation of Hypothesis
 Recommendations
 Limitations and Future Research
 Conclusion

3.  Entrepreneurship has severally been cited is an engine for
economic development if well financed and supported.
 Zambia recognised the need to diversify her economy away
from copper mining some years back by encouraging and
creation of SMEs.
 Around early 1993, formal sector employment declined in
Zambia by 6 per cent (DeAssis, 1997) seeing a number of
Zambians becoming redundant.
 For many, this was the motive to form enterprises to be able
to continue earning living and support their families.
 These business start-ups required capital.
BACKGROUND TO THE STUDY

4. RESEARCH PROBLEM
 In many parts of the world, people rely on Micro Small
and Medium Size Enterprises (MSMEs) as sources of
income. Nations alike depend on MSMEs as the prime
mover of economic development.
 However, due to the financial barriers that exist,
indigenous enterprise formation in Zambia has been a
challenge.
 The lack access of financial capital is frequently cited
as the most important barrier to the development of
MSMSEs.

5. RESEARCH QUESTIONS
 How does access to financing from lenders
influence indigenous enterprise formation?
 What should concerned government agencies do
to support indigenous enterprise formation?
 How does lack access to information about
financing affect the formation of indigenous
enterprises?

6. RESEARCH OBJECTIVES
 To examine the factors that affect access to financing of
indigenous enterprise formation;
 To ascertain the role of concerned government
institutions in providing resources aimed at encouraging
indigenous enterprise formation;
 To investigate how access to information by indigenous
entrepreneurs on ways to finance their entrepreneurial
activities affects enterprise formation.

7.  This research study focused on determining the
major financial barriers that impinge indigenous
enterprise formation on the Copperbelt.
 The researcher collect data from selected financial
institutions and entrepreneurs in Kitwe, Mufulira and
Ndola. (sampling frame on slide 12 elaborates)
SCOPE OF THE STUDY

8.  There is a severe lack of efficient micro-credit programmes for
young entrepreneurs, particularly in developing countries
(Schoof U, 2006)
 The relationship between entrepreneurship and the supply of
financial resources (Estrin et al, 2009)
 Exploitation of entrepreneurial opportunities is common when
people have greater financial capital (Evans and Leighton
1989)
 Capital constraints pose a positive relationship between the
probability of becoming self-employed and the assets of the
entrepreneur (Evans and Jovanovic 1989)
LITERATURE REVIEW

9. THE CONCEPTUAL FRAMEWORK
Conceptual Framework - 3
Factors influencing indigenous enterprise formation and growth
FACTORS AFFECTING
FINANCIAL ACCESS
OUTCOMES
Source: Evolved by the Author (2013)
INFORMAL FACTORS
 Curb or grey market
(money lenders)
 Flexible, quick but
expensive
 Micro-finance
 Mutual funds (Locally
known as Chilimba)
 Shylock funds (Locally
known as Kaloba)
FORMAL FACTORS
 Commercial banks
 Equity market
 Leasing
 Government agencies
 Political rules
 Economic rules
 Contracts
 Judicial
 Partnerships and mergers
 Financial gaps

CONDUCIVE
ENVIRONMENT
FOR BUSINESS
INVESTMENTS
INTERNAL FACTORS
 Own funds,
 relatives and
 family (quasi-equity)
 Friends
GROWTH OF ENTEPRISES
 Level of sales Volume
 Scale of operation
 Number of employees
 Product / Service Mix
 Employment
 Profitability
 Exports
 Efficiency
 Investment and productivity
 Return on assets
ENTEPRISE FORMATION
 Innovation and creative
destruction (Schumpeter
1950)
 Proliferation of indigenous
enterprises
 Growth of the informal sector

10. Hypothesis
 Ho: There is no relationship between the barriers to
access to finance and indigenous enterprise
formation.
 Ha: There is a positive relationship between the
barriers to access to finance and indigenous
enterprise formation.
HYPOTHESIS

11. THEORETICAL FRAMEWORK
The following theories regarding Finance and the Capital
structure exist;
 Pecking Order Theory Ranking of financial options in order of
complexity of simplicity
 Agency Theory Emphasis on transaction and
contracting costs
 The Lifecycle Approach Rapid growth versus lack of access to
the capital market
 Capital Constraints Model Systemic constraints making banks
restrain lending out SMEs.
 Bank Capital Channel Model - Capital adequacy requirement and the
regulatory role of the central bank.

12. ADOPTED THEORY
Pecking Order Theory
Businesses take the course of least resistance, in obtaining finance. From
sources that are readily available, & steadily move to sources that are more
difficult to utilize. i.e. internal fund – Debt – Equity
Source: Author’s Visualisation of the Pecking Order Theory versus the Phases of Development of Enterprises (2014)
Equity
Debt
Internal funds
Own Savings
Start up
Growth
Expansion
Maturity

13. METHODS OF ANSWERING THE QUESTIONS
1. PRIMARY DATA
 Questionnaires to CEEC; Entrepreneurs; Commercial Banks and
Non Banking Financial Institutions (NBFIs) and Micro Financing
Institutions (MFIs) on the Copperbelt. Non structured interviews
were done.
Source: Compiled by Author (2014)

14. METHODS OF ANSWERING THE QUESTIONS
2. SECONDARY DATA
Churchill G (2009:115) warns, “Do not bypass secondary
data. Begin with exhausting secondary data then
proceed to primary data
Review of government policies, books, journals, articles
and information from the internet sources.
Reports from MoFNP, MCTI, ZCCI, UN Agencies, as well
as publications by banks and lending institutions in
Zambia on this subject

15. METHODS OF ANSWERING THE QUESTIONS
1. PRIMARY DATA
 Questionnaires to CEEC; Entrepreneurs; Commercial Banks and
Non Banking Financial Institutions (NBFIs) and Micro Financing
Institutions (MFIs) on the Copperbelt. Non structured interviews
were done.
Source: Compiled by Author (2014)

16. Geographical Summary of Received Responses
Kitwe Mufulira Ndola Total
Entrepreneurs 85 27 51 163
GovernmentAgencies - - 1 1
BanksandNBFI 7 3 4 14
Total 92 30 56 178
Percentage 52% 17% 31% 100%
Source: Compiled byAuthor(2014)

17. METHODS OF ANSWERING THE QUESTIONS
2. SECONDARY DATA
Churchill G (2009:115) warns, “Do not bypass secondary
data. Begin with exhausting secondary data then
proceed to primary data
Review of government policies, books, journals, articles
and information from the internet sources.
Reports from MoFNP, MCTI, ZCCI, UN Agencies, as well
as publications by banks and lending institutions in
Zambia on this subject

18. THE FINDINGS
1.Generally;
 There is a severe lack of information on the availability of
efficient micro-credit programmes among entrepreneurs
 In agreement with Estrin (2009), there is a positive
relationship between enterprise formation and the cheaper
supply of financial resources.
 Exploitation of entrepreneurial opportunities is common
when people have greater financial capital.
 Capital constraints pose a relationship between venturing in
entrepreneurship and the assets of the entrepreneur – Assets
are used for collateral purposes.

19. FinancialBarriers Number %
DifficultyinCreditAccess 152 22%
LackofSupportSystems 150 22%
Entrepreneurialfactors 133 20%
PoliticalandEconomicFactors 123 18%
LackofInformation 119 18%
TotalObservations 677 100%
Source:CompiledbyAuthor(2014)

20. THE FINDINGS
2. BARRIERS FROM THE SME’S PERSPECTIVE
 Procedural difficulties in starting a company – 41% of the
SMEs are informal
 Lack of information about availability of SME Funds
 Lack of information about accessibility of SME funds
 Inability to prepare sellable business plans
 Lack of adequate and acceptable collateral needed to
access funds
 High cost of borrowing (interest rate)
 Lack of clear government SME program
 Public SME funds are an annual event
 The intensity of formal documentation required

21. THE FINDINGS
2. FROM THE CEEC’S PERSPECTIVE
 Inability to prepare and present a viable business plan
 Lack of information about availability of financial services or products
offered by lenders
 Lack of knowledge of where to go to access these funds
 Lack of entrepreneurial skills and capacity to manage the businesses
 Negative image of the entrepreneurs by lenders
 Financial literacy - No proper verifiable accounting and other records
 Non presence of CEEC in each major districts on the Copperbelt
 Applying for finance in directed areas eg fish farming/wood processing
 Poor credit record/history; Lack of appropriate collateral; high cost of
borrowing

22. THE FINDINGS
3. FROM NBFIs, MFIs & BANK’s PERSPECTIVE
 Lack of information on availability of services/products
offered
 High rate of business failure and unstable Businesses of
Clients
 Poor Credit History
 Financial Indiscipline (diversion of funds)
 The demand for formal documentation intensity
 Inability to present a bankable business plan
 Lack of appropriate collateral needed to access these funds
 No proper verifiable accounting and other business records
 Risky undertaking to lend to SMEs

23. RECOMMENDATIONS
 Bridge the financial barriers that affect formation of enterprises.
 Establish schemes to narrow the financial barriers that suffocate
enterprise formation
 Information centres would act to improve awareness among
entrepreneurs of the range of financing options available
 Versatile SMEs Programmes that are well communicated
 Education curricula to include entrepreneurship
 Measures to curb cost of borrowing
 Broaden the presence and widening the publicity of entities like
the CEEC
 Industrial parks where incubator services would be provided

24. EVALUATION OF HYPOTHESIS
 Chi-square test revealing p-value of 0.001
 The null hypothesis is rejected
 The alternative is hypothesis was accepted.
 This implies that there is a positive relationship
between the barriers to access to finance and
indigenous enterprise formation.

25. LIMITATIONS AND FUTURE RESEARCH
Limitations
 Research failed to bring out the relationship between
financial barriers and growth of the indigenous
enterprises.
Recommendation for future Research
 A study on Managing and Sustaining Indigenous
Enterprise Growth through effective Financing
Schemes.

26. CONCLUSION
 MSMEs of today are the large multinational
corporations of tomorrow.
 If SMEs are empowered financially, jobs could be
created resulting into increased tax collection which
would spur national socioeconomic development.

27. THANK YOU