Assessing Bank-Specific Challenges to SMEs Financing
Evidence from Commercial Banks in Lusaka
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Abstract
This study examines the banking challenges faced by Small and Medium Enterprises (SMEs) in Lusaka, Zambia, in securing financing from commercial banks. The study aims to identify key barriers, assess their impact on SME financing, and propose actionable solutions to overcome these obstacles. Using a mixed-method approach, data were collected through surveys and semi-structured interviews from 65 participants representing 10 commercial banks in Lusaka. The results revealed that stringent collateral requirements, perceived credit risks, and inadequate financial documentation were the primary barriers to SME financing. Specifically, 69.2% of respondents reported high collateral demands as a severe obstacle, while 55.4% highlighted credit risk perceptions as significant. The study also found that financial documentation was crucial for securing loans, with 26.2% of respondents rating its impact as severe. A regression analysis confirmed a positive relationship between the likely impact of these challenges and the identification of solutions, with an R-Square value of 0.176, highlighting the predictive power of these challenges on the solutions proposed. The research applies Asymmetric Information Theory and Credit Rationing Theory to explain how these barriers limit SMEs' access to bank loans. Recommendations include the implementation of credit guarantee schemes, streamlining loan application processes, and enhancing financial literacy programs for SMEs.
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Copyright (c) 2025 Leeroy Vaghera, Dr. Maboshe M. (Author)
This work is licensed under a Creative Commons Attribution 4.0 International License.
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