HARARE - Zimbabwe is moving to transform the Small to Medium Enterprises Development Corporation (Smedco) — formerly the Small Scale Development Corporation (Sedco) — into a microfinance bank for the institution to play a pivotal role in economic development.
Small to Medium Enterprises (SMEs) ministry permanent secretary Evelyn Ndlovu said government is currently mobilising financial resources to recapitalise the financial institution, which has the capacity to reach out to the targeted sector.
“Capitalisation of Smedco will be key to financial inclusion of the sector it represents. Efforts are currently underway to capitalise Smedco through formation of a micro finance bank,” she said.
Smedco — wholly funded by the government — was set up in 1984 to cater for the historically neglected small-medium scale enterprises sector. However, the institution has over the years failed to perform its duty due to undercapitalisation.
In his 2016 monetary policy statement, Reserve Bank of Zimbabwe governor John Mangudya noted that a recapitalised Smedco would be required to identify clusters that can be nurtured throughout the country.
“This is critical in ensuring that the diverse funding needs of the Micro, Small to Medium Enterprises (MSMEs) are attended to in our collective endeavour to reshape the future economy of Zimbabwe in the path towards sustainable growth. Smedco will be required to link the identified clusters with financial institutions for their funding and advisory requirements,” he said.
Since the turn of the century, the majority of MSMEs lack adequate infrastructure and funding to enhance business operations, and properly structure and drive their business towards viability.
In an effort to increase the important role being played by small businesses and the informal sector in the growth of economy, the central bank recently ordered financial institutions in Zimbabwe to increase support to the MSMEs sector.
Some of the measures proposed by the Reserve Bank include every banking institution to establish a dedicated MSME business unit which should be adequately capacitated and for MSMEs operating in rural areas to be prioritised.
Mangudya said each bank shall follow a separate business strategy in financing MSME loans with least formalities in executing documentation to ensure easy and speedy loan sanction and disbursement process.
“In order to effectively serve the MSMEs, there is need for a target-based credit initiative by banks. Banking institutions are required to set their annual target lending to MSMEs categorised by gender, enterprise size and business sector among other variables, and submit their targets to the Reserve Bank by March 31, 2016,” he said.