Gerald Hamuyayi (FMVA)®, Lusaka, Monday, 23 September 2024 – Micro, Small, and Medium Enterprises (MSMEs) play a vital role in Zambia’s economy, accounting for 70% of GDP and 88% of employment. Yet, they face a significant financing hurdle, with under 3.5% accessing start-up financing from financial institutions, according to the 2022 Bank of Zambia’s Financial Sector Survey Report. This article spotlights Stanbic Bank Zambia‘s mega partnership with the U.S. African Development Foundation (USADF), introducing a pioneering $1.0 million credit line initiative designed to catalyse MSME growth and development.

The Zambian economy is grappling with stagflation, characterised by high inflation, low output, and tight liquidity, which poses significant challenges for policymakers and central bankers. Compounding this issue is a severe energy crisis, resulting in over 20 hours of daily power outages due to the state utility's rationing of produced power. This has disproportionately affected MSMEs, forcing many to shut down, downsize, or resort to costly alternative power sources.

The combination of volatile economic fundamentals and the ongoing energy crisis has materially widened credit risk premiums for start-up businesses. As a result, financial institutions are likely to reduce MSME lending, which already headlined alarmingly low levels of under 3.3% in 2021. This credit drought has far-reaching knock-on effect on families reliant on MSMEs for livelihood. Given the sector's substantial contribution to GDP and employment, the decline of MSMEs threatens to push vulnerable households down the socio-economic ladder.

The scarcity of well-capitalised venture capital funds in Zambia significantly inhibits the optimal development and growth of MSMEs. This shortage is compounded by financial institutions' limited support, with start-up funding totalling less than 3.3% in 2022, averaging a modest $250 per investment,  sum insufficient to drive meaningful innovation or growth. This startling statistic underscore the challenge facing Zambia's entrepreneurs on the financing front, especially in an economy aspiring to achieve private sector-led economic development.

In a landmark deal, Stanbic Bank Zambia in partnership with the United States African Development Foundation (USADF) are earmarked to disburse US$1 million over five years, in annual tranches of US$200,000. The dual institutions aim to moderate the financing gap for Zambia's “missing middle” businesses – which pose considerable risk to micro financial institutions and are highly risky for traditional banks. The grant financing initiative builds on the success of a similar partnerships by USADF and Stanbic Kenya, primarily focusing on early-stage businesses operating in off-grid energy, agriculture, youth and women led ventures.

The financing serves as potential leverage for eligible start-up to develop and scale, continuing their critical role in job creation and economic growth. The incorporation of continuous monitoring, capacity development and market linkages assistance will maximize its impact. MSMEs are invited to tap into this opportunity, with the inaugural round of funding now open as of September 20, 2024, providing grants of up to $25,000 each.

The successful partnership between Stanbic Bank and USADF is set to unlock immense value for Micro, Small, and Medium Enterprises (MSMEs), and the broader economy in its next phases. Congratulations are in order for Mr. Mwindwa Siakalima, Stanbic Bank’s Chief Executive, and Mr. Guy Kahokola, USADF’s Country Programme Co-ordinator, on securing this monumental $1.0 million partnership deal.