Assessing the Effectiveness of Commercial Banks Capital Financing in Enhancing the Performance of Small and Medium Enterprises (SMEs) in Zambia: A Case Study of Lusaka District

The paper assesses the effectiveness of commercial banks' capital financing in the performance of SMEs in the Lusaka district. A structured questionnaire and a semi-structured interview guide were used to collect data from 99 randomly sampled SMEs in the Lusaka district and 1 purposively sampled respondent from Zambia National Commercial Bank. With the aid of the data analysis tools, the data generated from the respondents were analyzed. Among others, the results of the analysis reveal that SMEs and commercial banks both play an important role in the economic development of a country. The study also reveals that SMEs and commercial banks are highly indifferent to the loan facilities; strict collateral requirements, high interest rates, and the nature of requirements for guarantors dissuade SMEs from accessing loans. Thus, the study concludes that commercial banks' capital financing is key to increased production and growth in profits for SMEs. As such, SMEs should be sensitized about the many products and services that Commercial Banks offer. Therefore, this paper recommends that Banks should formulate inclusive policies and programs that can benefit SMEs, ranging from financial literacy programs, business development programs, business leadership programs, financial markets, trade, and investment among others for us to have a stable and sustainable business community. This paper also recommends policy reforms to reduce interest rates, collateral, and guarantor requirements to allow more SMEs to access loans and grow their business.