Assessing the Effectiveness of Credit Guarantee Schemes in enhancing access to Finance by SMEs in Lusaka, Zambia

Abstract

This study assessed the role of Credit Guarantee Schemes (CGSs) in improving SME access to financial resources. Given the critical role SMEs play in economic development, access to finance remains a major constraint, often due to lenders' perceived risks and SMEs' limited collateral. CGSs are designed to mitigate these risks by offering guarantees that enhance credit availability. The specific objectives were to assess the impact of CGSs on financial accessibility, determine the extent of SME participation in CGSs, and analyze the effect of government policies on CGS effectiveness. The study employed a quantitative research approach with a descriptive and correlational research design. Primary data were collected through structured questionnaires distributed to a sample of 80 SMEs and financial institutions operating in Lusaka. Data analysis involved correlation and regression techniques to assess the relationships between CGSs, SME financing, and regulatory policies. The study focused on understanding how guarantee coverage, policy structures, and SME awareness influence the effectiveness of CGSs. Findings revealed that higher guarantee coverage ratios significantly enhance SME financing by reducing lender risk (r = 0.373, p < 0.01), leading to increased loan approvals. However, SME participation in CGSs remains moderate at 53.8%, with barriers such as low awareness and complex application procedures limiting full utilization. The study also found a strong positive correlation (r = 0.459, p < 0.01) between government credit guarantee policies and loan accessibility, highlighting the crucial role of policy frameworks in shaping CGS effectiveness. However, excessively stringent regulations may create bureaucratic inefficiencies that hinder access to credit. The study concludes that CGSs significantly contribute to improved financial accessibility for SMEs in Lusaka, Zambia, by lowering lending risks and enhancing credit approval rates. However, their overall effectiveness is influenced by SME participation levels, policy frameworks, and risk management strategies. Key recommendations include expanding CGS coverage while maintaining responsible lending practices, increasing SME awareness through outreach programs, simplifying loan application processes, and fostering public-private partnerships to enhance CGS sustainability. Keywords: Credit Guarantee Schemes, SMEs, Access to Finance, Financial Inclusion, Guarantee Coverage, Government Policies, Risk Mitigation, Lusaka-Zambia