A lot has been said about the sour relationship that exits between small-scale businesses and commercial banks. The impression that comes out clearly is that in general Banks in this country tend to favour already existing and established businesses. If a small scale business person walks into a Bank to inquire the possibility of getting a loan, one is confronted with lots of frustrating questions: The Bank would ask whether the business to be financed is existing, whether the owner has a bank account, business plans, cash flow projections and above all, audited accounts. To Malawian small businesspersons, this is as good as telling them to go to hell. The common complaint thus is that Banks have no heart for the man on the street. But is this really the case?

In my work that has involved a great deal of interaction with small-scale businesspersons I had varying experiences. To get to the bottom of the problem one has to delve further to find the role of the banks, present government policy on small scale businesses and how the small business person responds to such scenario.

First and foremost Banks are in business, that is, they have to offer reasonable return to share holders. Secondly funds that are made available as loans belong to depositors. The depositors have the right to access to their deposits at their convenience within normal established banking practices. Besides the depositor has to receive requisite return on the investment. The equation is clear that for a commercial bank to operate there have to be depositors / investors to provide the requisite liquid funds which in turn could be made available as loans to businesses and individuals. By law Banks are required to maintain financial standards such as liquidity ratios etc

Thus when a Bank decides to lend out money it is not easy as a b c, as most people would think. Aspects such as the liquidity ratios, period of the advance, costs, rates and earnings are taken into consideration. What about security? Taking of security by banks is historical and only comes into play as a measure of last resort. A bank would normally lend money when the source of repayment is definite. A bank does not lend basing on security but strength of the business proposal. This is a fact most businesspersons would not take as true and becomes even harder for the small-scale businesspersons. The other aspect is that banks as a way of minimising risk prefer to lend at short term and in most instances would prefer instalments to be paid within thirty days- thus in most instances no grace period.

What about interest? Research has shown that small businesspersons normally pay very high rates when they borrow from moneylenders e.g. one would borrow K5000.00 and expect to pay back within seven days the sum of K7500.00! - 2000% per annum Thus it is not the bank interest that matters but accessibility to loanable funds, which is paramount.

Now what is the way forward?The first solution will impinge on government policy towards the small-scale businessperson. It is a well known fact that the fast developing countries in the South East Asia have reached the current position because governments had to put in place deliberate policies and support to banks to make available loans to small scale or cottage industries.Such interventions have borne fruit in that what were cottage industries then are now multi national corporations and conglomerates. Here in Malawi the government has from time to time intervened in various ways to assist the small-scale businessperson. Institutions such as DEMATT, SEDOM MEDI etc were set up to target the small-scale entrepreneur . Why is it that despite all these efforts the small-scale businesspersons has remained static or even goes out of business completely?The major problem facing the small-scale businessperson in Malawi is not Banks, Government policy, or any other intervention; it is LACK OF ENTREPRENERIAL ATTITUDE on the part of the small-scale businessperson. A person with enough capital ventures into business aware he/she does not have the requisite entrepreneurial skills instead of first seeking the assistance of such institutions like DEMATT MEDI etc or employing qualified personnel to run the business on his behalf. The general trend is to follow what the neighbour is doing. Thus if the neighbour has bought a mini- bus everyone else follows suit, resulting in every household having a minibus. As a result of high competition minibus drivers are given specific sales targets. This results in unnecessary competition amongst the drivers ending in accidents and damages to the vehicles which the owner in turn fails to repair the vehicle leaving it grounded. Thus nowadays one cannot borrow from a bank to operate a minibus and expect to meet bank loan installment payments

.Most Malawian business persons are not risk takers by daring to venture into knew innovative business, they would rather do something that some one else is doing. There is also this tendency of small-scale businesspersons of doing so many things at one time. A business person could be very good at say, selling agricultural produce and makes enough profit, the general tendency is that instead of expanding and improving on the existing business next you find that the person has invested the profits in a Bottle Store. Being a new business the owner spends more effort on the new venture at the expense of the original business. Little does this businessperson know that the bottle-store is eroding his initial investment capital from the produce business? What happens next is that he completely abandons the produce-selling venture for the new business, which in two months later closes down leaving this entrepreneur much worse off than before .Another aspect related to entrepreneurial attitude is business discipline and self-control. I have seen several small-scale entrepreneurs growing into real big business but alas the growth comes to a halt at one point, the businessperson now wants to impress that he has made it! Buying expensive and luxury items which do not contribute in any way to the expansion of the business, engaging in activities that do not add any value to the business, partying, showing off etc. Next you see the person queuing to see the Bank Manager for a loan or worse still selling off some of the assets and that marks the end of a once successful businessperson.

The other entrepreneurial attitude related feature is lack of honesty and integrity. This is a major aspect that has dented the relationship between the banks and the small-scale businesspersons. A businessperson could approach a bank for a loan to finance a confirmed order to supply items to a reputable company. The proposition appears to be good and the bank provides the funding in good faith on the understanding that the proceeds emanating from the supply of the goods will be routed direct to the credit of the business account at the bank. Typical of Malawian entrepreneurs they would indeed supply and get payment but instead of taking the proceeds to the bank that provided the initial funding the funds are diverted and invested in another venture with the hope of making more money but in most instances that venture fails, the business man fails to pay back the loan to the bank, culminating in the bank using all means possible to recover the loan plus interest. This exercise mostly involves the sale of the business persons assets etc leaving the individual very miserable and black listed by the bank

It is therefore evidently clear that the culprit is not the commercial banks or the government. The onus remains on the small-scale entrepreneur to prove that they are worth of being supported.It is apparently clear that despite government putting in place some intervening- institutions to instill entrepreneurship skills, the people’s attitudes remain unchanged. This problem in the country has historical background. The first outside influence on the people of this country was with Slave Traders. However this was short lived as Missionaries came in to preach and introduced an education system that suited their missionary work. This is the same education system, which has been carried on to date with an emphasis of preparing the pupils for white- collar jobs. The school curricula from primary school through to University is devoid of subjects that deal with entrepreneurial skills which could go hand in hand with subjects such as carpentry and joinery, metal works, and all fields of engineering, economics, commerce etc. such that upon graduation we should have more young people opting to go into own business that submitting applications to companies for office employment.

Finally our cultural disposition has a major part to play as well in this equation. Through my interaction with various businesspersons I have noted that in general women do well in business that men. It is not a topic of debate but it is a fact that Malawian women have more entrepreneurial acumen than men- men tend to force or drag them into business whereas women tend to grow with the business. How ever the progression of women in business is largely curtailed by this cultural disposition e.g. marital obligations etc despite this widely publicised gender topic.

Lending institutions that target women entrepreneurs record high repayment rates. This is a clear indication that if given enough support our women could manage businesses as well as bank loans effectively. There are still some hardworking small scale business persons who need the support of the commercial banks but the problem the banks face is to isolate or identify a trust worthy and honest client from the rest. Establishment of a Guarantee scheme through an intervening institution would be a possible solution as this intervening institution would in turn perform the sifting and selection process as well as providing the requisite entrepreneurial training to the clients. Such guarantee schemes have proved successful and if implemented devoid of government / political influence in their operation could be a useful tool in the development of these hardworking small-scale businesspersons.