The much awaited Chema Chema fund hits the informal sectors streets today, armed with a P500 million kitty that is set to bolster private sector activity in Botswana’s economy.
The fund is aimed at transforming the informal sector and providing financial support to small businesses and entrepreneurs.
Through the fund, new and existing informal businesses will be provided with affordable short term loans at 2.4% interest, procurement of infrastructure; expansion of businesses capacity building; and administrative costs. The Chema Chema loans will be capped at P50, 000.
Since the announcement of the fund during this year’s budget speech, the informal sector which is estimated to employ as many as 191,000 people most of whom are women and the youth have been expressing optimism about the fund’s potential.
Botswana has been salient with a lack of capital options for enterprises operating in the informal sector that is despite the informal sectors weighty addition to employment creation in the country. The lack of finance options for the different stages of an organizations’ development in Botswana has been widening the finance gap in the local market.
The finance gap refers to the gulf between the funding options availed to SMEs and their actual needs. This means that most of the capital being pumped to support SMEs is not the actual capital they need to grow. A study conducted by LEA last year pinned Botswana’s finance gap as a percentage of Gross Domestic Product (GDP) at 18.55% ranking the country third amongst SADC states.
Local finance institutions have traditionally taken a very conservative approach when it comes to lending to SMEs, citing a lack of bankable collateral and the inability to monitor SMMEs' operations. The coming in of Chema Chema represents itself as a financial helpline to the despaired, the unbankable and the overlooked.
Matshidiso Kenaope, a vendor in Gaborone also shared the same sentiments that the fund will improve the well being of the aspiring entrepreneurs and the small business as access to capital has been their biggest hurdle.
“Chema Chema will definitely contribute meaningfully to us small-scale business operators; we do have good business ideas that have the potential to contribute to the growth of the economy thus creating employment. All we need is Chema Chema because we cannot afford to be financed in most cases as we do not have security,” she said.
The fund has also been hailed as the missing link for the small scale businesses as most fail during the establishment phase of their business which is three to five years mainly due to limited access to finance, inadequate entrepreneurship and business management skills, coaching and mentoring as well as proper operational infrastructure while the remaining handful usually operate in conditions of uncertainty which is laden to inherent biases against small businesses.
“Chema Chema could not have come at a better time, government is working around the clock to diversify the economy, curb unemployment as well as reduce the import bill. On the other hand Chema Chema fund is ideal for creating small industries. This will be made possible the citizens coming up with viable business plans and government meeting them halfway by giving them financial boost,” said Paul Otsetswe.
The latest Statistics Botswana report has revealed that the informal sector covers 3.2 % of the country’s GDP and mostly do not have social protection cover and business continuity plans hence they are highly vulnerable to economic shocks. The sector is dominated by females who tend to be less educated and relatively youth. According to the profiling of the businesses, the sector is dominated by tuck-shops and street vendors, followed by farm products, personnel services and products , food catering and events decoration and ICT services.
As part of the efforts to address the challenges facing the Sector, Government developed an Informal Sector Recovery Plan (ISRP), which was launched in March 2021. The ISRP seeks to provide mechanisms for the informal sector businesses to respond to the effects of COVID-19.
