admin
Business Reporter
Faced with rising borrowing costs, Zimbabwean small to medium enterprises (SMEs) have been encouraged to use crowdfunding to get more affordable funding.
The escalating cost of borrowing has effectively locked many SMEs out of traditional credit markets, hindering their growth potential.
Essentially, crowdfunding is the practice of funding a project or venture by raising small amounts of money from a large number of people.
It has evolved from traditional forms of collective funding to a powerful tool for expanding access to capital, driven by the connectivity of the digital age.
In 2021, South African energy start-up Sun Exchange raised US$1,4 million in a crowd sale of solar cells for a 1,9 megawatt solar and battery storage facility at Nhimbe Fresh Farm.
Investors were invited to purchase individual solar cells in the project. In exchange, they are earning a rental income in cryptocurrency from the electricity generated.
The crowd sale attracted more than 1 700 individual buyers.
Investors in the solar farm have a monthly income stream for 20 years, with an estimated internal rate of return (IRR) of 16,71 percent in South African rand terms, the firm said.
“We have a situation where SMEs, who are crucial for job creation and economic growth, are being strangled by the high cost of borrowing,” Harare-based economist Mr Carlos Tadya said.
“Financial institutions are simply not offering viable options, leaving many businesses unable to expand, or even survive. Thus crowdfunding offers a pathway to unlock funding. It is a testament to the power of collective action, where small contributions create significant impact.”
The challenge is not limited to commercial banks.
Even microfinance institutions, traditionally seen as a lifeline for SMEs, are now facing criticism for their high interest rates. “The current rates are simply unsustainable for many small to medium businesses.
They are effectively pushing SMEs into a debt trap,” said Mr Tadya.
SMEs are critical to Zimbabwe’s economy, serving as key drivers of employment and economic growth.
In a country where formal employment opportunities can be scarce, SMEs provide crucial livelihoods, offering entry-level positions and fostering workforce inclusion for a significant portion of the population.
Beyond employment, SMEs contribute substantially to Zimbabwe’s gross domestic product (GDP), demonstrating their significant economic impact.
Operating across diverse sectors, they play a vital role in economic diversification, enhancing the country’s resilience to economic shocks. Their inherent agility and adaptability enable them to navigate the often challenging economic landscape, ensuring continued operation and growth.
Furthermore, SMEs are powerful catalysts for entrepreneurship, fostering a culture of innovation and the development of new businesses.
Many Zimbabwean SMEs operate in the informal sector, making their growth and formalisation a pivotal part of integrating and strengthening the nation’s broader economy.
In a recent podcast interview with ZTN Prime, Reserve Bank of Zimbabwe (RBZ) Governor Dr John Mushayavanhu acknowledged the challenges posed by high interest rates, saying the central bank would engage with local banks on this matter.
Analysts say crowdfunding platforms allow SMEs to raise capital from a large number of individuals, often through online platforms, bypassing traditional financial intermediaries.
“Crowdfunding offers SMEs the opportunity to access cheaper resources and build a community of supporters,” explained Mwale.
The National Competitiveness Commission (NCC) summit in Bulawayo recently resolved that SMEs should utilise crowdfunding for access to more affordable funding, reducing reliance on traditional financial institutions.
Analysts said while crowdfunding is still a relatively nascent concept in Zimbabwe, its potential is undeniable.
However, challenges remain. The need for increased digital literacy, the development of robust regulatory frameworks, and building trust in crowdfunding platforms are crucial for its widespread adoption.
Technavio, a leading global market research and advisory firm specialising in identifying growth opportunities, trends, and challenges within various industries, projects the global crowdfunding market to expand by US$540,1 billion between 2025 and 2029, driven by increasing use of social media.
Online Reporter