The opportunity to access credit by small and medium enterprises (SMEs) continues to worsen because more than 80 percent of them are not registered by the Registrar General’s Department.
Principal assistant registrar general Chifwayi Chirambo said last week out of 1.1 million SMEs in the country, only 195 000 are registered with the department, which could probably be a tax avoidance strategy.
“We are concerned with the huge gap existing in the sector between registered and unregistered businesses. This is discouraging because most of small businesses are losing out on access to finance since most of the finance institutions prefer to work with registered businesses as opposed to the unregistered ones, which are considered a high risk,” he said during the Opportunity Bank Malawi (OBM) SME Workshop in Blantyre on Thursday.
“Most of these SMEs do not register because they are afraid of paying taxes. They would rather register their businesses as individuals.”
Chirambo said as one way of ensuring that the department reaches out to many SMEs, they have been engaging stakeholders that deal directly with SMEs, including the National Association of Women in Business and the Small and Medium Enterprise Development Institute (Smedi) to encourage them to register as business registration is voluntary.
Small and Medium Enterprises Association (Smea) president James Chiutsi said many SMEs fail to register because of a low turnover and lack of financial services.
“We noted that SMEs in the smallest categories, those with turnover of up to K1 million a year do not see the benefit of registration.
“Registering for them is not a necessity, actually it is a cost, as they will meet travel expenses to go and register their business with no obvious benefit in doing so,” he said.
Chiutsi also said most of these SMEs are not banked as well, so, business registration certificate is not necessary.
“There are also several micro lenders who give out loans to SMEs that are not registered, rendering registration not necessary to some business owners,” he said.
OBM head of SMEs Benmore Muchina said that there is need for small businesses to be formalised if difficulties of access to finance is to be a thing of the past.
He said: “We feel that if SMEs in Malawi are going to be competitive in the region, and indeed globally, they need to be formalised. It is not easy for SMEs to access funding and by assisting them to formalise, SMEs will have a better platform to access funding from banks.
“It is difficult to give out the right amount of funding to the unregistered SMEs. We believe that at a certain level, they should be compliant with the Malawi Revenue Authority and have deep understanding of financials.”
Kelvin Nyirenda, senior manager at KPMG, a tax, audit, business and advisory firm, said while it is important for SMEs to register their businesses, financial knowledge is key to business growth.
SMEs contribute substantially to gross domestic product (GDP) in developing countries, including Malawi.
According to Malawi Confederation of Chambers of Commerce and Industry (MCCCI) Business Climate Survey 2015, access to finance is one of the barriers to doing business in the country. n