Introduction
Small and medium enterprises (SMEs) are the backbone of Zambia’s emerging sectors— employing over 70% of the private sector, contributing nearly 30% of our GDP, and driving innovation across various sectors. Despite their contribution, access to finance in this sector remains a significant challenge. Most banks still demand heavy collateral, government schemes remain underfunded, and financial products are inadequately tailored to SMEs needs. According to the 2022 Bank of Zambia Financial Survey, nearly 60% of SMEs lack access to formal credit. This is mainly attributed to stringent collateral requirements, high interest rates ranging between 25 to 30 per cent and an underdeveloped credit guarantee scheme that was supposed to ease the risk burden on banks but instead remains underfunded and underutilized. Even where reforms have been introduced, such as the Movable Property (Security Interest) Act of 2016 and the establishment of a collateral registry, uptake remains low. Few SMEs know how to use it, fewer banks are willing to extend credit against movable assets and so what should be active sits locked as dead capital.
However, amidst this tight funding space dawns a new era of opportunity, as global capital increasingly shifts toward climate and sustainability. While climate change related challenges continue to negatively impact the globe, fresh funding opportunities have unlocked aimed at rewarding green growth and resilience strategies. This article explores the current challenges that Zambian SMEs face in accessing finance through the available sources and introduces climate finance as an alternative source of finance
The “Missing Middle” Problem
At the bottom of Zambia’s Finance model sits microfinance institutions that lend small amounts to microenterprises, while at the top, large corporates enjoy preferential access to bank credit and external finance. In between sits thousands of growth-ready SMEs, too large for microloans, but too small or “too risky” for traditional banks. Trapped in a perpetual cycle of informality, thin balance sheets, and lack of tailored products, these SMEs are excluded from mainstream finance. Meanwhile, supportive government programs such as the Zambia Credit Guarantee Scheme or the Constituency Development Fund (CDF) suffer from weak implementation, undercapitalization and poor recycling of repayments. As a result, they barely scratch the surface of the financing gap.
Climate Finance as The Solution
Climate finance refers to the capital flows; public, private, bilateral, and multilateral directed toward activities that mitigate climate change or help societies adapt to its impacts. Unlike traditional financing, climate finance targets businesses that include environmental sustainability into their operations, offering SMEs a pathway to access funds beyond conventional collateral requirements. By tapping into these emerging financial flows, SMEs can invest in renewable energy, climate-smart agriculture, green technology, and other low-carbon solutions, hence unlocking opportunities for growth, innovation, and resilience while contributing to the broader societal goal.
Zambia has already made steps in creating a supportive legal and policy framework for climate action. The Green Economy and Climate Change Act of 2024, together with the updated Nationally Determined Contributions (NDCs) under the Paris Agreement, commit the country to reduce emissions by 47% by 2030. These reforms lay the foundation for attracting climate-aligned investment and provide a clearer pathway for businesses—especially SMEs—to participate in the emerging green economy. However, realizing these ambitions will require deliberate efforts to ensure that SMEs who are the primary drivers of innovation and employment are able to access climate finance, rather than leaving the funding concentrated in the hands of large corporates who currently capture a big share of this type finance as they already have systems and resource that ensure they meet the standard requirement to access the finance.
Look out for next week’s Opinion, where I will turn to the opportunities on how SMEs can leverage emissions reporting and align directly with Zambia’s international climate commitments to attract sustainable finance and thrive in the just transition.
About the Author:
Barnabas Katawa Mwale currently serves as the Lead Trade and Investment Researcher at the Centre for Trade Policy and Development. He holds a BSc in Economics and Finance from the University of Lusaka and is currently pursuing an MSc in International Trade and Policy at ZCAS University. He holds other qualifications from The Trade Policy Training Centre in Africa and The International Trade Centre in Trade Law, International Trade and Business Advocacy.
