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Tuesday, July 27, 2021

Effects Of Excessive Borrowing On SME’s in Africa

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Most Countries run on Budgets and for this budgets to be funded external borrowing is often required especially in Third World Countries.A typical example, is Africa at large most revenue’s collected are not enough bringing forth to dependency on loans.
For Instance, Kenya has hit past it’s debt ceiling yet we still seek IMF Credit facilities. This is likely to have an impact on Small and Medium Size Enterprises (SME’s) more so on the long term. This borrowed money is often squandered in corrupt dealings which is a sad reality as corruption is ‘normalized’ in most regimes. This in turn affects the economy and the financial institutions such as Banks due to factors such as Inflation. SME’s strongly rely on credit facilities for raising capital.But excessive borrowing triggers effects such as Loan Interested being too high thus discouraging most people from accessing this avenue . We cannot blame Banks but the governments at large ;which are usually under immense pressure to pay back thus clamping down on every revenue generating platform including start-ups .

African Economies are torn between Infrastructural and general economic development projects.This makes it difficult for them to provide Incentives to this SME’s. SMEs are less likely to be able to obtain bank loans than large firms; instead, they rely on internal funds, or cash from friends and family, to launch and initially run their enterprises.
SMEs are less likely to be able to obtain bank loans than large firms; instead, they rely on internal funds, or cash from friends and family, to launch and initially run their enterprises
However organizations such as the world Bank are chipping in to help out SME’s in developing countries.A key area of the World Bank Group’s work is to improve SMEs’ access to finance and find innovative solutions to unlock sources of capital.

This setback of excessive borrowing should not withhold the fact that SME’s is the future of economic growth for developing countries.SMEs account for the majority of businesses worldwide and are important contributors to job creation and global economic development.

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