State financial assistance within Lesotho Maseru’s small, medium and micro enterprises

Small, medium and micro enterprises (SMMEs) function in both the micro and macro environments, and are subject to internal and external forces in most economies. The monitoring of the external and internal factors and vital strategies by SMME owners and stakeholders including government and supporting institutions is necessary to attempt a reduction in their failure rates. Literature supports this proposition in the development of SMMEs. The aim of this study was to analyze the environmental factors that result in a low rate of success and a high failure rate of SMMEs in Maseru, the capital city of Lesotho. Primary data for this study was collected through questionnaires which were distributed to a sample of 250 SMMEs owners, however, only 180 respondents completed and returned questionnaires, which were then used for data analysis. The data was analyzed using the Statistical Package for Social Sciences (SPSS21). The findings revealed that there still persists inadequacy in financial assistance and the need to develop a financial strategy by the state. Government key intervention is proposed to enable growth and development in a sector that sustains job creation and poverty reduction through financial strategy. Further research on how the sector establishes support is also proposed.

The role of SMMEs is significant in that they offer economic health and diverse opportunities to the municipal developments and it is for this reason that municipalities have developed various approaches to strengthen SMMEs. Financial access has been designed by municipal governments with the aim of developing and empowering SMMEs. Relationships have been fostered by government with institutions to help enterprise development in accessing finance. For this reason, relationships have been formed with major financial institutions such as ABSA, FNB, Standard Bank, Ned Bank, GroFin and Old Mutual in the EThekwini Municipality in Durban South Africa (EThekwini Municipality, 2017).
The SMMEs fall within the private sector and the private sector has been known for its ability in engineering economic growth. Governments have the duty to provide regulatory and legislative environments for the private sector to function effectively. How helpful is the regulatory network in sustaining small and medium enterprises in settings like Lesotho? In Africa, South East Asia, Asia, as well as Latin America, the regulatory and legislative environment is quite hostile to the private sector (Brent, 2014). Among the various government efforts for supporting the economy is the fostering of a business environment that is innovation friendly (Economic Overview, 2016).

The internal environment
According to Shepherd and Patzelt (2011), the internal environment includes all factors that are within the organization, which are controlled and influenced by management of the company. Premaratne (2001) states that "an enterprise's resources com-prise of anything that it owns, such as capital, equipment, liabilities and experience". Migdadi (2009) points out that besides human resources, financial support is needed for investing in a technological system if necessary. According to Halme and Korpela (2013), SMMEs can find ways to compensate for resource deficiencies, as prior research by Fiore, Niehm, Hurst, Jihyeong, and Sadachar (2013) shows that resource insufficiency may be valuable for innovation.
Another aspect is related to leadership. O'Regan, Ghobadian, and Sims (2006) define leadership as a process of transforming an enterprise from what it currently is to what the leader of the enterprise wants it to become, which represents a substantial level of innovation. A strong entrepreneurial leader in small to medium-sized enterprises have to be able to influence the behavior of other individuals so that there is collective collaboration in the workplace (Soriano & Comeche Martinez, 2007). Leitch, Mcmullan, and Harrison (2009) suggest that leadership development for SMME owners and managers should build upon their existing skills and have to create a path for the development of future leaders rather than teaching only the current SMME owners how to lead. Research by Newman and Sheikh (2012) shows that for SMMEs to remain competitive in the long term, it is necessary for the ownermanagers to reduce employee turnover and to improve their performance by developing high levels of employee commitment to the enterprises.

The task environment
Competition is one of the aspects of the task environment (Gunesekaran, Rai, & Griffin, 2011). The SMME sector is a competitive sector and it needs active and well strategized individuals to survive. Bekele and Worku (2008) state that social capital networks in which information, innovative ideas and business skills are shared amongst employees in an enterprise help SMMEs to gain competitive advantage.
Customers are included in the task environment sphere. According to Appiah-Adu and Singh (1998), SMMEs have to direct their efforts to meet customers' needs and wants, as these customers are now becoming well organized, informed and more demanding. Small businesses often fail to focus on the customers and markets they serve. Dos Santos (2009) states that a business enterprise cannot succeed without the existence of customers. According to Dabija (2011), SMME owners have to also take into account the preferences, lifestyles and needs of their customers. Bekele and Worku (2008) suggest that more focus should be placed on the emotional level of customer relationships and development strategies of an enterprise rather than traditional marketing approaches.

The SMME finance
One of the important issues in the SMME sector is their financial acquisition. SMMEs employ different methods of financing such as owners' managers savings and retained profits ( One of the means by which SMMEs receive funding in different parts of the world is through government initiatives. The government official schemes are often introduced single handedly or in support of donor agencies (Mensah, 2004). The governmental assistance programs can be exemplified with the Canadian Small Business Finance program, where the government would guarantee loans of up to 85% if it is less than $C 250,000. This practice was also observed in UK in 1981 when the Small Firms Loan's Guarantee Scheme guaranteed loans of up to 45,000 loans with a value of # 189 m. However, at times, the consistency expected in achieving the objective of lending to the SMMEs has not been fruitful. In Croatia, a transition and developing economy, a national loan scheme implemented in 2000, with the objective of reducing the cost of borrowing only led to a low rate of up to 29% of loan approvals in the first two years (Cziraki, Tisma, & Pisarovic, 2005). The Kilimanjaro Cooperative Bank Scheme which aimed at the rural poor outperformed those in Asia, Latin and Central America and the Middle East with 500 active borrowers for each credit officer with an efficiency ratio of 30%. SMME funding position in terms of enhancing their capital is therefore significant and is examined in the course of this presentation.

Research approach
A quantitative research approach was utilized in this study to collect the data. Lewis and Thornhill (2007) state that a quantitative research approach clarifies occurrences by collecting numerical data that are analyzed using statistically based methods. Miles, Huberman, and Saldana (2013) add that using the quantitative approach to collect data ranges from simple counts such as the frequency of occurrences to more complex data such as test scores, prices or rental costs.

Research population.
Cavana, Delahaye, and Sekeran (2001) define population or target population as the entire group of people, events or things of interest to the researcher that s/he wishes to investigate. The target population for this study was 1,000 SMME owners who operate in the rural and urban areas of Lesotho's capital city which is Maseru. There is no accurate data regarding the number of SMMEs in Maseru. However, a study by Nthe-jane (2003) shows that the number of SMMEs in Lesotho is approximately 10,000, meaning that Maseru as a capital city is likely to have close to 1,000 SMMEs operating formally.

Sampling techniques and description of the sample.
The sampling technique suitable for this study was the stratified sampling which is a form of probability sampling. Sekaran and Bogie (2010) add that stratified sampling is used when the researcher's targeted population is large, enabling the researcher to breakdown the sample into strata using fixed criteria which increases the accuracy of the sample information. According to Kotrlik and Higgins (2001), the sample size required to be representative of the responses of 1,000 SMME owners in Maseru relative to the environmental factors and strategies that impact on the success and failures of their enterprises is 250.   The analysis is used to determine whether the ease of access to financial assistance is determined by the age of SMME owners. The results outlined in Table 1 above show that a large number of SMME owners (99) in Maseru make only limited use of available financial institutions, resorting to their own savings for start-up capital. The next most likely source of capital indicated by the SMME owner-managers (36) was money borrowed from friends and family. Only 33 owner/managers indicated that they had obtained financial assistance in the form of bank loans. This is a clear indication that challenges still persist with respect to SMMEs' access to financial assistance, with the possibility that government's efforts in reaching out to SMMEs for financial support are limited.

Results presentation and discussion
These results show that access to credit for start-up capital is not determined by the age of SMME owners. In establishing confidence in the results, the Pearson coefficient was used, as shown in Table 2 above. The results reveal that there is a very weak positive relationship between age and ease of access to financial assistance (r=.159, n=180). The correlation was found to be significant at only a 5% level of significance (p=.033). Reade (2017), however, has noted that the average age for successful startups is 35-45, in this age he states that one has been old enough to have started a start-up or two and is ready with youthfulness to move ahead with another.   Table 3 indicates the relationship between the registration status of SMMEs and their sources of startup capital. It provides an indication that a majority of registered SMMEs use financial institutions as compared to unregistered enterprises, which is beneficial to their growth. Unregistered SMMEs rely on friends, family and own savings to establish their businesses, which is a clear indication, that business registration results in definite chances for government financial assistance.
A correlation analysis was done to determine the confidence of the results. Table 4 shows that there is a moderate, negative relationship between the sources of capital and business registration (r=.-421, n=180), with high rates of SMME establishment through different sources of start-up capital associated with decreasing rates of SMME registration. The correlation was significant at 1% level of significance (p=.000). Finance are considered as an issue that causes a number of businesses to fail. According to the South African Small Business Minister, 70%-80% and only a half of those who survive remain for the next five years. This is mainly due to the funding problem (Lamna, 2015).  Table 5 shows the relationship between the respondents' awareness regarding financial institutions established to assist small businesses and whether or not their loans were approved. A large number (52) of SMMEs were aware of the financial institutions, however, their loans had not been approved. The second largest number of respondents (50) was aware of such institutions and their loans had been approved. The least number (7) of respondents were not aware of financial institutions, however, went ahead to apply for loans and were thus unapproved. Pearson correlation was used to determine the confidence in the results. Table 6 indicates that there is a weak, positive relationship between application of financial assistance and approval of loans (r=.186, n=180). The correlation was not statistically significant between application for start-up capital and the loan approval (p=.053). This means that increasing or decreasing rates of applications for start-up capital by SMMEs do not significantly relate to increasing or decreasing rates of loan approvals by financial institutions.

Pearson
Сhi-square test for goodness-of-fit.    Table 7 provides the observed numbers of males (115) and females (65), as well as the expected numbers of males (90), females (90) which were the frequencies expected from the study, meaning that there was an anticipation of equal proportion of both males and females in the SMME sector. The differences between the observed and expected frequencies are provided in the residual column with males (25.0) and females (-25.0), respectively. Table 8 sources for start-up capital, provides the observed frequencies own savings (99), friends/ family (36), bank loans (33) and finance schemes (12), as well as the expected frequencies of 45 for each category. Table 9 indicates the grouped actual results of the Chi-square test for goodness-of-fit. From the table it can be concluded that there was a statistical significance in gender (x 2 (1, n=180) = 13.89, p=.000), as well as a statistical significance in sources of capital (x 2 (3, n=180) = 94.0, p=.000). It can thus be concluded that there are statistically significant differences in the preference of the type of source of start-up capital utilized by SMME owner-managers, with few people attaining an opportunity of support from finance schemes (12) and bank loans (33) compared to those left with no choice but to get assistance from either friends/family (36) or own savings (99).   Table 10 outlines the observed numbers of respondents who were aware of the financial institutions (138) and those who were not aware (42), as well as the equal proportion of expected frequencies of 90 in both categories. Table 11 provides the observed frequencies of respondents who have made initiatives in applying for government financial assistance (99) and those who failed to apply for financial assistance (50), as well as the equal proportion of expected frequencies of 74.5 in both categories.     Grovest (2013). South Africa happens to be a beacon of hope in the continent and therefore the challenge remains in that the likelihood of the financial system towards SMMEs in the neighboring countries remains the same. Table 14 presents data on the calculated z-values and the approximately calculated statistical significance of differences between the tested variables. In this table, the z-value was -.440. The statistical significance of differences (p-.660) was calculated and it was greater than .05. The results, therefore, showed no statistically significant differences that the inadequacy of finance had hampered the ability to undertake business growth strategies.

Recommendations and conclusion
The role of SMMEs has been deliberated in this paper and particularly the challenges that face a developing economy in the SMME sector. It is recommended that SMMEs receive state support in forging their way forward.
The financial challenges can be settled by developing a strategy with financial institutions that facilitates the SMME success and the economy at large. Since this study has indicated that a number of SMMEs loan application were not approved by the financial institutions, it is recommended that the businesses develop a relationship in which financial institutions create awareness on issues that lead to successful loan applications. A government department in trade industry would handle this process, as well as educational institutions alongside the financial institutions. SMMEs that are not registered encounter difficulties of getting loans, therefore government should run awareness of registration benefits to the businesses and encourage them to register.
SMMEs shall continue to form part of economic paradigm without any further debate. A financial strategy needs to be developed by the state in advancing the needs of SMMEs in Lesotho and thus make capital start-ups easy to deal with. Training and development are important for this sector and the state needs to empower this sector by facilitating training in conjunction with the department of further education and higher education, where applicable and relevant especially in the financial matters. Further research would do better investigating strategies applicable to SMMEs in raising performance and support of stakeholders in pursuit of progressive financial development.