Illicit financial flows (IFFs) have emerged as a significant yet often overlooked challenge. As the nation grapples with economic instability, these hidden financial streams silently undermine growth, particularly for micro, small, and medium enterprises (MSMEs), which are the backbone of Zimbabwe's economy.
During a recent workshop in Bulawayo, organized by the Insurance Council of Zimbabwe in collaboration with the Insurance and Pension Commission (Ipec), startling revelations were made about the state of MSMEs in Zimbabwe.
Despite their critical role in economic development and employment, only a mere four percent of these enterprises have business insurance. This alarming statistic underscores the broader issue of financial exclusion and vulnerability within the sector.
Lloyd Gumbo, Ipec's public relations manager, shed light on the barriers that prevent MSMEs from securing insurance. "The main barriers are affordability, lack of information, and inappropriate products," he explained. The affordability issue is particularly pronounced, given that many MSMEs operate on thin margins and cannot afford the premiums associated with traditional insurance products.
Furthermore, the illicit financial flows exacerbating these challenges are a major concern. These flows, which include money laundering, tax evasion, and corruption, drain much-needed resources from the economy. They distort financial markets, reduce tax revenues, and hinder the government's ability to provide essential services and infrastructure, including financial services that could benefit MSMEs.
The workshop in Bulawayo aimed to address some of these issues by training business development officers from the Ministry of Women Affairs, Community Small and Medium Enterprises Development. These officers, in turn, will train MSMEs on risk management and financial literacy. The goal is to equip these businesses with the knowledge and tools needed to navigate financial risks and protect their assets.
Gumbo emphasized the importance of developing insurance products tailored to the needs of MSMEs, particularly those in the agricultural sector, who often receive income annually after harvests. Ipec has introduced several initiatives to promote inclusion in the insurance and pensions sector, such as licensing micro-insurance companies and approving micro-insurance products designed for MSMEs. These efforts aim to bridge the gap and offer financial security to businesses that are currently excluded.
In addition to financial exclusion, IFFs further complicate the financial landscape for MSMEs. These illegal flows often lead to increased scrutiny and regulatory burdens on legitimate businesses, creating an environment of distrust and uncertainty. As a result, MSMEs, already struggling with limited resources, find it even more challenging to thrive.
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Ringisai Batira, ICZ's marketing manager, highlighted the devastating impact of unforeseen disasters on MSMEs. "Unexpected mishaps and disasters, both man-made and natural, pose significant challenges to communities," she said. "The impact of extreme weather disasters is felt in sectors like smallholder farmers, agro-processing businesses, and fire incidents at SMEs industrial parks, which disrupt operations and the income-earning ability of business owners and employees."
To combat these issues, there is a pressing need for comprehensive risk management practices and security measures tailored to MSMEs. By equipping these businesses with the necessary knowledge and tools, stakeholders like Ipec and ICZ aim to build trust and provide tangible support. This approach not only strengthens individual enterprises but also contributes to a more resilient and robust economy.
