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Research Article

The Effectiveness of Microfinance Capital Financing on Working Capital, Operating Costs, and Profitability of SMEs in Lusaka, Zambia

Authors

  • Edward Kasani School of Humanities and Business, Information and Communications University, Lusaka, Zambia
  • Peter Silwimba School of Humanities and Business, Information and Communications University, Lusaka, Zambia https://orcid.org/0000-0001-6663-1866

    silwimbap47@gmail.com

Abstract

In Zambia, microfinance institutions play a critical role in providing capital financing for Small and Medium Enterprises (SMEs). Despite microfinance’s contribution to SMEs’ capital financing, the impact is not evident because SMEs have been impended by high interest rates, collateral requirements, and other factors. This study assessed the effectiveness of microfinance capital financing on working capital, operating costs, and profitability of SMEs in Lusaka District, Zambia.  A mixed-method approach was employed, combining qualitative and quantitative methods. Primary data were collected and analyzed using Megastat. The findings reveal a significant positive relationship between microfinance and SME's working capital growth, with a correlation coefficient (r = 0.534) and R-squared value (0.286). The significant test (F-statistics = 23.18, p-value = 0.00) confirms a statistically significant relationship. The study also finds a notable effect of microfinance on SME operating costs, indicated by the chi-square test (χ² = 32.79, df = 16, p = 0.0079). Regression analysis reveals a significant positive relationship between microfinance and operating costs, with a coefficient (0.4208, p = 0.0032). Furthermore, the study shows that microfinance capital has led to improved profitability for SMEs, with a mean response of 4.300 and a p-value of 0.0188. The findings also highlight the challenges faced by SMEs, including high interest rates (76.7%) and emotional and organizational strain (55%). The study recommends flexible disbursement schedules, sector-responsive repayment models, and tiered interest frameworks to enhance the effectiveness of microfinance. By integrating statistical testing with stakeholder perspectives, the research positions microfinance as a strategic instrument for SME resilience, growth, and inclusive economic development in Zambia.

Keywords:

Lusaka District Microfinance Operating Costs Profitability SMEs Working Capital Growth Zambia

Article information

Journal

Journal of Economics, Business, and Commerce

Volume (Issue)

2(2), (2025)

Pages

192-206

Published

03-11-2025

How to Cite

Kasani, E., & Silwimba, P. (2025). The Effectiveness of Microfinance Capital Financing on Working Capital, Operating Costs, and Profitability of SMEs in Lusaka, Zambia. Journal of Economics, Business, and Commerce, 2(2), 192-206. https://doi.org/10.69739/jebc.v2i2.1094

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