Effectiveness of institutional mechanisms on small businesses in Mokhotlong and Qacha’s Nek, Lesotho.

Abstract

The Lesotho Government, like other governments, enacted the Medium, Small and Micro Enterprises (MSMEs) Policy to address the issue of MSME development. It is perceived worldwide that small and medium enterprises (SMEs) constitute a large sphere of economic activity that accounts for the major share of employment and is a powerful force for poverty reduction. However, SMEs are exposed to today’s risky business environment, which compels economies to intervene by effectively implementing MSMEs policies.

The main objective of this study was to evaluate the effectiveness of the implementation of the institutional mechanism to assist MSMEs in the Mokhotlong and Qacha’s Nek districts in Lesotho. While economies have adopted mechanisms to develop Small, Medium and Micro Enterprises (SMMEs), several studies have shown that most businesses still face challenges despite the efforts of their governments. Therefore, since the Lesotho Government had implemented the MSME Policy in 2016 to develop the sector, it is essential to assess the effectiveness of the implementation of the Policy in Lesotho.

Primary data was collected through the use of questionnaires that were distributed to MSME owners in both districts. The questionnaires were hand-delivered to a sample size of 331, however, only 202 responses were received by the researcher. The list of MSMEs registered with the Ministry of Trade and Industry (MTI) in both districts was used by the researcher to select the respondents using probability sampling also known as the random sampling method. For the respondents who did not indicate their physical addresses on the list a nonprobability sampling method, namely, convenience sampling, was used. The Statistical Package for Social Sciences (SPSS) Windows Version 26 was used to analyse the collected data.

The Government of Lesotho has put in place several initiatives to boost MSMEs by establishing the Ministry of Small Business, Cooperatives and Marketing and the MSME Policy among others. While some MSMEs benefited from the Policy, others faced some challenges. Due to perceived barriers such as access to finance, access to training and poor infrastructure, among others, some MSMEs decided to operate informally. The evaluation of the effectiveness of the implementation of the MSME Policy is vital as it might guide policymakers in amending the

Policy by devising adequate strategies to create and enhance a conducive environment in which MSME owners can operate.

Findings suggest that institutional mechanisms to assist MSMEs in Mokhotlong and Qacha’s Nek are ineffective in the development of MSMEs. The majority of respondents agreed that they are aware of the supporting institutions that are meant to assist MSMEs, and have received such assistance. However, a gap exists in the quality of services provided. Thus, the objective of the Policy will not be met if the various mechanisms put in place to assist MSMEs are not of the quality needed.

In terms of the findings, the following recommendations can be made: • The institutional mechanism needs to be improved to achieve the set goals. • The supporting institutions should offer training based on the results of the assessment of the relevant needs of MSMEs. • The quality of service offered by the supporting institutions should be improved. • The market be opened to businesses that want to invest in financial institutions. • The use of new research findings be utilised by managers and policymakers to enable them to easily redesign policies based on scientific information.