A framework to Enterprise Risk Management and Sustainability in micro-lending companies in Botswana

Abstract

The purpose of this study is to develop an enterprise risk management (ERM) and sustainability framework that addresses problems of going concern in the micro-lending sector in Botswana. Over the past decades the implementation of financial initiatives to fund SMMEs including micro-lending businesses in Botswana has not yielded the expected growth in the SMMEs and micro-lending sector. In Botswana, SMMEs are touted as the engine that drives the economy of the country as they assist in improving the poverty datum line. There have been several Government initiatives and interventions used to resolve challenges faced in the SMMEs, but they have not achieved any meaningful results. Several pronouncements by the Committee of Sponsoring Organisations of the Treadway Commission (COSO) have reinforced that adoption of ERM process assists organisations to achieve their intended business objectives through improved performance. In Botswana, the main thrust is on diversification of the economy through promoting and supporting small businesses that fuel economic development and culminate in job creation. In addition, there have been several Government initiatives in place that promote micro-lending businesses which did not yield any meaningful results due to contextual problems. The study was prompted by a huge decrease in numbers of micro-lending companies in Botswana, from a total of 993 to 243 during the period 2009 to 2013. As micro-lending business is critical to economic growth, it is imperative to ensure the survival of this sector. An adoption of ERM and sustainability framework in the micro-lending sector could assist in addressing business failure problems that are prevalent in this sector. A sharp decrease in the numbers of micro-lending businesses in Botswana therefore prompted this investigation. This study employed a sequential explanatory design within the broad mixed methods approach. The study initially collected quantitative data and later qualitative data in order to verify and authenticate the quantitative data. Data was collected from 223 micro-lending companies in Botswana. Proprietors and employees were requested to complete questionnaires. A thematic analysis was adopted for qualitative data analysis and seven common themes emerged . The findings revealed that there is lack of training and development in the sector as the majority of the respondents are professional certificate and diploma holders. In addition, the findings of the study further revealed that there is lack of awareness of sources of risks and, as a result, the sector fails to manage and mitigate risk. The results indicate that senior management in the sector is a major source of risk contributing to the closure of an enterprise. Such an end is explained through autocratic leadership styles, computer illiteracy and low levels of education which ultimately negatively affect productivity and morale.

The study recommends the implementation of Capital Adequacy Ratio (CAR) , which could be used in the sector to constantly monitor performance through supervision by the regulator Non-Bank Financial Institutions Regulatory Authority (NBFIRA) via cloud software. A constant and consistent monitoring of this sector might assist in achieving a positive cash flow management which ultimately minimizes the firm 's failure rate. The study further recommends human resources management policies which support and encourage training and development in this sector. Implementation of training and development strategies in the sector could assist in understanding risk management processes, foster productivity and enhance morale. Finally, all the recommendations derived from the study could assist in addressing the incessant problems in this sector. Adopting these would ultimately result in improving operational objectives of micro-lending businesses.