One of the biggest challenges faced by the informals sector is lack of finance due to lack of collateral security required by formal financial institutiions (Adisu, 2006). Kashuliza (1993) attributed a low credit worthiness of the informal sector to a high risk of default due to their risk businesses. Adisu (2006), posits that the players in the informal sector are forced to switch to informal sources of finance which in this study refers to shadow banks which charge very high interest charges.
From research done by ZEPARU(2014) informal sector get funds from the informal dealers which accrue interest on a daily basis for their business as they can not access funds from formal financial institutions. According to LEDRIZ (2012), there is much exclusion of the informal sector by the formal banking sector mainly in remote areas. To remedy with this problem the government came up with a ministry responsible for for small to medium size businesses as a way to give financial support as another way promote the growth of the economy. Small Enterprises Development Corporation was also set up to support small businesses for microloans which are $500 or below. Small businesses need to have moveable assets as collateral to secure the loans. The interest rate on loans granted is usually 15% per annum for a tenure of 4 months. For loans within the threshold of $501- $5 000, SEDCO requires collateral security as well as a comprehensive business plan or proposal. This initiative also does not benefit the informal sector businesses who do not have anything to pledge as collateral security and the majority of them can not draft business proposals.
Apart from the requirements needed a 2009 report by the Parliamentary Portfolio Committee indicated that the ministry was not receiving the budgetary allocations to disburse which means no no finance was being made available to the informal traders. In 2006 the Reserve Bank of Zimbabwe established a Revolving Fund to finance small business activities. However the fund was only accessible to registered firms leaving out the majority of the informal sector players destitute of funds.