Risk Management in Small and Medium Sized Enterprises. Afghanistan Case Study

Abstract

Risk management (RM) strategy is an approach through which organizations predict and manage the potential risks to their business operations. The existing literature emphasizes its importance for small and medium sized enterprises (SMEs) because these enterprises have limited resources and cannot promptly respond to any plan deviation. The RM tools or handbooks should be not only understandable but applicable as well. SMEs are different from large organizations in size, management structure, capital market, legal framework and risk management. Therefore, it is required to propose them such a RM strategy that does not require complicated processes. The author of this study was highly motivated by findings of previous researches and importance of SMEs in the economy of Afghanistan. Therefore, the purpose was to investigate the understanding and management of risks among SMEs in Kabul, the capital. For this, primary data were collected through interviews and questionnaires from fifty SMEs and several financial statements were analyzed throughout this work. The findings of this research suggest that businesses do understand, discuss and manage risk in an informal way however; they are not successful in lowering the negative effects of risks. Besides, SMEs are not profitable and do not manage their financial structure well. Consequently, they face shortage of capital to continue their activities. This research will help the responsible agencies, such as Ministry of Commerce and Industries (MoCIs) of Afghanistan, to take into account the immediate needs of SMEs and provide their Business Development Services (BDS) accordingly. Moreover, the findings of this study provide a detailed risk management processes for businesses of small size with limited human and capital resources.