Analysisian Analysis of the Impact of SME Financing on Economic Growth in Zimbabwe (2015-2019)

Abstract

Small and Medium scale Enterprises (SMEs) are important for successful economic growth and social development. There is a global increasing recognition of the importance of Small and Medium Scale Enterprises in terms of supporting overall economic growth and development. The primary purpose of the study was to assess the contribution of SMEs financing towards economic growth for Zimbabwe. Specifically, the study investigated the impact of SMEs financing on GDP growth, Job Creation, Poverty Datum Line, and Revenue Generation. The study focused on the classical and the modern theories mainly the Neoclassical Growth Theory, Finance-Growth Theory, Lending theory, Signaling theory, the pecking order theory and the Access to finance Theory of Change. This study adopted the positivism research paradigm and an explanatory correlational study design since it helped the researcher to comprehend and describe how SME Financing drives economic growth. In this study all registered SMEs who received loans from all commercial banks in Zimbabwe since 2015 represented the entire target population. The SMEs sector was selected due to its importance in Zimbabwe achieving the economic pillar of Vision 2030. The data gathered was presented and analyzed in a way that enabled statistical inferences to be made. Statistical methods of presentation such as time series plots, descriptive statistic tables, Correlograms and Multiple Linear regression model were used to aid comparability and ensure meaningful interpretation. Tests were performed on sample data to ensure that required conditions were met before regression modelling. The model was fitted using Eviews 10 statistical data analysis package. In a correlational study, the researcher examined whether and to what degree a statistical relationship exists between SMEs financing and Economic Growth. This study employed Classical Linear Regression Model (CLRM) to ascertain the statistical relationship between SMEs financing and Economic Growth. To evaluate the appropriateness and validity of the model the study analyzed the properties of the statistical distribution of the residuals generated by the fitted model to check for autocorrelation, heteroscedasticity and normality. The overall significance of the model was also evaluated by inspecting the model’s coefficient of determination (R-squared) and the probability value for the F-statistic. The estimated models found SMEs financing to have a significant positive effect on Economic Growth with respect to GDP Growth and Revenue generation through Tax Formation. However, it was revealed that SMEs Financing has no significant effect on changes in the movement of the Poverty Datum Line. It was also revealed that SMEs financing has failed to stimulate job creation in Zimbabwe due to continued rise in unemployment levels coupled by closure of large corporates. Greater efforts should be made to make available, short, medium and long term loans to productive investments like SMEs as they constitute an integral part of the growth and transformation process of an agro-based economy like that of Zimbabwe. The central Bank of Zimbabwe (RBZ) should ensure that all the SMEs keeps appropriate records of what is required by banks for extension of their credits to individuals. More so, the Reserve Bank of Zimbabwe should strengthen its monetary policy tools in order to stabilize costs of doing business and lending cost. Future studies should therefore consider also investigating the impact of both private equity and public sector investment on economic growth in order to get an exhaustive picture on the implications of financing SMEs, Private Equity firms and publicly listed firms on economic development.