Challenges of finance accessibility by SMEs in the democratic republic of Congo: is gender a constraint?

Atsede Woldie,Bushige Mwangaza Laurence,Brychan Thomas

doi:10.21511/imfi.15(2).2018.04

Atsede Woldie, Bushige Mwangaza Laurence + Show 1 more

Open Access

https://doi.org/10.21511/imfi.15(2).2018.04

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Abstract

Small and medium enterprises (SMEs) play a significant role in income generation, job creation, poverty reduction and reducing income inequality of all countries, regardless of the level of development. Nevertheless, in developing countries, they are exposed to several challenges affecting their business operations and growth. Among others, access to external financing has been cited to be the most pressing challenge for SMEs in developing economies. The lack of accessibility has been indicated to result from the deficiencies observed from both financial institutions and SMEs. Further, it has been discovered that from the SMEs’ perspective, gender, among other entrepreneurial characteristics, has a role in accessing finance. This paper surveys a sample of 109 SMEs in the Democratic Republic of Congo not only to find what are the challenges faced in seeking finance, but also to investigate the extent to which gender impacts access to finance. The evidence gathered shows that finance is really constraining, there are more rejections than approvals of finance due to the lack of collateral, high interest rates and the inability of SMEs to develop attractive and bankable projects. With regards to gender, the findings were somehow assuring in the sense that when both women and men apply for external finance, they stand the same chances of accessing finance. Recommendations were established to all the actors. SMEs must put more effort into regulating their businesses in order to reduce their risks and build strong relationships with lenders. Financial institutions should not only reconsider the interest rates as they were perceived to be extremely high, but also train SMEs to be “more bankable”. Lastly, the Government should implement policies to support firms and render the business environment more appealing for both SMEs and financial institutions.

Highlights

BackgroundIn the Democratic Republic of Congo (DRC), the International Monetary Fund (2014) stipulated that credit remains scarce, expensive and highly concentrated in urban areas
In order for the SME sector to fully realize its potential in the DRC, there is a need to investigate challenges faced by firms operating under this sector with focus on barriers encountered while in the quest for external finance, since lack of finance has been identified in the literature as a general constraint in SSA
On the grounds of what is stipulated above, the objectives of the research are to: 1) identify the financing patterns/preferences of firms operating under the SME sector, 2) investigate the major challenges in accessing finance encountered by SMEs in the DRC and the different perceptions regarding finance accessibility, and 3) examine if SMEs owned by women are more constrained in accessing finance than those owned or managed by men

Summary

Introduction

BackgroundIn the Democratic Republic of Congo (DRC), the International Monetary Fund (2014) stipulated that credit remains scarce, expensive and highly concentrated in urban areas. Safoulanitou et al (2013) demonstrated that while SMEs account for about 99% of firms in Cameroon, more than 90% in the DRC and 80% in Congo Brazzaville, their contribution to respective countries’ GDP is estimated at less than 20%, while it can reach up to 60% in countries with high incomes. The ability of women to grow their businesses, to increase productivity and job creation is hampered by existing institutional and legal barriers that affect SMEs owned by women and men differently. In order for the SME sector to fully realize its potential in the DRC, there is a need to investigate challenges faced by firms operating under this sector with focus on barriers encountered while in the quest for external finance, since lack of finance has been identified in the literature as a general constraint in SSA. Having prospects of becoming an entrepreneur in mind and in accordance with the interesting topic of women’s empowerment, it is important to examine if the gender financial barrier, in terms of accessibility, exists in the country

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