Commercial bank financing to micro, small, and medium enterprises (MSMEs): the mediating and multi-group effect analysis

Abstract

Although the MSMEs sector received relatively sufficient funding from commercial banks, this funding could not bring significant vertical growth to the sector due to different factors. This study is therefore aimed at investigating the repressing factors of commercial banks financing to MSMEs. To achieve the objective, survey data from 411 Micro, Small, and Medium Enterprises owner-managers in Ethiopia were collected using a random sampling technique. The Confirmatory Factor Analysis (CFA) and Structural Equation Model (SEM) result revealed that the total effect of bank finance on the performance of micro, small, and medium enterprises is less than its direct effect due to the competing mediation effect of behavioral finance. Moreover, the result revealed that the relationship between bank finance and performance of Micro, Small, and Medium Enterprises was not significantly moderated by the gender of owners and the size of Enterprises. The result implies that commercial banks should (1) assess the behavior of owner-managers and (2) deal with it before sanctioning loans to ensure the efficient utilization of accessed funds.