CREDIT FOR SMALL AND MEDIUM ENTERPRISES: A STUDY ON KHULNA CITY CORPORATION, BANGLADESH

Abstract

Small and medium enterprises (SMEs) often face challenges in getting access to finance form banks and other financial institutions. This study tries to trace out such challenges faced by the SMEs of Khulna city in Bangladesh. The study follows stratified random sampling technique to select 60 interview respondents in the city. The study findings indicate that high rate of interest, longer loan processing time and complex security requirements are the three prime obstacles faced by the SMEs in getting access to finance. These obstacles hinder the development of SME sector. This study also tries to trace out the influence of credit on performance of SMEs through running multiple linear regressions. Profit and sales are considered for measuring performance of SMEs. The regression results indicate that firm size and credit have statistically significant positive influence on profit and sales of the SMEs. The firms having larger amount of credit are enjoying more profit and sales compared with those having smaller amount of credit. Hence, this study recommends for removing obstacles faced by the SMEs in getting access to finance. More specifically, this study recommends for decreasing interest rate, reducing loan processing time and simplifying security requirements for getting loan by the SMEs from banks or other financial institutions. Such initiatives will contribute to simplify the process of getting access to finance for the SMEs which will ultimately help to improve performance through boasting sales and profit.