Examining the Determinants of SMEs Credit Access from Commercial Banks in Tanzania

Elleno Epaphra Charles ,Yang Lian-Fen

doi:10.7176/ejbm/13-4-01

Abstract

The economic development in most African countries is greatly supported by Small and Medium Enterprises (SMEs) due to insufficient large capital to start up giant factories. This makes it necessary to focus on how SMEs finance their activities. Extensive literature provides evidence that SMEs find it difficult to meet credit access requirement by Commercial. In view of this, the study aims to examine the determinants of credit access in Tanzania Commercial Banks (TCB) and SMEs access to the credit.The study adopted a survey based approach by choosing some commercial banks in Tanzania and randomly involving SMEs firms in the capital of the Tanzania. Using Multiple Regression Analysis, the study reveals that firm characteristics, legal documents, financial characteristics and SME owner have positive relationship with bank credit access. Most SMEs are denied credit from commercial banks due to their ineffective to provide the require materials such as financial statements, improper documentations and registration certificates, owners level of education which affects his or her understanding on credit lending and others. However, firms’ owner characteristics (education, age and experience) narrowly affect credit access. In addition, firm characteristics were perfectly significant with credit access.The paper suggested that priority sector lending and access to credit must be introduced in Tanzania. Also, policy maker should establish a credit guarantee scheme provides third-party credit risk mitigation to lenders. This will help to overcome the challenge of collateral requirement and others that make lending to SMEs risky. Keywords: Small and Medium Enterprises, credit determinants, commercial banks DOI: 10.7176/EJBM/13-4-01 Publication date: February 28 th 2021

Highlights

Small and Medium- Sized Enterprises (SMEs) contributes significantly to economic growth and development across the world
Small and Medium Enterprises (SMEs) can help cause a revolution through the provision of jobs. [3] reported that SMEs account for 97– 99% of the aggregate enterprises in the ten most competitive countries throughout the world where SMEs play an important role of economic development
The commercial banks prefer to lend to large, established companies with well-developed plan and balance sheets and credit histories of additional assets for the collateral required in conventional bank financing

Summary

Introduction

Small and Medium- Sized Enterprises (SMEs) contributes significantly to economic growth and development across the world. These enterprises are the source of income for the majority of people in East Africa. They drive economic growth through overwhelming contributions to job creation as well as innovation and entrepreneurship [1], [2]. [3] reported that SMEs account for 97– 99% of the aggregate enterprises in the ten most competitive countries throughout the world where SMEs play an important role of economic development. The economic development in most African countries is heavily dependent on SME due to inadequate large capital to start up giant factories. The need to finance the development and growth of SMEs in SubSaharan Africa (SSA) economies has been of concern to many policy makers [4]

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Conclusion