Abstract
It has been established that Small and Medium enterprises (SMEs) play significant roles in the economic development of most countries in terms of job creation, innovation of new ideas, contribution to Gross Domestic Product and welfare, but the ability of SMEs to implement growth and developmental programs highly depend on access to external finance among other factors. Against this backdrop, the persistence citing of limited access to finance by SMEs in the Sub-Saharan African countries which places impediments on their business activities is worrisome to both the entrepreneurs and the State. In spite of several efforts by various governments and relevant institutions in rolling out support policies and initiatives in making access to external finance by SMEs more accessible, the problem still persist and SMEs maybe are yet to reap the full benefits from such initiatives. This research work does not rule out the fact that there exist alternative ways of financing SMEs outside the formal financial system, but this research focuses on the accessibility of the informal financial systems, with much emphasis on family and friends, their effectiveness, and how to meet the criteria for accessing the finance. The results show that SMEs that meet the requirements (trust, reputation, relation (family affiliation), religious affiliation,) of the lenders have easy access to alternative external finance, but the major challenges SMEs face when accessing the funds are the limited size of the loan and how to meet the demands of the lenders. On the lenders side, high defaulting rate is their major challenge. With careful modification without compromising the traditions involving the system, informal financial system will play significant role in providing the financial needs of SMEs.
Highlights
It has been established that Small and Medium enterprises play significant roles in the economic development of most developed and developing countries in terms of job creation, innovation of new ideas, contribution to Gross Domestic Product and welfare [1]-[7]
As described by [13] that “Small firms are disproportionately handicapped by a lack of finance, but they receive a stronger boost in growth than large firms if financing is provided”, but, when it comes to SMEs access to external finance in developing countries, there are market imperfections in times of crisis, but on an on-going basis as a fundamental structural issue, and this has been partially attributed to uncertainties and asymmetric information between the demand side and the supply side [14]
Majority of the respondents fall within the ages of 20 to 30 years, they were 69 representing 37.3%
Summary
It has been established that Small and Medium enterprises play significant roles in the economic development of most developed and developing countries in terms of job creation, innovation of new ideas, contribution to Gross Domestic Product and welfare [1]-[7]. Access to external finance plays an important role in implementing all these actions so as to achieve the targeted growth and development [12], since most businesses rely heavily on external finance sources such as bank loans and equity finance in their business activities. As described by [13] that “Small firms are disproportionately handicapped by a lack of finance, but they receive a stronger boost in growth than large firms if financing is provided”, but, when it comes to SMEs access to external finance in developing countries, there are market imperfections in times of crisis, but on an on-going basis as a fundamental structural issue, and this has been partially attributed to uncertainties and asymmetric information between the demand side (entrepreneur) and the supply side (financial intermediary) [14].
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