Investigating the Impact of Business Development Fund Ltd's Credit Guarantee on Small and Medium Enterprises in Rwanda: A Comprehensive Analysis

Abstract

In Rwanda, the Business Development Fund Ltd aims to support the initiation, growth, and success of Small and Medium Enterprises (SMEs) by providing credit guarantees, facilitating their access to bank financing. This study explores the efficacy of the credit guarantee fund in stimulating SME growth in Rwanda, particularly within Kigali City. It delves into the accessibility of the BDF Ltd credit guarantee fund for SMEs, assesses its correlation with employment generation, evaluates its influence on SMEs' sales turnover, and analyzes its responsiveness to borrower demands from 2011 to 2013. Employing an explanatory research approach, this study employs a mixed-methods approach, combining qualitative and quantitative methodologies for data collection. A sample of 98 units was selected, utilizing interviews for primary data and document analysis for secondary data. Statistical analysis, including SPSS and tools like Kendall's tau correlation and regression analyses, was employed to scrutinize the relationship between various variables. The findings indicate significant hurdles faced by SMEs in Kigali in accessing the fund, with 95.2% of respondents citing challenges such as prolonged application processes, increased collateral requirements, low bank utilization of the fund, additional bank prerequisites, and perceived inequities. The research reveals a noteworthy positive relationship (r = .37, p <.05, one-tailed) between the guaranteed amount for SMEs in Kigali and employment creation, where an estimated 3,333,333 RWF guaranteed amount predicts the creation of an additional job. Moreover, the study underscores that credit guarantees contribute positively to the beneficiaries' sales turnover and notes that the BDF Ltd has effectively met borrower demands during the 2011-2013 period. This research presents a comprehensive analysis of the impact of credit guarantee funds on SME growth in Rwanda, shedding light on challenges faced by SMEs in accessing these funds and highlighting the fund's substantial role in fostering employment and bolstering sales turnover within the SME sector. Keywords: Business Development Fund Ltd, SMEs, Credit guarantee fund, Kendall's tau correlation, Banks.