ABSTRACT
This work is an attempt to determine problems of accessing loan for small and medium enterprises sampled in Atwima kwanwoma District from three randomly selected wards. Specifically, it aimed at assessing SME identifying established requirement in accessing loan, examining awareness of requirements established in accessing loan and finally identify alternative strategies applied. The motive of this paper is that SME differ significantly in term of their financial decision and behavior hence there is a need to determine challenges on the various financing sources of SME as the access to finance is of crucial important for ongoing and sustainable growth and profitability of small and medium enterprises. The study employed quantitative method and instrument for Data collection was questionnaires and documentary reviews. The study reveal that, awareness of requirements is almost high and that all requirements in accessing loan were restrict to ensure community members getting quality and affordable services in loan provision. And meeting of banks requirements, use of micro finance, availability and awareness of alternative in getting loan were increased. Also collaterals which is expressed in terms of immovable asserts is found to be the most important requirement in accessing loans. In the study it is revealed that, when collaterals is limited to immovable asset it encourages them to look for alternatives sources of loans. Therefore, there is a need for more improvement in loan policy and there should be variation in terms of collaterals, in order to expand opportunity for owners of SME to access loan. Because collaterals which is limited on movable asserts is not supportive to provision of loans.
CHAPTER ONE
CHAPTER OVERVIEW
1.1 Introduction
One the major problem facing small business enterprises is lack or rather shortage of capital and how to raise the capital that they need (Nkonoki, 2010). The paper determining problems of which the owners of SME face in loan accessibility. Limited access to credit for these SMEs especially in developing countries has been identified as major bottlenecks especially in terms of capital i.e. Access to proper financing and capital constraints for establishment, development and expansion is the major constraints facing SME in Tanzania and other developing countries(ibid). Most of them obtain their capital through loan accessed from bank. Normally access of loan in any financial institution depends on five major conditions which are capacity to repay, capital invested in business, collateral (guarantees necessary to secure loan, conditions(reason for asking loan) character-(evaluation of trustworthy)according to (www.social enterprises), whereby it is difficult for SMEs to meet those requirements.
There are many studies conducted in different areas, which show problems of accessing loan by small business enterprises. Some of studies associate access to credit to the bank with gender issues. For example, in Lagos it is recommended that factors that affect woman owned business are significantly different from factors that affect men business (Yusuff,2010). In most cases loan accessibility by many small business enterprises are affected by number of factors of which are generally analyzed as being conditions and requirements which should be flexible, affordable and attractive in financing small business (Aliet al.,2013). In this study the interest was to determining problems of accessing loan for small business enterprises in Atwima kwanwoma District the area which is the growing town with many people with small business enterprises and with greater interest to get loan from different banks.
1.2 Background of the Study
Since 1980’ Tanzania has developed environment, which is conducive for investment and development of different enterprises (Musiba,2007). This has been marked with high development competition and development of macro and small business enterprises. The development of small business enterprises however is marked by development of different strategies including the development of small and medium enterprises policy. The motive behind the development of the small and medium enterprises policy has remarkable role in employment creation and income generation (URT,2003). It is argued that, SME plays a significant role in the development process of many developing countries (URT, 2003, Maziku, 2011, Mukiri, 2008).
The implementation of small business enterprises policy in Tanzania has based on three major areas; creating and enabling business environment, developing financial and non financial services and putting on place supporting financial institutional infrastructure (URT, 2003). Before and during the establishment of the policy SME sector experienced a problem of limited access to finance due to the fact that they are perceived as high risk, inability of operators to fulfill the collateral requirements, most banks do not operate an SME financing window, limited geographical area, lack of guarantee scheme to back up banks financing SMEs, and other challenges (Massaweet al,1999). These SME account for large share of enterprises active in Tanzania (URT, 2003).
In Tanzania these SME faces many problems including persistent of culture which does not recognize entrepreneurship, complex bureaucracy, regulation, insufficient competition and inadequate information on the credit market and banks, which discourage and not willing to lend SME. Apart from all challenges addressed above, limited access to credit for SME is very common in developing countries (URT, 2003; Oghenevwokeet al., 2013). According to Oghenevwokeet al. (2013), lack of proper credit schemes is one of the major problems of accessing loan, which is also associated with limited access to credit.
However, the problems of accessing credits are further related with the phenomenon of credit rationing. It is argued that credit rationing depends on the firms and entrepreneur characteristics, relationship characteristics, loan characteristics and supply condition (Maziku,2012).In most cases credit rationing is simultaneously expressed by owners of firms and credit officers.
According to Maziku (2012), the finding from credit owners and credit officers revealed that, credit rationing in Tanzania appears to be driven primarily by business and entrepreneur characteristics, managerial competence of the owner, quality of the business information and poor quality accounting practices, borrowers understanding of the requirement for obtaining credit, as well as inadequate collateral, poor relationship with bank and lack of credit history. In the aspect of borrower, it is expressed in terms of resource-based theory on the fact that access in obtaining credit from the bank is formally found essentially within the firm especially in terms of resource that is available in the firm (Mukiri,2008).In this aspect it is found that, assets, capabilities, organizational process, firm attributes, information and knowledge that are controlled by the firm are some of resources that evaluated during credit purchase. For the purpose of resource it is well articulated that, resource is either property or knowledge based resource.
In this aspect it is difficult to understand what is really or specifically requirement for SME to access loan and how are they ranked. For example there others factors like entrepreneur orientation are a determinant to accessing credit, knowledge based resource gained from maturation age and low competence enhancing support. As far as it is theoretically argued that in order to get loan there as basic necessity which include capacity to repay, capital invested in business, collateral (guarantees necessary to secure loan), conditions (reason for asking loan) character- (evaluation of trustworthy. Condition necessary for accessing credit suggest many contradictions as far as different researchers tend to address them in different aspect.
According to (Mohamed, 2003) it is found that gender, education, income levels and degree of awareness on credit availability are factors, which influence credit accessibility by small business man including fisherman. It is very important to understand the major factors, which hinder the accessibility to credit (ibid). In fact it is important because it is argued that unfavorable credit terms and condition such as higher interest rate and commissions charged by banks and excessive collateral requirements in comparison to loan value, high monitoring cost and corruption of banks officials affect credit accessibility (Maziku, 2012). Apart of all factors still lack of appropriate collateral and understanding of bank requirement for obtaining loan are paramount (Maziku 2012). It is suggested that, microfinance institutions and other banks must set more flexible, affordable and attractive requirements in the firms (Ali et al., 2013). In some studies access to credit is limited by many others factors like delay in disbursement of credit, secured inadequate capital and delay in firm set up (Benedicta, 2011). According to Nkonoki (2010), corruption and bureaucratic processes are some of factors, which limit access of credits.
With all these contradictions thus, it is important to provide logical explanation of really requirement for Small Enterprises in accessing loan for the case of National Micro finance bank for the case of Atwima kwanwoma District simply because there are emerging number of small business enterprises and most of SMEs lack or have a shortage of capital. The study is going to focus on determining problems of accessing loan for small business firms or enterprises.
1.3 Statement of the Problem
Access to credits is very important for the growth and development of small and medium sized Enterprises (SME). However, access to credits is still a challenge to most SME especially those in developing economies and it is a key issue within private and public sectors. In Tanzania likewise one of the major problems facing SME is lack and shortage of capital. In an attempt to address the problems in purchasing loan, financial institutions have been the key solution. The URT for example had set good environment for the SME accessing credit. Apart their entire environment set as to support SME in accessing loan, still there are many obstacles in accessing loan, which are almost complex. In Atwima kwanwoma District SIDO has been playing an important role in training SME. Despite of all training in running business still access to loan is limited to many owners of SME in Atwima kwanwoma District.
In an attempt to understand how are the condition in accessing loan for SME in Tanzania, the researchers found it very paramount to examine major condition in accessing loan for SME in the case of SME in Atwima kwanwoma District. Despite many companies providing entrepreneurship training, including business plan, SIDO being one of the agency providing training on business and entrepreneurship affairs, still accessibility of credits by SME, is low in Tanzanian. Therefore, there is a need to examine the condition required for SME in accessing loan as to understand specific established condition, weakness and strength, and strategies employed by SMEs in accessing loan in order to ensure SMEs have various means to boost their capital.
1.4 General Objectives
Determining problems of accessing loan for small and medium enterprises.
1.4.1 Specific Objectives
(i) To identify the established requirement in accessing loan.
(ii) Assess of requirements established in accessing loan.
(iii) To analyze alternative strategies employed by SME to access the loan.
1.5 Research Questions
(i) What are the established requirement in accessing loan?
(ii) What are strength and weaknesses in accessing loan for SME?
(iii) What are the alternative strategies employed by SME to access loan?
1.6 Significance of the Study
This study has been very useful in understanding the implication of determining problems of accessing loans for SME in Atwima kwanwoma District because problems of accessing loans has not been adequately understood by many studies. This is due to the facts that many studies relied on conditions and other constraints in its broadest sense. The understanding of the basic requirement of SME in accessing loan was helpful in further suggestion of usefulness and weakness of requirements to SME. Moreover, generalization of these requirements in relation to level of economy of enterprises status was well addressed at the end of this study.
At the policy level the study was more helpful in addressing an alternative ways to help SME in opening opportunity for accessing loan especially through assessed weakness and strength of requirements.
1.7 Scope of the Study
This study had been made in urban area specifically Atwima kwanwoma District in Ruvuma region Tanzania. The research deals with SMEs who are unable to access loan facilities from bank in order to boost their capital for business operation and their economic growth due to challenges they face to access credit from bank.
1.8 Limitation of the Study
The study faced different limitation including methodological challenges. This means that the study used purely quantitative approach where as some respondents demanded to provide details with in-depth explanation. In this case the open ended questionnaires contributed much in extending information. Although the use of questionnaire was the main method of data collection, interview was applied as to cover the gap.
This study also faced the challenge of co-operation from respondents because most respondents are too much familiar with government officers who visit now and then for the sake of understanding the enterprises status. Question such as capital status, suggest tax rate, number of owners of SME who get loans. This demanded a researcher to clarify the objective of the study with the guide of introduction letter.
1.9 Organization of the Dissertation
The dissertation is organized into six chapters. Chapter one provides introductory parts of the studies in which there a reason behind the development of the study in the background and statements. Chapter two shows different literatures from different authors and available gaps. Chapter three indicates methodology, which was employed in understanding the research problem. In chapter four indicates the presentation of research findings. Chapter five show discussion of finding and results and chapter six describes conclusion and recommendation.
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