Dissertation Submitted in Partial/Fulfillment of the Requirements for
Award of the Degree of Master of Business Administration (MBA) of Mzumbe University
Small and Medium Enterprises (SMEs) is a critical sector that contributes to both individual and national development. However, financial constraint or limited access to finance is the major challenge hampering the development of SMEs. For instance in Tanzania, many SMEs depend on their personal financial resources, loans from family members and retained earnings to start and expand their business activities. In other words, formal sources of finance are not easily attainable by SMEs. This is the rationale of conducting this study focused on assessing the role of financial institutions to the growth of SMEs.
Therefore, the main objective of this study was to assess the role of financial institutions to the growth of SMEs in Dar es Salaam Region. Specifically, this study examined the impact of loans to the performance of SMEs, determined the barriers faced by SMEs in accessing credit from financial institutions, determined the challenges faced by financial institutions in lending SMEs and assessed the strategies on place to ensure credit availability among SMEs. Data was collected from 100 respondents (90 owners of SMEs and 10 bank staffs), who were selected using judgmental/purposive sampling technique. Data were collected using questionnaires, interview and documentary review methods. Statistical Package for Social Sciences (SPSS) was deployed for analysis of quantitative data and content analysis was used to analyze qualitative data.
The findings of this study revealed that loans help SMEs to raise capital, build assets, create jobs and improve the living standards of the SMEs owners. On the side of barriers hampering accessibility of credit among owners of SMEs, this study revealed that; small cash flow, poor accounting practices and management, lack of marketable collaterals, inadequate credit history, and high transaction costs are the factors hindering credit accessibility among SMEs owners. Further, this study revealed that high default rate, lack of collateral among owners of SMEs, seasonality and lack of credit information among SMEs are the proved challenges facing financial institutions in lending owners of SMEs. In order to have assurance of credit accessibility among SMEs owners; prices such as interest rates and service fees should be reduced; provision of group loans should be emphasized, banks should concentrate on the provision of training, assistance, follow up and supervision to SMEs and if possible, banks should be subsidized by the government for helping owners of SMEs access affordable loans.