Assessment of factors associated with access to credit “loans” For small and medium business enterprises

Abstract

World Bank (2015) reported that about half of the SMEs don`t have access to formal credit and the financing gap is even larger when micro and informal enterprises are taken into account. Therefore, the present study specifically assessed factor that are significantly associated with access to formal credit among SMEs in Kampala. The study employed a cross-sectional research design where a sample of 100 SMEs operators in Wandegeya business Centre was interviewed. Collected data was entered in Epi-data and later exported to STATA for analysis at univariate, bivariate and regression analysis. Results of the univariate analysis showed that slightly half (52%) of the respondents were males. Majority (85%) of the respondents were aged 31-50 years. A considerate percentage (90%) of respondent had attained at least secondary education. Over 70% of the SMEs had spent at least 6 years operating though most (86%) of the SMEs had 10-35 million annually. As regards to access to credit, 62% of the SMEs had ever applied for a loan however only 62.90% that had applied were granted the loan by formal financial institutions. For those that weren`t granted loan 39% of the SMEs that weren`t granted loans lacked collateral security. At bivariate age, education level of the SME operator, period spent by SME operating collateral security and business` annual turnover were significantly associated with access to formal credit among SMEs and they were taken for further analysis at regression level. A binary logistic regression results revealed a significant association between education and period spent by SMEs operating with access to formal credit in that operators that had attained tertiary education were more likely to access credit as compared to those that attained secondary and less and SMEs that had spent 1-10 years’ operating were also more likely to access credit as compared to those that had spent less than a year The study recommends the government and formal financial institutions to ease access to formal loan among SMEs especially those operated by less educated individuals since their chance of acquiring formal credit were less. There is also a need for financial institutions to provide credit packages for the starting businesses in order to increase their access to credit since their likelihood of accessing credit is relatively lower as compared to older businesses