Purpose – The purpose of this paper is to investigate the relationship between commercial bank lending terms, financial literacy and access to formal credit by small and medium enterprises (SMEs). Design/methodology/approach – In this cross-sectional study, the authors surveyed 384 business owners or managers of SMEs in Uganda. The authors applied confirmatory factor analysis to reduce the number of factors and identify the important elements that capture commercial lending terms, financial literacy and access to formal credit. The authors put forward and tested two hypotheses relating to the significance of the relationship between perceived commercial bank lending terms, financial literacy and access to formal credit using structural equation modelling with analysis of moment structures 18. Findings – The results suggest a positive and significant relationship between perceived commercial bank lending terms, financial literacy and access to formal credit. Moreover, the ANOVA results serendipitously show...

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Lending terms, financial literacy and formal credit accessibility

We utilize a unique comprehensive dataset, drawn from the 1999 baseline survey of some 2000 micro and small-scale enterprises (MSEs) in Kenya. We analyze the financing behavior of these enterprises within the framework of a heterodox model of debt-equity and gearing decisions. We also study determinants of the success rate of loan applications. Our results emphasize three major findings. First, MSEs in Kenya obtain debt from a wide variety of sources. Second, debt-equity and gearing decisions by MSEs and their success rates in loan applications can all be understood by relatively simple models which include a mixture of conventional and heterodox variables. Third, and in particular, measures of the tangibility of the owner's assets, and the owner's education and training have a significant positive impact on the probability of borrowing and of the gearing level. These findings have important policy implications for policy makers and entrepreneurs of MSEs in Kenya.

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How do small firms in developing countries raise capital? Evidence from a large-scale survey of Kenyan micro and small scale enterprises

Issues of finance and small and medium-sized enterprises (SMEs) in developing countries have dominated the research agenda at various policy levels. However, very little empirical analysis, that is, hypothesis testing has been carried out to ascertain the relationship between finance and enterprise performance. Although a few studies have attempted to examine this relationship, yet there remain large gaps in our knowledge concerning the relationship between finance and SME development. This paper attempts to fill this gap by providing information on the relationship between finance and enterprise growth in Ghana.

Financing Small and Medium Enterprises (SMEs) in Ghana

This paper investigates the factors affecting the access of rural individual and group-based households to formal credit in the Mekong Delta (MD), Vietnam. Poverty levels in the Mekong Delta have reduced significantly over the last decades, but in the rural areas they remain significant. If it is assumed that access to credit is a vehicle for poverty alleviation, it is necessary to assess how households decide on borrowing. This paper identifies the determinants of the decision to borrow and of the amount that is borrowed by using the double hurdle model and Heckman selection model. Data used in this paper was obtained from a survey of 325 rural households, conducted between May and October 2009. The results indicate that household’s capital endowments, marital status, family size, distance to the market center, and locations affect the probability to ask for and amount of credit.

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Determinants of household access to formal credit in the rural areas of the Mekong Delta, Vietnam

The greatest challenge to food security is low productivity emanating from slow growth in the agricultural sector and one of the reasons for this is little or no access to financial resources by producers. Credit is one of the empowerment tools that have the potential to boost the productivity, increase food security and change the life of farmers from a situation of abject poverty to a more dignified life in the long run.  Using a household survey data from United State Agency for International Development’s feed the future initiative; this study employed the logistic regression model to investigate the factors influencing households’ demand for  agricultural credit placing much emphasis on membership to organization. A total sample size of 2,330 farm households selected from Northern Ghana was used.  The results of the logistic regression model revealed significant and positive variables such as age, education, group membership and source of credit. We therefore call on stakeholders to encourage formation of cooperative groups to enable farmers pull resources together or streamline loan application procedures, intensify education of farmers on loan procedures and promote flexibility in types of collateral demanded by financial institutions in order to enhance access.

	 

	Key words: Credit access, farmers, food security, Ghana, logit model.

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Factors influencing agricultural credit demand in Northern Ghana

This discussion paper is released under IPAR's research and policy activities in the Real Sector. The interpretations, views, and conclusions are entirely those of the authors and should not be attributed to the Institute or its affiliated organizations. IPAR Discussion Papers Series disseminates results and reflections from ongoing policy analysis and research activities at the Institute. There are four key programs in the Institute: Macroeconomics, Real Sector (Agriculture and Industry), Social Sector (Education and Health) and Governance and Development. The main objective of the discussion paper is to make the results available quickly so as to encourage discussions, receive suggestions for revisions, and prompt application of the analyses and results they contain. A summary of the key findings is also available in the Policy Brief Series. The papers represent preliminary or ongoing work.

J Omiti

Papers

Institutional Impediments To Access To Credit By Micro And Small Scale Enterprises In Kenya