Are Interest Rates a Deterrent to SMEs Growth in Mozambique?

Abstract

All over the world, limited financial support is genuinely cited as a major hindrance to SMEs sustainability and growth. One of the main factors linked to the problem of financial support is high interest rates that are associated with the provision of loans by financial institutions. The prevailing legend is that high interest rates on loans are the major factor restraining the creation of start-up SMEs and sustainability of ongoing SMEs. The objective of this paper is to show that although high interest rates make loans to SMEs more expensive, nevertheless high interest rates on their own are not the major impediment factor affecting SMEs growth. The study involved 485 sampled SMEs from a population of SMEs in Maputo city representing Mozambique as a whole. Maputo, the capital of Mozambique was chosen as the nucleus of the study, because Maputo is the main centre of economic activities of the country. The sample was chosen using simple random sampling strategy. A face to face interview was conducted using structured, questionnaires to collect the primary data.  The study found that most of the SMEs that benefited from financial support did not find high interest rates as a major stumbling block; rather the insistence on collateral and the entire support structure system existing in the country was to blame for the slow development of SMEs and their sustainability. It was recommended that more support from different sectors of the economy be channeled to SMEs in a well-organized and proactive manner.

Keywords: Financial institutions, Government organizations, Interest rates, Small and Medium Enterprises (SMEs)