Examining the Determinants of SMEs Credit Access from Commercial Banks in Tanzania

Abstract

The economic development in most African countries is greatly supported by Small and Medium Enterprises (SMEs) due to insufficient large capital to start up giant factories.  This makes it necessary to focus on how SMEs finance their activities. Extensive literature provides evidence that SMEs find it difficult to meet credit access requirement by Commercial. In view of this, the study aims to examine the determinants of credit access in Tanzania Commercial Banks (TCB) and SMEs access to the credit.The study adopted a survey based approach by choosing some commercial banks in Tanzania and randomly involving SMEs firms in the capital of the Tanzania. Using Multiple Regression Analysis, the study reveals that firm characteristics, legal documents, financial characteristics and SME owner have positive relationship with bank credit access. Most SMEs are denied credit from commercial banks due to their ineffective to provide the require materials such as financial statements, improper documentations and registration certificates, owners level of education which affects his or her understanding on credit lending and others. However, firms’ owner characteristics (education, age and experience) narrowly affect credit access. In addition, firm characteristics were perfectly significant with credit access.The paper suggested that priority sector lending and access to credit must be introduced in Tanzania. Also, policy maker should establish a credit guarantee scheme provides third-party credit risk mitigation to lenders. This will help to overcome the challenge of collateral requirement and others that make lending to SMEs risky.

Keywords: Small and Medium Enterprises, credit determinants, commercial banks

DOI: 10.7176/EJBM/13-4-01

Publication date: February 28^th 2021