Background information on access of capital to smes in tanzania

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5 reasons why SMEs don't get access to financing

Further, training institutions should continue educating SMEs on relevant aspect that are of important to lenders and lastly, the Government should consider providing guarantee to SMEs sectors that are perceived as too risky by Banks just like the ongoing initiatives in the agriculture sector.

Suggested Citation: Suggested Citation. Subscribe to this fee journal for more curated articles on this topic. We use cookies to help provide and enhance our service and tailor content. By continuing, you agree to the use of cookies. To learn more, visit our Cookies page. This page was processed by aws-apollo4 in 0. Despite the growing importance of SMEs in Zimbabwe and the worldwide acknowledgement of SME contribution to economic activities, few are participating in the buying and selling of goods in global markets Bhalla et al.

Pinho and Martins also echoed the same sentiments and pointed out that SMEs that engage in selling and buying of goods at a global stage stand to benefit in numerous ways, although only a few seem to exploit such opportunities. This trend is more pronounced in emerging economies and often exhibited by SMEs.

Milanzi argued that evidence suggests that a few SMEs are taking part in the selling and buying of goods and services at a global stage, especially SMEs from sub-Saharan Africa. Among those SMEs who buy and sell goods at a global stage, a smaller portion of their output finds its way to the global market Chingwaru Karedza and Govender cited Damoah who argued that theoretical frameworks regarding SME exporting behaviour and export performance for developed or Western nations are readily available.

The Ocean of Contradictions…

In contrast, literature on the same subject from African countries is scarce. It is therefore the goal of this study to contribute to literature through investigating how access to finance impacts the export behaviour of SMEs in Harare, Zimbabwe. The study also investigates whether access to finance has an impact on SME performance. In addition, the impact of firm performance on SME export behaviour is examined.

The next section reviews literature on the constructs of the study leading to hypotheses formulation. Thereafter, the study further reviews the literature justifying why the study focused on SMEs in Zimbabwe. This is performed by focusing on four aspects.

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Later sections focus on the research objectives, methodology, results, implications to theory and practice. The last section provides the conclusion of the study. Economic literature has recently emphasised the strong impact of access to finance on entity decisions to engage in export activities Chaney ; Manova Chingwaru and Jakata argued that accessing foreign markets is associated with large additional fixed and sunk costs, related to information gathering on foreign markets, establishing a reliable distribution system, adapting products to foreign tastes and preferences as well as environment.

In addition, variable costs in foreign markets are high relative to the domestic market and these include shipping and insurance as well as other trade barriers. Saddening to note is the fact that SMEs continue to struggle to meet these costs because of limited access to finance.

In keeping with the foregoing, Bernard, Stabilito and Yoo argued that inadequate access to financial services is one of the main constraints facing entities in their bid to enter the export market. Beck and Demirguc-Kunt also echoed the same sentiments, stating that SMEs are financially more constrained than large firms and are less likely to have access to formal finance long-term loans. International trade across the world suffered a huge collapse during this period.

Fund Management | SME Impact Fund

Contessi and De Nicola stated that the volume of exports fell by a staggering This unexpected and costly decline in global trade resulted in vast research into the causes and implications of such a decline. The global financial crisis affected the financial sector of many countries and Zimbabwe was not spared.

The collapse of some major banks in Zimbabwe, coupled with the liquidity crunch resulting from the use of hard currency, affected SME ability to access finance in order to engage in export-oriented productive activities. On this subject, Sanderson concurred with Chipangura and Kaseke that from the year , there was an economic downturn in Zimbabwe, forcing companies to close down or downsize their operations. Many foreign companies left the country for stable economies such as South Africa.

This new reality saw many Zimbabweans jobless, leading to an increase in new venture start-ups in the form of small businesses for survival purposes. Through proper financial support and export training, SMEs have the capacity to lift the economy of Zimbabwe and help create the much needed jobs to deal with high levels of poverty and unemployment. Sanderson further stated that to support SME, provisions were made in the Zim-Asset, the Zimbabwean economic blueprint, in which SMEs and co-operatives were scheduled to receive funding and start-up capital.

The next section reviews the literature on the constructs of the study leading to the formulation of hypotheses. After this section, research objectives are presented, and the methodology, results, implications to theory and practice are discussed. Last, the conclusion is also presented. The availability of finance is critical to SMEs. Milanzi revealed that limited access to finance significantly affected the export behaviour of Tanzanian SMEs.

Bellone et al. In addition, entities with better financial health enjoyed a short decision-making period regarding serving foreign markets as opposed to those with poor financial health. The findings by Bellone et al. Ughetto provided evidence, indicating that SMEs struggle to access external finance targeted for innovation and export development purposes. Because of the uncertainty and risk mix, SMEs find it difficult to present sound business plans that are export oriented and, in the process, they scare away potential funders and this increases the loan application refusal rates Riding et al.

In dealing with global markets, there is high commercial risk as opposed to local markets. In that regard, Bellone et al.

Current Status Of SME Sector In Tanzania

This brings forward the argument that exporting activities can only be pursued by entities that are financially healthy with the capacity to pay for high upfront or sunk entry costs. Exporting entities have to incur large sunk entry costs to establish themselves in the global market. Thus, entities who cannot afford to pay for sunk entry costs may not have the privilege to market their offering in the global market Chaney This notion is well supported by theory, for example the new-new trade theory. According to the new-new trade theory, the significant trade obstacles faced by entities are in the form of fixed costs that have to be addressed prior to any meaningful trade activities taking place.

A study by Moini provided evidence where non-exporting entities in the USA unanimously singled out high upfront costs as the major factor deterring them from pursuing global markets. First, in principle, entities participating in global markets should be enjoying stable cash flows as opposed to non-exporters. This is because exporters are leveraged against demand-side shocks, given that global markets are imperfectly correlated. Entities with exporting capabilities send the message to local funders as well as international funders that they are the best at what they do.

As a result, funders both locally and internationally should at least view exporting as another uncostly method of evaluating the profitability potential of an investment. According to Tornell and Westermann , foreign exchange revenues represent a strong collateral security to global investors.

Acta Commercii

Given the above discussion, the following hypothesis was formulated:. In order for SMEs to finance their daily production activities and perform well, a healthy financial position is critical, more importantly, a significant positive networking capital current assets minus current liabilities position Bhunia Before production activities begin, SMEs need finance for start-up purposes, investing in capital and undertaking research and development activities, among others.

After being fully established, finance is required to finance daily activities, for example the purchase of raw materials and payment of current liabilities as they mature. To finance these critical activities, various sources of finance exist, which therefore makes their accessibility more critical to SMEs, as they determine their performance and continued existence. In accordance with the finance theory, only the permanent portion of working capital should be financed through long-term debt Gitman In situations where a negative net working capital exists, short-term sources of funding could as well be used to finance non-current assets; by so doing, the aggressive approach will have been adopted Bhattacharya Research provides evidence that SMEs mostly prefer the use of informal sources of finance Padachi et al.

This is a strategy which the majority of SMEs implement solely to maintain firm ownership. Firm performance is directly dependent on access to long-term and short-term performance. In support of the previous statement, Baliamoune-Lutz and Lutz recently surveyed 25 female-owned firms only in the Middle East and Africa. The results indicate that inadequate access to finance significantly contributed to poor entity performance. Zindiye concurred and pointed out that because of inadequate access to finance, SMEs are without the capacity to buy quality raw materials to produce quality goods and services that adhere to international standards, expected of firms competing in the global market.

In other words, owing to poor access to finance, SMEs find it challenging to live up to their performance outcomes Karedza et al. They further provided evidence that in European countries where weak credit rights were found, abundant financial resources had a positive effect on entity performance. Literature reviewed in this section suggests that access to and availability of finance plays a pivotal role in the performance of SMEs.

In light of this discussion, the following hypothesis was formulated:. Katsikeas and Skarmeas pointed out that exporting is critical to SMEs as it can enhance the skills and capabilities of owner or managers. Naude and Chiweshe concurred and pointed out that in the 21st century, firms are expected to compete in international markets given that more markets have opened up, creating a potential increase in revenue.

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Thus, by pursuing global markets, SMEs stand to benefit and learn very much from competition Tambunan Research by Claver et al. As SMEs attempt to avoid losing potential sales to competitors, owing to empty shelves, they are compelled to invest in technology for effective and efficient utilisation of resources through productive innovative means. Eliasson, Hansson and Lindvert supported the previous notion. Relying on evidence from 14 Swedish SMEs, where significant investment in physical capital was pursued for innovation purposes, Eliasson et al. Conversely, the self-selection hypothesis points out that SMEs who perform well are the ones that are most likely to pursue international markets Wagner This thinking comes into perspective given that there are fixed costs or barriers to internationalisation.