Credit accessibility and viability of Small and Medium Enterprises in South Africa
Keywords:
Scarcity of funding, credit accessibility, business viabilityAbstract
Small and medium businesses (SMEs) play a significant role in supporting economic expansion in economies worldwide. However, lack of accessibility to credit funding has been a major stumbling block in transitioning these businesses from just profitable to ensuring growth and long-term viability. The aim of this research paper was to explore the correlation between access to credit funding obtained and the impact it has on the viability of SMEs. The objectives of the study were to: Investigate the scarcity of accessing credit; Analyze the relationship between access to credit and its impact on the viability of SMEs. The methodology included a quantitative research approach. The methodology included a quantitative research approach. The research design was descriptive, and cross-sectional. The study targeted 105 SMEs operating in KwaZulu-Natal, South Africa. The findings revealed that 75.73% SMEs who secure finance to fund their business have observed a positive correlation to the success and viability of their business. 81% of SMEs indicated that a shortage of collateral/security, 52% revealed a dearth of a statement of cash flows, and an absence of owners’ equity impede them from obtaining financing. Also, a study revealed a positive correlation between Access to Credit and viability of Small and Medium Enterprises (r=0.250, p<0.0005). The study recommended that banks and government authorities should increase their assistance to aid SMEs with financial, operational, business, and marketing assistance through a variety of regulatory methods. These may include the supply of collateral when establishing and supporting various credit programs for SMEs. The information asymmetry problem can be alleviated by improving legislation, improving entrepreneurial skills and education for SMEs.
References
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24. Martinez-Cillero, M., Lawless, M., & O'Toole, C. (2021). SME investment determinants and financing constraints: A stochastic frontier approach (No. 699). ESRI Working Paper.
25. Motta, V. (2020). Lack of access to external finance and SME labor productivity: does project quality matter?. Small Business Economics, 54(1), 119-134.
26. Moulick, R. K. (2020). Determinants predicting credit accessibility of SME: Evidence from Bangladesh. Journal of Internet Banking and Commerce, 25(3), 1-9.
27. Msomi, M. P., Ngibe, M., & Nyide, C. J. (2019). Factors influencing the adoption of management accounting practices (MAPs) by manufacturing small and medium enterprises (SMEs) in Durban, KwaZulu-Natal. International Journal of Entrepreneurship.
28. Msomi, T. S., Olarewaju, O. M., & Ngcobo, X. (2021). Sustaining South African small and medium-sized enterprises through monetary access and Literacy in the COVID-19 ERA. Folia Oeconomica Stetinensia, 21(2), 57-75.
29. Mueller, A., & Sensini, L. (2021). Determinants of Financing Decisions of SMEs: Evidence from Hotel Industry. International Journal of Business and Management, 16(3), 117-127.
30. Muturi, W., & Njeru, A. (2019). Effect of Equity Finance on Financial Performance of Small and Medium Enterprises in Kenya. International Journal of Business and Social Science, 10(5).
31. Mwenda, B. G. (2021). EFFECTS OF CREDIT ACCESSIBILITY ON THE PERFORMANCE OF MSE ENTERPRISES IN ISIOLO COUNTY (Doctoral dissertation, KeMU).
32. Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of financial economics, 13(2), 187-221.
33. Nizaeva, M., & Coşkun, A. (2018). Determinants of the financing obstacles faced by SMEs: An empirical study of emerging economies. Journal of Economic and Social Studies, 7(2), 81.
34. Nuñez Huerta, M. (2021). Financing Strategies for Small and Medium Enterprises in Mexico. (Doctor of Business Administration). Walden University, USA.
35. Olarewaju, O., & Msomi, T. (2021). Factors affecting small and medium enterprises’ financial sustainability in South Africa. African Journal of Inter/Multidisciplinary Studies, 3(1), 103-117.
36. Omondi, R. I., & Jagongo, A. (2018). Microfinance services and financial performance of small and medium enterprises of youth SMEs in Kisumu County, Kenya. International academic journal of economics and finance, 3(1), 24-43.
37. Ouma-Mugabe, J., Chan, K. Y., & Marais, H. C. (2021). A critical review of policy instruments for promoting innovation in manufacturing small and medium enterprises (SMEs) in South Africa. Entrepreneurship, Technology Commercialisation, and Innovation Policy in Africa, 237-258.
38. Peter, F., Adegbuyi, O., Olokundun, M., Peter, A. O., Amaihian, A. B., & Ibidunni, A. S. (2018). Government financial support and financial performance of SMEs. Academy of Strategic Management Journal, 17.
39. Rasheed, R., & Rahman, M. A. (2018). Influence of Awareness on SME’s Intention towards adoption of Islamic Finance in Pakistan. Review of Economics and Development Studies, 4(1), 51-59.
40. Rusu, V. D., & Roman, A. (2017). Economic Performance of the SME sector in CEE Countries: an Empirical Investigation. Acta Universitatis Danubius. Œconomica, 13(3).
41. Sanni, M., Oke, L. A., & Alayande, I. T. (2020). Bank Credit Accessibility and Performance of SMEs in Kwara State, Nigeria: a PLS-SEM Analysis. Copernican Journal of Finance & Accounting, 9(2), 45-86.
42. Sansa, N. A. (2019). A Critical Analysis of Effects of Loan Conditions on Accessibility to Loans by Small Businesses in Tanzania. Available at SSRN 3315124.
43. Ullah, B. (2020). Financial constraints, corruption, and SME growth in transition economies. The Quarterly Review of Economics and Finance, 75, 120-132.
44. Wellalage, N., & Locke, S. (2017). Access to credit by SMEs in South Asia: do women entrepreneurs face discrimination. Research in International Business and Finance, 41, 336-346.
45. Wulandary, A., Jumariah, J., & Alfin, A. (2021). FAKTOR-FAKTOR YANG MEMPENGARUHI ORIENTASI KEWIRAUSAHAAN TERHADAP KINERJA USAHA. Jurnal Sains Agribisnis, 1(1), 47-55.
46. Zoppa, A., & McMahon, R. G. P. (2002). Pecking Order Theory And The Financial Structure Of Manufacturing SMEs From Australia’s Business Longitudinal Survey. Small Enterprise Research, 10(2), 23-41. doi:10.5172/ser.10.2.23
2. Adomako, S., Danso, A., & Ofori Damoah, J. (2016). The moderating influence of financial literacy on the relationship between access to finance and firm growth in Ghana. Venture Capital, 18(1), 43-61.
3. Asongu, S. A., Nwachukwu, J. C., & Tchamyou, V. S. (2016). Information asymmetry and financial development dynamics in Africa. Review of Development Finance, 6(2), 126-138.
4. Balogun, O. A. (2017). Investigating Credit Accessibility for Small and Medium Construction Enterprises in the Gauteng Province of South Africa. University of Johannesburg (South Africa).
5. Balogun, O. A., Agumba, J., & Ansary, N. (2018). The predicating determinants accessibility of credit small and medium enterprise in the construction industry in South Africa. In Creative Construction Conference 2018 (pp. 701-709). Budapest University of Technology and Economics.
6. Balogun, O., Agumba, J., & Ansary, N. (2018). Evaluating credit accessibility predictors among small and medium contractors in the South African construction industry. Acta Structilia, 25(2), 69-93.
7. Bongomin, G. O. C., Ntayi, J. M., Munene, J. C., & Malinga, C. A. (2017). The relationship between access to finance and growth of SMEs in developing economies: Financial literacy as a moderator. Review of International Business and strategy.
8. Boubakri, N., & Saffar, W. (2016). Culture and externally financed firm growth. Journal of Corporate Finance, 41, 502-520.
9. Bushe, B. (2019). The causes and impact of business failure among small to micro and medium enterprises in South Africa. Africa’s Public Service Delivery and Performance Review, 7(1). doi:10.4102/apsdpr.v7i1.210
10. Buyinza, F., Tibaingana, A., & Mutenyo, J. (2018). Factors affecting access to formal credit by micro and small enterprises in Uganda (No. 83). ICAE working paper series.
11. Cantele, S., & Zardini, A. (2018). Is sustainability a competitive advantage for small businesses? An empirical analysis of possible mediators in the sustainability–financial performance relationship. Journal of Cleaner Production, 182, 166-176.
12. Etemesi, E. M. (2017). Credit access from commercial banks and growth of small and micro enterprises in Nairobi central business district (Doctoral dissertation, United States International University-Africa).
13. Eyiah, K. A., Kheni, N. A., & Acquah, R. (2018). SME financing constraints: evidence from the survey of construction firms in Ghana. Int J Small Medium Enterp Bus Sustain, 3(2), 23-47.
14. Fatoki, O. (2020). ETHICAL LEADERSHIP AND SUSTAINABLE PERFORMANCE OF SMALL AND MEDIUM ENTERPRISES IN SOUTH AFRICA. Journal of Global Business and Technology, 16(1), 62-79.
15. Flaminiano, J. P., & Francisco, J. P. (2021). Firm characteristics and credit constraints among SMEs in the Philippines. Small Business International Review, 5(1), e332.
16. Goldhausen, J. (2017). Access to finance and growth: Evidence from Dutch SMEs (Bachelor's thesis, University of Twente).
17. Hasanah, N., Indriani, S., Armeliza, D., & Muliasari, I. (2021). THE PERCEPTION OF SME ACTORS TO THE CAPITAL ACCESS IN THE FINANCIAL INSTITUTION. International Journal of Entrepreneurship, 25, 1-8.
18. Igwe, P. A., Ogundana, A. N. A. O. M., Egere, O. M., & Anigbo, J. A. (2018). Factors affecting the investment climate, SMEs productivity and entrepreneurship in Nigeria. European Journal of Sustainable Development, 7(1), 182-182.
19. Kinyua, L. W. (2015). Effects of environmental uncertainties in SMEs: A case of Unga farm care (EA) Ltd distributor (Doctoral dissertation, United States International University-Africa).
20. Kirikiru, J. M. (2021). Selected Financial Factors Influencing Financial Performance Of Small And Medium Enterprises In Kenya (Doctoral dissertation, Egerton University).
21. Leboea, S. T. (2017). The factors influencing SME failure in South Africa (Master's thesis, University of Cape Town).
22. Leland, H. E., & Pyle, D. H. (1977). Informational asymmetries, financial structure, and financial intermediation. The journal of Finance, 32(2), 371-387.
23. Liang, L. W., Huang, B. Y., Liao, C. F., & Gao, Y. T. (2017). The impact of SMEs’ lending and credit guarantee on bank efficiency in South Korea. Review of development finance, 7(2), 134-141.
24. Martinez-Cillero, M., Lawless, M., & O'Toole, C. (2021). SME investment determinants and financing constraints: A stochastic frontier approach (No. 699). ESRI Working Paper.
25. Motta, V. (2020). Lack of access to external finance and SME labor productivity: does project quality matter?. Small Business Economics, 54(1), 119-134.
26. Moulick, R. K. (2020). Determinants predicting credit accessibility of SME: Evidence from Bangladesh. Journal of Internet Banking and Commerce, 25(3), 1-9.
27. Msomi, M. P., Ngibe, M., & Nyide, C. J. (2019). Factors influencing the adoption of management accounting practices (MAPs) by manufacturing small and medium enterprises (SMEs) in Durban, KwaZulu-Natal. International Journal of Entrepreneurship.
28. Msomi, T. S., Olarewaju, O. M., & Ngcobo, X. (2021). Sustaining South African small and medium-sized enterprises through monetary access and Literacy in the COVID-19 ERA. Folia Oeconomica Stetinensia, 21(2), 57-75.
29. Mueller, A., & Sensini, L. (2021). Determinants of Financing Decisions of SMEs: Evidence from Hotel Industry. International Journal of Business and Management, 16(3), 117-127.
30. Muturi, W., & Njeru, A. (2019). Effect of Equity Finance on Financial Performance of Small and Medium Enterprises in Kenya. International Journal of Business and Social Science, 10(5).
31. Mwenda, B. G. (2021). EFFECTS OF CREDIT ACCESSIBILITY ON THE PERFORMANCE OF MSE ENTERPRISES IN ISIOLO COUNTY (Doctoral dissertation, KeMU).
32. Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of financial economics, 13(2), 187-221.
33. Nizaeva, M., & Coşkun, A. (2018). Determinants of the financing obstacles faced by SMEs: An empirical study of emerging economies. Journal of Economic and Social Studies, 7(2), 81.
34. Nuñez Huerta, M. (2021). Financing Strategies for Small and Medium Enterprises in Mexico. (Doctor of Business Administration). Walden University, USA.
35. Olarewaju, O., & Msomi, T. (2021). Factors affecting small and medium enterprises’ financial sustainability in South Africa. African Journal of Inter/Multidisciplinary Studies, 3(1), 103-117.
36. Omondi, R. I., & Jagongo, A. (2018). Microfinance services and financial performance of small and medium enterprises of youth SMEs in Kisumu County, Kenya. International academic journal of economics and finance, 3(1), 24-43.
37. Ouma-Mugabe, J., Chan, K. Y., & Marais, H. C. (2021). A critical review of policy instruments for promoting innovation in manufacturing small and medium enterprises (SMEs) in South Africa. Entrepreneurship, Technology Commercialisation, and Innovation Policy in Africa, 237-258.
38. Peter, F., Adegbuyi, O., Olokundun, M., Peter, A. O., Amaihian, A. B., & Ibidunni, A. S. (2018). Government financial support and financial performance of SMEs. Academy of Strategic Management Journal, 17.
39. Rasheed, R., & Rahman, M. A. (2018). Influence of Awareness on SME’s Intention towards adoption of Islamic Finance in Pakistan. Review of Economics and Development Studies, 4(1), 51-59.
40. Rusu, V. D., & Roman, A. (2017). Economic Performance of the SME sector in CEE Countries: an Empirical Investigation. Acta Universitatis Danubius. Œconomica, 13(3).
41. Sanni, M., Oke, L. A., & Alayande, I. T. (2020). Bank Credit Accessibility and Performance of SMEs in Kwara State, Nigeria: a PLS-SEM Analysis. Copernican Journal of Finance & Accounting, 9(2), 45-86.
42. Sansa, N. A. (2019). A Critical Analysis of Effects of Loan Conditions on Accessibility to Loans by Small Businesses in Tanzania. Available at SSRN 3315124.
43. Ullah, B. (2020). Financial constraints, corruption, and SME growth in transition economies. The Quarterly Review of Economics and Finance, 75, 120-132.
44. Wellalage, N., & Locke, S. (2017). Access to credit by SMEs in South Asia: do women entrepreneurs face discrimination. Research in International Business and Finance, 41, 336-346.
45. Wulandary, A., Jumariah, J., & Alfin, A. (2021). FAKTOR-FAKTOR YANG MEMPENGARUHI ORIENTASI KEWIRAUSAHAAN TERHADAP KINERJA USAHA. Jurnal Sains Agribisnis, 1(1), 47-55.
46. Zoppa, A., & McMahon, R. G. P. (2002). Pecking Order Theory And The Financial Structure Of Manufacturing SMEs From Australia’s Business Longitudinal Survey. Small Enterprise Research, 10(2), 23-41. doi:10.5172/ser.10.2.23
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2022-02-09
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MSOMI, T. S., & Maharaj, A. . (2022). Credit accessibility and viability of Small and Medium Enterprises in South Africa: Array. The Journal of Accounting and Management, 12(1). Retrieved from https://dj.univ-danubius.ro/index.php/JAM/article/view/1550
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Copyright (c) 2022 Thabiso Sthembiso MSOMI, Avika Maharaj
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