Analysis of access to finance and its determinants among small scale business enterprises In Rubaga Division- Kampala District

Abstract

Access to finance from financial institutions is essential for the profitability and sustainable growth of the small and medium enterprises sector (SMEs). The objectives of the study were to examine the level of access to finance using frequency of acquisition approach and operation of loan account among SMEs, and examine the determinants of access to finance considering interest rate, transaction costs and financial transparency. The study used analytical design by adopting both qualitative and quantitative approaches. The cross-sectional study design was used because information about level of access to fiancé and its determinants was collected from a sample of population at a point of time over across-section of many people. To achieve those objectives, a survey was conducted based on a population of seventy (70) categorized into forty-five (45) from SMEs and twenty-five (25) from lending institutions that were considered appropriate to the study, classified as commercial banks, trade credit suppliers, MFIs and SACCOs were used for the purposes of this study. The response rate was 91 percent from the SMEs and 96 percent from the financiers. Data collected was analysed using descriptive statistics and presented in table of frequencies. The findings revealed that SMEs access finances especially from friends and family, SACCOs and commercial banks measured in terms of frequency of acquisition and operation of loan accounts. The results also indicated that interest rates, transaction costs and financial transparency greatly influence the extent to which SMEs access fiancé from finance institutions. Correspondingly, in view of the above observations and the realization that financial needs for small businesses change as they grow and gain experience, the study recommends that financiers need to organize regular and comprehensive financial literacy programmes that target the growth-specific operations of SMEs. Financial literacy programmes about the benefits of asset financing, regular book-keeping and financial statement analysis, among others, would be beneficial in that regard. These programmes should in principle enhance their ability to access debt finance and apply it suitably. The most important implication of this research to policy makers and academicians is the methodology of operationalizing access to debt finance using frequency of acquisition and operation of loan accounts which helps policy makers to estimate the financing gap among SMEs in Rubaga division.