FACTORS AFFECTING ACCESS TO FINANCE AMONG SMALL AND

MEDIUM ENTERPRISES IN MPWAPWA DISTRICT, DODOMA REGION

By
Eva Edward Gideon

A Dissertation Submitted In Partial Fulfilment of the requirements for Award of

the Degree of Master of Accounting and Finance of Mzumbe (Msc A&F) of
Mzumbe University
2019

i
 CERTIFICATION
We, the undersigned, certify that we have read and hereby recommend for acceptance by
the Mzumbe University, a research dissertation entitled: “factors affecting access to
finance among small and medium enterprises in Mpwapwa district, Dodoma
region” in fulfillment of the requirements for the award of degree of Master of Science
in Accounting and Finance of Mzumbe University.
Major Supervisor:

Name: ___________________________
Signature _______________
Date: ____ / ____ / 2019

Internal Examiner:

Name: ___________________________

Signature: ______________
Date: ____ / ____ / 2019

Accepted for the Board of ........................

Signature____________________________________________

DEAN/DIRECTOR, FACULTY/DIRECTORATE/SCHOOL/BOARD

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 DECLARATION
I, Eva Edward Gideon, do hereby declare that, this dissertation is my own original work
and that it has not been submitted for a similar degree in any other University.

………………….………………………….
Signature

…………………………………………
Date

ii
 COPYRIGHT
This research dissertation is a copyright material protected under the Berne Convention,
the Copyright Act 1999 and other international and national enactments, in that behalf,
on intellectual property. It may not be reproduced by any means in full or in part, except
for short extracts in fair dealings, for research or private study, critical scholarly review
or discourse with an acknowledgement, without the written permission of Mzumbe
University, on behalf of the author.

©
Eva Edward Gideon, 2018
All rights reserved.

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 DEDICATION
This dissertation work is dedicated to the Almighty God, who gave me all the strength
and courage. I also dedicate this work to my family for their moral and encouragement
in the study period.

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 ACKNOWLEDGEMENTS
First and foremost, I would like to thank Almighty God for giving me this opportunity
and enabling me in every step of my studies at Mzumbe University, without His
graciousness and help my endeavour would be unsuccessful.

I also extend my heartfelt gratitude to Dr. Nsubili Isaga, my supervisor, for her
meticulous academic advice. Nonetheless, in shaping and developing this thesis, her
insightful observations, challenges and motivation were important. I applaud and thank
her for her tireless expert opinions and specific feedback from the Proposal Stage for
reporting completion during this study. I am indebted to her profoundly.

I gratefully appreciate the contribution of knowledge by the rest of my course lecturers,

for their support. I would also like to extend my deepest appreciation to my fellow
students for their cooperation throughout my studies at Mzumbe University.

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 ABBREVIATION AND ACRONYMS

BFIA Banking Financial Institution Act

BEST Business Environment Strengthening in Tanzania

BOT Bank of Tanzania

CBO Community Based organization

FBO Faith-based Organizations

CB Commercial Bank.

EGM Enterprises growth market

FIs Financial Institutions

GDP Gross Domestic Product

IMF International Monetary Fund

MFI Microfinance Institution

MSME Micro, Small and Medium Enterprises

NBS National Bureau of Statistics

NGOs Non-Governmental Organization

NMB National Microfinance Bank

SACCOs Savings and Credit Cooperatives Societies

SBP State Bank of Pakistan

SMEs Small and Medium Enterprises

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TIB Tanzania Investment Bank

TPB Tanzania Postal bank

URT United Republic of Tanzania

VICOBA Village Community Bank

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 ABSTRACT
The study was intended to assess the factors affecting access to finance among small and
medium enterprises in Mpwapwa District. Specifically the study intended to find out the
out whether the demand for collateral affects access to credit finance by SME’s in
Mpwapwa District, to examine the effect of interest charged on access to credit finance
by SME’s in Mpwapwa district and firm characteristics of SME’s on access to financial.
The study used questionnaires and interview questions to collect information from a
number of 132 respondents who were selected through random and purposive techniques
depending on the types of information needed. The study revealed that respondents were
aware on the availability of financial services provided in Mpwapwa district. The
findings suggest that demand for collateral, high interest rate and firm characteristics
affect SMEs acces to credit finance. The study revealed limitations related to unreliable
access to financial services among people in Mpwapwa district including the low
education on financial management, the lack of awareness on the existence of financial
services, the constraints related to opening bank accounts, hard loans conditions and the
remained the higher charges of transaction. The study revealed that there was little
contribution of financial institutions to the reduction of poverty among people of
Mpwapwa District.

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 TABLE OF CONTENTS
CERTIFICATION..................................................................................................................... i  
DECLARATION .....................................................................................................................ii  
COPYRIGHT ......................................................................................................................... iii  
DEDICATION ........................................................................................................................ iv  
ACKNOWLEDGEMENTS ..................................................................................................... v  
LIST OF ABBREVIATION AND ACRONYMS .................................................................. vi  
ABSTRACT ......................................................................................................................... viii  
TABLE OF CONTENTS ........................................................................................................ ix  
LIST OF TABLE ................................................................................................................. xiii  
LIST OF FIGURE ................................................................................................................. xiv  
Figure 2.1 Conceptual framework   35 ................................................................................. xiv  
CHAPTER ONE ...................................................................................................................... 1  
INTRODUCTION.................................................................................................................... 1  
1.0 Introduction ........................................................................................................................ 1  
1.1 Background to the Problem ................................................................................................ 1  
1.2 Statement of the Problem ................................................................................................... 2  
1.3 Objectives of the study ....................................................................................................... 3  
1.3.1 General Objective............................................................................................................ 3  
1.3.2Specific Objectives........................................................................................................... 3  
1.4 Research Questions ............................................................................................................ 4  
1.5 Significance of the Study ................................................................................................... 4  
1.6 Scope of the Study ............................................................................................................. 5  
1.6.1Geographical scope .......................................................................................................... 5  
1.6.2 Content scope .................................................................................................................. 5  
1.6.3 Time scope ...................................................................................................................... 5  
1.7 Limitations of the study ..................................................................................................... 5  
CHAPTER TWO ..................................................................................................................... 7  
LITERATURE REVIEW......................................................................................................... 7  

ix
2.1Introduction ......................................................................................................................... 7  
2.1.1 Definitions of Key Concepts ........................................................................................... 7  
2.2 Theoretical Literature ......................................................................................................... 8  
2.2.1.1Macroeconomic Evidence ............................................................................................. 8  
2.2.1.2 Microeconomic Evidence............................................................................................. 9  
2.2.1.3 The Role of Financial Institutions in the Economy ............................................... 10  
2.2.1.4 Significance of the financial institutions in Tanzania’s Economy ............................. 11  
2.2.1.5 Problems of financial sector in Tanzania ................................................................... 12  
2.2.1.6 Household Resource................................................................................................... 13  
2.2.1.7 Household Activities .................................................................................................. 13  
2.2.1.8 View of Commercial Banks on Micro enterprises ..................................................... 14  
2.2.1.9 Interest rate on credit .................................................................................................. 15  
2.2.1.10 Demand for Collaterals by financial institutions ..................................................... 15  
2.3 Empirical Literature Review ............................................................................................ 16  
2.3.1 Latin America and Asia ................................................................................................ 16  
2.3.2 Europe ........................................................................................................................... 17  
2.3.3 Africa....................................................................................................................... 17  
2.3.4 Empirical literature from Tanzania ............................................................................... 18  
2.4.1.1 The Role of Financial Institutions in financing.......................................................... 19  
2. 4 Gap and Conceptual Framework of the Study ................................................................ 23  
2.5 Conceptual framework ..................................................................................................... 24  
2.6 Conclusion Remarks ........................................................................................................ 24  
CHAPTER THREE ................................................................................................................ 26  
RESEARCH METHODOLOGY ........................................................................................... 26  
3.0 Introduction ...................................................................................................................... 26  
3.1 Research design ................................................................................................................ 26  
3.2 Research population ......................................................................................................... 27  
3.3 Sample Size ...................................................................................................................... 27  
3.5 Sampling Procedures ........................................................................................................ 27  

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3.6 Research instrument ......................................................................................................... 27  
3.6.1 Questionnaires ............................................................................................................... 27  
3.7 Validity and Reliability of the Instrument ....................................................................... 28  
3.8 Data gathering procedure ................................................................................................. 28  
3.9 Data Analysis ................................................................................................................... 29  
3.10 Ethical considerations .................................................................................................... 29  
CHAPTER FOUR .................................................................................................................. 31  
DATA ANALYSIS, PRESENTATION AND DISCUSSION .............................................. 31  
4.1 Introduction ...................................................................................................................... 31  
4.1.1Response rate ................................................................................................................. 31  
4.2 Demographical Characteristics of the Respondents ......................................................... 32  
4.2.1 Gender of respondents................................................................................................... 32  
4.2.2 Age of Respondents ...................................................................................................... 33  
4.2.3 Level of Education of Respondents .............................................................................. 33  
4.2.4 Distribution of Business by Age ................................................................................... 34  
4.4 Demands for Collateral by Financial Institution .............................................................. 36  
4.4.1 Types of Collateral Owned by SME’s .......................................................................... 37  
4.4.2 SME’s Perceptions on the Collateral requirement by the Financial Institution ............ 37  
4.5 The Influence of Interest Rate in accessing Credit .......................................................... 39  
4.5.1 The Influence of Interest Rate in making decision of taking loans on SME’s ............. 39  
4.5.2 The Length of Credit Repayment Period ...................................................................... 39  
4.5.3 SME’s Perception on Interest Charged ......................................................................... 40  
charged .................................................................................................................................. 40  
4.6 Discussion of Findings ..................................................................................................... 41  
CHAPTER FIVE .................................................................................................................... 46  
CONCLUSION AND RECOMMENDATIONS ................................................................... 46  
5.0 Introduction ...................................................................................................................... 46  
5.1 Summary .......................................................................................................................... 46  
5.2 Conclusion........................................................................................................................ 47  

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5.3Recommendations ............................................................................................................. 47  
5.3.1 Government Interventions ............................................................................................. 47  
5.3.2 Small and Medium Enterprises ..................................................................................... 49  
5.3.3 Financial institutions ..................................................................................................... 49  
5.4 Suggested Areas for Further Research ............................................................................. 50  
REFERENCES ....................................................................................................................... 51  
APPENDIX A: Introduction letter ......................................................................................... 57  
APPENDIXII: Questionnaire for Financial Services Beneficiaries....................................... 58  

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 LIST OF TABLE
Table 4.1: Response Rate ................................................................................................. 32  
Table 4.2: Respondents Gender ....................................................................................... 32  
Table 4.3: Respondents Age ............................................................................................ 33  
Table 4.4: Respondents education level .......................................................................... 34  
Table 4.5: Distribution of Business by Age ..................................................................... 35  
Table 4.6: Firms Characteristics on the SME’s access to finance ................................... 36  
Table 4.7: Demand for Collateral by Financial Institutions ............................................. 36  
Table 4.8: Types of Collateral Owned by SME’s ............................................................ 37  
Table 4.9: SME’s Perception of Collateral demanded by Financial Institutions ............. 38  
Table 4.10: The influence of Interest Rate in accessing Credit facility ........................... 39  
Table 4.11 Repayment Period of the Loan....................................................................... 40  
Table 4.12: Small and Medium Entrepreneurs (SME’s) perception on the Interest
charged ............................................................................................................................. 40  

xiii
 LIST OF FIGURE
Figure 2.1 Conceptual framework.................................................................................... 24  

xiv
 CHAPTER ONE
INTRODUCTION

1.0 Introduction
This chapter includes the context of the problem, the problem statement, research goals
with general and specific goals, research questions, and study importance, study scope,
as well as the meanings of key terms.

1.1 Background to the Problem

Banking and financial services provided by financial institutions are important to the
low income and poor households. In relation to economic development of the country
and their customers. Financial institutions perform three primary functions thus
provision of loans, collection of savings from its customers and provision of non-
financial and financial advice to its customers. Despite the financial institutions act as an
intermediary between the lender and the borrower, in certain circumstances private
institutions and government might also additionally supply monetary assistance to banks
to facilitate the smooth provision of banking and financial services (Lwoga, 2009)

SMEs in developing countries play a major role because around 90% of all non-
agricultural firms are a major source of employment and contribute significantly to
domestic earnings and exports (IFC, 2010). Development of small and medium-sized
enterprises emerges as a key tool in efforts to reduce poverty, while globalization and
trade transformation has created new opportunities and challenges for small and
medium-sized enterprises. Many SMEs were less able to cope with the situation and
were often under pressure from cheaper imports and international pressures on domestic
markets (OECD 2004).

In rural areas formal financial services are provided by rural and regional unit banks,
licensed commercial banks, NGOs which provide micro credit financing mainly
supported by international donors’ and savings and credit cooperative societies (Cooper

1
and Schindler, 2001). Global development advisors from Dalberg (2011) say that access
to finance is needed to create an economic environment that allows firms to grow and
thrive; SMEs in developing countries face significant financial barriers. International
Finance Corporation (2010) provides statistics on the financial gap, considering that 65
to 72 percent of all SMEs (240-315 million) have no access to credit in the emerging
market.

Adequate economic resources are needed for business development (Tustin, 2003;
Czinkota and Ronkainen, 2003). It enables SMEs to access the requisite skills and raw
materials to put business ideas into practice, be successful, thrive and expand under
adverse conditions. Capital shortages and limited access to finance are a variable that
inhibits entrepreneurship and adversely affects growth because they impede
development from the timely use of assets (Nasser et al, 2003; Rweyemamu and Venter,
2004).

Furthermore Oyen and Gedi, 2012 argued that 70 percent of SMEs in Tanzania did not
receive training before starting of the business; therefore, they have weak business
records and management skill, low level of business association 3 members that means
gaps in knowledge of services providers due to the lack of credit facilities make most of
SMEs reliance on their own saving, trade credit and relative or friend as sources of
finance and very limited to access external finance.

1.2 Statement of the Problem

The importance of small and medium-sized enterprises in economic development is well
recognized, SMEs are not doing well in many countries, particularly developing
countries (Kessy and Temu 2010). Lack of adequate funds to support activities and
expansion is one of the reasons for poor performance (Rweyemamu and Venter 2004).
Many SMEs have insufficient financing because they can not access bank loans (Nasser
et al 2003). Even those who have access to bank finance do not get enough funds as they
have demanded, so the custom of banks or financial institutions is called rationing bank

2
loans. Makes other companies to access loans in that field and others unable to obtain
loans at all. However, certain businesses that receive loans do not receive the same
amount of loans that they have sought.

In rural areas people are facing various challenges that could be solved by committed
financial institution. Rural SMEs are viewed as entities operating in an unorganized /
unregistered sector or as entities operating in a third / parallel economy; non-institutional
economy and black / underground market (Shuaib, 2004). This assumption made it
possible for small and medium-sized businesses to have very limited access to financial
services from established financial institutions to meet their needs for working and
investment capital. The latest changes have resulted to a large extent in the liberalization
of the financial sector to meet such challenges. This has resulted in a number of banks
being founded, including Micro Finance Bank (NMB), Women Bank, and Community
banks.

There has also been the liberalization of financial rates and the development of a stock
market. Despite all these efforts, access to finance continues to face a major constraint
on the SME sector. This limits their ability to thrive, increase their efficiency, update
their technology and, in many cases, restrict their market expansion and boost
management or increase productivity and eventually increase incomes (URT, 2003).
This stimulated the need for further study in this area and identified the determinants of
financial services access for SMEs. Therefore, the study sought to evaluate SMEs '
determinants of access to financial services, particularly in Mpwapwa District.

1.3 Objectives of the study

1.3.1 General Objective

The main objective of this study is to assess the factors affecting access to finance
among small and medium enterprises in Mpwapwa District.

1.3.2Specific Objectives

3
 (i) To determine the effect of firms characteristics on Small and Medium
Entrepreneurs (SME’s) access to finance in Mpwapwa District
(ii) To examine the effects of demand for collateral affect access to finance of Small
and Medium Entrepreneurs (SME’s) in Mpwapwa District
(iii)To examine the effect of interest rates charged affect access to credit finance by
Small and Medium Entrepreneurs (SME’s) in Mpwapwa District

1.4 Research Questions

(i) To what are the effects of firms’ characteristics on Small and Medium
Entrepreneurs (SME’s) access to finance in Mpwapwa District?
(ii) To what extent does the demand for collateral affects access to finance of Small
and Medium Entrepreneurs (SME’s) in Mpwapwa District?
(iii)To what extent do interest rates charged affects access to credit finance by Small
and Medium Entrepreneurs (SME’s) in Mpwapwa District?

1.5 Significance of the Study

This study is significant in different ways:
The findings of this research will create awareness among policy makers, academicians,
researchers, and investors on the reliability of financial services providers in their
attempt to reduce poverty in the society.

The literature will expound on this study enlighten the Financial services stakeholders to
understand matters about how reliable are financial services providers in their day to day
operations serving the community especially poor people.

4
The recommendations based on empirical findings will be useful to educational
practitioners and curriculum developers who are aspiring to promote holistic education
as we as national are moving towards financial service provision.
It will contribute to further research undertakings by stimulating researchers to
investigate more on reliability of financial services providers.

1.6Scope of the Study

1.6.1Geographical scope
Mpwapwa District, Found in Dodoma Region, conducted the study. Mpwapwa District
is one of Tanzania's seven Dodoma districts. It is verges to the north by the district of
Kongwa (the site of the failed British groundnut scheme), the area of Morogoro to the
east, the region of Iringa to the south and the district of Chamwino to the west.

1.6.2 Content scope

The study guided by the sake of factors contributing to lack of reliable financial services
to people of Mpwapwa District..

1.6.3 Time scope

This study conducted from January 2018 to June 2018. This consisting a period of six
months in total

1.7 Limitations of the study

Delays of respondent to give the answers back: some respondents may claim that they
were busy and delay to give back questionnaires to the researcher, but this solved by
giving calls to remind the respondents about the researcher’s deadline to submit the
research dissertation report.

Time Constraints: For a couple of months, the time allocated for research. Time was
too short to carry out research and obtain the relevant information that helped to deliver
the expected results.

5
Financial Constraints: This was the biggest problem in research process. The budget
allocated for this study was too limited and is not enough. The researcher used part of
her salary to fill this gap.
Access Constraint: Lack of access to sensitive data was restricting getting of relevant
information due to confidentiality of those data. This caused scarcity of important data
for the study.
Uncooperative respondent: Some of the respondents declined to provide resources to
share appropriate and relevant information because they believed that corporate secrets
would be exposed, so the researcher was able to obtain the information from related staff
or management.
Data Accessibility: Respondents resisted giving some data due to its importance and
confidential to the sustainability of the policy institution and policy ethical issues and
confidentiality policy. But the researcher managed to convince them that their
information got difficulties to be revealed to any reason except the academic purposes.

6
 CHAPTER TWO
LITERATURE REVIEW

2.1Introduction
This chapter provides the theoretical review on financial services provided, the second
part is to navigates on empirical studies which have already been conducted by other
researches, while the third part try to explain the conceptual frame on how the study
concept will link from each other.
2.1.1 Definitions of Key Concepts
Financial services These are the financial industry's economic institutions, including a
wide range of money-management enterprises, including credit unions, banks, credit
card companies, insurance companies, accounting firms, consumer finance firms, stock
brokerages, investment funds, corporate managers and certain government-sponsored
firms.

Reliable: Someone or something that is trustworthy or believed to be trusted because

he, she, or it works or acts well as you expect:

Micro-finance: It is an institution that provides financial services to small and micro

enterprises in the economy. It allows small and micro entrepreneurs deposit money,
accessing loan or credits to support their business as well as making payment through
money transfer and exchange of foreign currency relative to domestic currency

Commercial Banks: Is the bank that provides banking services and financial services to
the general public as well as companies. It allow the business/company and general
7
public accessing credits, deposit, money transfer and other financial services to promote
financial development in the economy

Financial Institution: - these are institutions that provide financial intermediaries in the
economy

Formal banks: - They include banking institutions that provide banking services under
the legal and regulatory framework.

An Entrepreneur: - An entrepreneur is an economic agent who binds all means of

production— one's property, another's labor and another's capital— and thus produces a
product. He pays rent of land, wages for labor, interest on equity, and what remains is
his income from selling the product on the market. He moves economic resources from a
lower area to an area of higher productivity and higher yield.

2.2 Theoretical Literature

2.2.1.1Macroeconomic Evidence
Beck et al, (2008), access to fund for new business people is a vital component in the
back development entrepreneurship in a country. The attention has been move to links
among income inequality and finance found a connection between poverty alleviation,
reduced income inequality and financial development: the total use of monetary
administrations, that is, more profound budgetary frameworks, seems to decrease Gin
coefficients, an estimate of imbalance.

Pande and Burgess (2005) financial development plays significant contribution to ensure
small and medium enterprises perform effectively in order to address poverty in a
country. The financial institutions prefer to provide finance to support innovative
business in a country. Prosperity of business in the economy has multiplier effects of
promoting macro-economic performance and contribute toward addressing poverty in a
country.

8
Gine and Townsend (2004) the access of finance increases efforts in promoting not only
poverty reduction in the economy but yield performance of different sector in the
economy that contribute toward macro-economic development in a country. Banerjee et
al.,(2009) argued that finance is an important issues for promoting economic activities in
a country as the result yield long term and short term development in a country. Burgess
and Pande (2005) financing various economic sector has multiplier effects of promoting
profitability and solid development of economy in a country. The outcome extensive
potential access of finance to support innovation business activities is reducing poverty
trap as well as stimulating macro-economic development in a country.

2.2.1.2 Microeconomic Evidence

According to (Rubamber,2002) financial inclusion in economic activities carried out by
different individuals has impacts on individual development as well as economy at large.
There is strong association between development of micro business activities and access
of financial services from financial institutions in a country. In order to support
individual efforts in fighting against poverty in a country requires emphasizing financial
inclusion in a country. Decentralization in financing mechanism to support micro
business activities has positive multiplier effects on yielding development in a country

Establish a causal connection from utilization of financial services to improve in the

lives of the poor is methodologically extremely costly and challenging. It requires
removing of influence dispensing with impacts of self-choice and survivor biases in the
sample, and in addition various imperceptible impacts that may frustrate the
examination. The technique for decision is field tests that build up this connection
through production of a counterfactual by arbitrarily partitioning a subset of the
populace into control groups and treatment

To identify the specific effects of intervention the statistical analysis is then used to
identify the specific type of financial service. To support significance of financial
services to the poor the randomized controlled trials carried out. Despite the high
9
internal validity produced by the RCTs methodology it’s hard to take a broad view
beyond the definite framework of the experiment thus external validity is considerably
weaker.
Microfinance provision of financial service its main role is to facilitate and not global
economic prosperity through creation of opportunities. As a result, through facilitation
by Microfinance, its development is paired with the improvement of different parts in
the economy. Several non-bank and bank financial institutions have set out to expand
their financial services to low-paid workers, despite the fact that doing so on the basis
that managing such administrations for the vulnerable is unnecessarily risky and too
expensive, making it impossible to accept them. The giver-subsidized Financial Non-
Governmental Organization has played an extremely important role in protecting poor
people from money-related administrations (Rubamber, 2002)

2.2.1.3 The value and benefit of financial institution in the economy

The financial institution plays significant roles and benefits in the economy by
supporting addressing issuers of poverty trap in the economy through financing various
economic activities in the economy. The financial institutions provide solution in
addressing shock and risks of doing business in the economy and provide advice
appropriate ways of using finance in business activities. The financial institutions also
plays pivot roles in helping investigation of issues and distinguish the investors to
include and helps in fortifying strategy advocacy role.

Furthermore, Manandhar and Pradhan (2005) state that microfinance is an effective tool
for poverty reduction development since financial services allow poor and low-income
households to take advantage of economic opportunities to increase their standard of
living through self-employment. I also remember that it is now recognized that the poor
have little capital, and households with low incomes need financial support. In recent
times, the importance of microfinance, particularly in countries perceived as poverty-
stricken, has increased, leading to the adoption of national microfinance policies and

10
programs by policy makers in many countries (Manandhar & Pradhan, 2005). The
growing number of microfinance practitioners around the world indicates that the
microfinance sector can play an important role not only in helping to achieve the
policies of the government on poverty reduction

2.2.1.4 Implication of the financial institutions in Tanzania’s Economy

Between 1961 and 1967, financial institutions operated under a dynamic financial
system in Tanzania. The same institutions faced an economic exploitation reversal in
1967. In the context of a centrally planned economy, it was a highly regulated and
specialized financial system with government intervention. It was common to have high
inflation and negative interest rates.

The system was designed to serve the public sector more at the private sector's expense.
With the beginning of economic reforms in 1984, the direction of the economy began to
shift away from the principles of a centrally planned economy to a free-market
orientation. Reforms of the financial sector became a reality in 1991. Financial
institutions are disconnected from the battle for poverty alleviation in their current set-
up. They are least involved in direct alleviation of poverty and only marginally involved
in indirect alleviation of poverty (Mwandenga, 2009).

Rural financial growth through a specialized financial institution provides incentives for
rural financial institutions to grow and develop. While Promoting Rural Initiative and
Development Enterprises (PRIDE Tanzania) is one of Tanzania's largest financial NGO
since it was established in 1994 as part of a national poverty reduction initiative with a
focus on microfinance. PRIDE Tanzania has followed its goal of providing loans and
technical skills to micro-entrepreneurs. PRIDE offers micro-credit programs for urban
and rural areas aimed at providing practical assistance to the SME market.

11
These loans attract an interest rate of about 24-30% annually and the amount-disbursed
range from 200,000 to 15,000,000 Tanzanian shillings, PRIDE is non-governmental
organization (NGO) working under the Ministry of Finance. Due to liberalization and
privatization era of World‘s economy, number of private financial services has increased
but still the service is inadequate in rural areas

Financial and structural development helps mitigate small and medium-sized enterprises
' growth constraints and improve their access to external financing. Different financing
methods, such as leasing and factoring, may be useful in promoting increased access to
finance even in the absence of well-developed institutions such as credit information
sharing systems and a more effective banking structure (source: Ayyagari et al. (in
press)

2.2.1.5 Complications of financial sector in Tanzania

Commercial banks are considered to be very important in serving this segment as they
have a broad network of branches that can reach most micro-enterprises. We also have
accounts that enable close monitoring of their customers. Although, for example,
commercial banks are facing difficulties; most of them are based in urban areas, making
it difficult to provide services in rural areas to these businesses.

Other drawbacks of commercial bank loans to Tanzania's SME sector are the lack of
adequate savings tools to mobilize savings within SMEs and withdrawal restrictions that
deter savers who want regular access to their savings. High transaction costs are also
suggested by their location away from many businesses (National Microfinance Policy,
2000).

The financial sector in Tanzania faces numerous challenges relating with pace of their
development to ensure all people in Tanzania are able to access finance in a country.

12
The issues related with managing high default rate in a country remain a problem that
affects the performance of financial institutions in Tanzania. In addition to that financial
institutions faces challenges related with issues of asymmetric and growth technology
which bring new crime related of using technology to involve crimes in financial
institutions

2.2.1.6 Household Resource

RFSP, (2012), these are resources owned by members of household which plays
significant roles in promoting prosperity of economic activities in the economy. The
household resources are made up with human resources, technology and wealth owned
by the household members in the economy. The skills and capacity of members of
household is an important resource for business and economic prosperity in the
economy.

2.2.1.7 Household Activities

These are the social and economic activities performed by member of households as
their means of sustaining development in a country (Chen and Dunn, 2006). They
involve domestic activities which uses resources to promoting family and individual
development in a country (Snodgrass and Sebstad, 2008). Supporting and financing
household activities plays significant roles in promoting poverty reduction in a country
(Ledgerwood, 2000; Chen and Dunn, 2006).

RFSP, (2012),the household member may involve in self-employment by engaging into

different nature of business including family business or sole proprietor which requires
resources to support development in a country however there is some difficulty in
financing household activities in a country. There are high risks in supporting
development of household activities in the economy

13
Investing in household activities is considered as important strategy for promoting
development in a country. There are a lot of efforts has been taken to promoting
financing small and medium enterprises owned by the household members however
access of finance to them has been a serious challenge in the economy. In Tanzania the
government has put legal and regulatory framework on promoting support to micro,
small and medium enterprises by having in place SME’s policy however access of
finance to support micro and small enterprises owned by household member has been a
critical challenge in a country.

2.2.1.8 View of Commercial Banks on Micro enterprises

Microfinance engaged in providing financial services to different income-generating

activities. Determ Small loan size, regular savings, small businesses, diverse uses and
simple and flexible terms and conditions (Bateman, 2005).

In order to promote development in a region, microfinance focused on providing finance

to micro and small businesses. According to Rajasekhar (2004), microfinance has
strategies to help micro and small businesses in rural and urban areas to support business
growth, invest in self-employment, and improve household security.ining features of its
definition are the small size of the loan, regular savings, small-scale entrepreneurs,
diversified use and simple and flexible terms and conditions (Bateman, 2005).

Microfinance focused on providing finance to micro and small business enterprises in

order to promoting development in a country. According to Rajasekhar (2004),
microfinance have strategies in supporting micro and small business enterprises in rural
and urban areas to support expand business, invest in self-employment activities and
increase household security.

Schreiner and Colombet (2001) plays significant roles not only providing credits to
support micro and small business activities but also provide appropriate capacity
building in order to use finance properly to support business development in a country”
14
Lindvert (2006) The financial services allows micro enterprises in the economy to
develop saving culture as well as taking loans and repay to facilitate business
development in the economy. In a long term perspective, financial institutions provide
appropriate support on development of micro business and create environment for create
sustainable development in the economy.

2.2.1.9 Interest rate on credit

Each business needs funding, while at first glance funding seems to be excessive. Stutely
(2003) It is important that funding be as effective as possible. Stutely advises the
borrower to be able to match all financing costs, compare them and come up with the
one that provides the lowest alternative funding. Banks have repeatedly been blamed for
charging high interest rates on loans. But outside of their influence, there are also
factors. For example, the amount of interest payable on loans depends on the interest
rate paid on the basis of the basic interest rate set by the Central Bank of Kenya. The
interest rate charged on the loan determines the credit cost. The value credit is the
amount that the borrower is required to pay over the borrowed money's principal sum.
Saleemi (2007) described interest rates as capital returns. Credit costs can be classified
as gross interest and net interest. Interest rates are usually the sum of the amount
borrowed. High interest rates are rising credit costs. High credit interest rates can deter
small and medium-sized enterprises from borrowing to reduce credit accessibility among
them.

2.2.1.10 Demand for Collaterals by financial institutions

Kamau (2009) microfinance requires to have collateral as security in accessing loan

from the financial institutions Kamau (2009) collaterals is an important indicator for
financial institutions in offering loan to support business activities in the economy.
Beaver (2002) without collateral most of biashara loan in a country fail to get loan
15
supporting business development in a country. Collaterals are important for micro
finance institutions to have assurance for the customer repay loan and the bank may use
it to recover the loan when the customer fail to pay the loan

Thus, while significant progress has been made in lending to SMEs, banks remain
cautious because many of these businesses have neither collateral security nor asset
registers. As one of the requirements for access to credit facilities, most banking
institutions require collateral security. This becomes a limitation on the majority of
SMEs who may not have capital resources deeds to pose as loan protection.

2.3 Empirical Literature Review

2.3.1 Latin America and Asia
Financial institutions on the mainland in a few countries in Asia and Latin America are
not the only source of funds for SMEs. Large companies are a key potential back
channel. Since large firms can help enable SMEs to get funding even more effectively
by exchanging resources (production and money factors) and ensuring solvency for
SMEs with financial institutions. Connections with major organizations can also allow
small and medium-sized businesses to obtain export credits, which are particularly
important in countries with weak institutions, as business accomplices are ideally trained
about their clients ' ability to repay obligations over different loan bosses (especially
money-related foundations).. Fare credits have proven useful in the agri-food industry in
Zambia. Subcontracting is still phenomenal in Africa, but has developed rapidly in
South Africa since 1998, but there is growing suspicion about it as it could restrict
casual exercises by small and medium-sized enterprises to low expertise. Clusters of
small and medium-sized enterprises, which are exceptionally competitive in Asia,
empower part firms to look together for back, offer aggregate certifications or even set
up their own body related to money. The threat of ejection from the bunch ensures that
assurances are maintained, helping the scheme to resolve flaws in the legal framework.
Visit communication with budgetary specialists, and in addition the job that notoriety
plays in the bunch, can significantly build certainty among firms and monetary
16
organizations and in this way make it less demanding to get credits and lower rates of
intrigue. Cooperating additionally implies firms can get provider credits and can acquire
from one another when vital, which diminishes general expenses.

2.3.2 Europe
More than 95 percent of firms accounted for in Europe, especially Italy, They're SMEs.
Although small business growth has often been highlighted as one of the reasons for
Italy's economic success, the restricted types of external funds available to Italian
businesses make them vulnerable to funding constraints. Throughout Italy, once internal
funds are exhausted, the banking system is often the only way for Italian SMEs to do so.

In fact, Italy's capital markets are relatively undeveloped compared with those in the US.
Consequently, the Italian stock market in Italy is not a major source of finance. Very few
Italian firms are publicly listed, not even large companies. Although the Italian banking
system had its central role in the national economy until recently, it was owned by the
state, Rarely competitive and heavily regulated. Until the early 1990s, the key features
of the Italian banking industry were the repercussions of the laws enacted in 1936 to
avoid financial instability Many restrictions were placed on the activity of banks,
including full control of entry and exit into the industry, as well as on branching
decisions. In its study, Development International Desjardins (2005) financing micro
business activities is an important instrument for promoting prosperity of micro and
small business activities however there are challenges related with predictability of
micro and small business activities repay back loans due higher risks in the business
they have been involved.

2.3.3 Africa
According to (Céline, 2004) spport and financing micro and small business activities is
an issues in many African countries. There are lot hindrances facing micro finance
institution supporting development of micro business activities. The financial
institutions in Kenya and Uganda have been facing challenges related with increasing

17
defaulting of loans and credits provided to micro business activities. Murduch and
Hashemi (2003), various studies on microfinance and micro business growth and
recorded increases number of successful micro business accessing loan from miro
finance are relative small as compared to demand . They refer to projects in India,
Indonesia, Zimbabwe, Bangladesh, Ethiopia and Uganda which all shows very positive
respond to access loan to support micro business activities however number of micro
business qualifying accessing loan to be smaller as compared to the demand. Mayoux
(2001) Microfinance services contributing to the smoothing out of peaks and troughs in
income and expenditure thereby enabling the poor to cope with unpredictable shocks
and emergencies.

Many empirical studies have shown that poverty is minimized by microfinance. For
example, Goldberg (2005) claimed that as a result of microfinance in Bangladesh, the
poor no longer remained as poor. Khandler (2003) found that microfinance helped to
reduce inequality, and Zubair (2004) reported that microfinance decreased vulnerability
in Bangladesh to domestic violence. Many scholar studies have concluded that there is
no positive impact on microfinance (e.g., Mayoux, 2001; Duong and Izumida, 2002).

The empirical study conducted in Ethiopia by Asemelash (2003) on microfinance

financial institution's roles towards poverty reduction using a structured questionnaire
where data were analyzed using descriptive statistics, the Chi-Square test and ANOVA
for hypothesis analysis and testing. The finding indicated that microfinance provides the
poor with credits that have had a positive impact on the customer's life compared to
those who do not have access to these services. He showed that microfinance had a
positive impact on the study area's employment, wealth building, and access to schools
and medical facilities.

2.3.4 Empirical literature from Tanzania

The study by Agri-systems (2003) on the contribution of financial institutions on
development and growth micro small enterprises in Tanzania indicated that financial

18
institutions has strong and positive contributions on growth and development of micro
business activities however number of micro business which access finance are relative
few as compared to the need. Kasuga (1998) indicated that micro business depend upon
access to finance from financial institutions to expand their business activities in the
economy. Kashuliza and Kydd (2006) there is higher probability of business growth for
the business accessing loan from the financial institutions in Tanzania

Mkwizu (1992) lack of awareness on appropriate use of loan from the financial
institutions among micro and small business enterprises has been a source for them to
divert loan for activities not related with business activities as the result affect ability to
pay back the loan. The financial institutions reduce size of loan to provide for micro
business activities due to default rate in Tanzania. The efforts of educating micro
business operators on appropriate use of credits to support business activities remain
very important in Tanzania

Most reports (Rutherford, 1999, Lwoga, 1999, Mugwanga 1999 and Mutesasira, 1999a)
in Tanzania number of micro business enterprises accessing loan to support their
business has been increasing day after day due to increasing microfinance institutions in
Tanzania. However, Bagachwa (1995) despite number of microfinance institutions has
been increasing in Tanzania but they provide loan to micro and small enterprises at
higher interest rate ranging from 20 to 35 % which affects credibility of micro and small
enterprises to pay back the loan. The cost of borrowing loan from micro finance
institutions affects growth of micro enterprises in Tanzania.

2.4.1.1 The Role of Financial Institutions in financing micro enterprises

Commercial Bank

According to Satta, (2002). Financial institutions particularly commercial banks in

Tanzania have been established for the purpose of supporting operation of various
business activities in a country. The commercial banks are considered as heart for the
operations of micro enterprises in Tanzania because they provide loans and saving for
19
micro and small enterprises (Randhawa and Gallardo, 2003). The commercial bank and
other financial institutions in Tanzania have been established to support promoting
financial inclusion in a country. The commercial banks have various platform of loan
and credits which are provided to small and medium business activities as the result
promoting business prosperity in a country (National Microfinance Policy, 2000).

Non-Government organization (NGO/MFIs)

The non-government organization in Tanzania also plays significant roles in promoting
development and growth of micro business activities in Tanzania. The organization has
been offering micro loans and credits to small and medium enterprises in Tanzania
which contribute to widening scope of accessing financial support to small and medium
enterprises in Tanzania. The non-government organization is considered very important
in supporting micro and small business operating in a country not only by providing loan
but also training micro and small business operators on appropriate approaches on using
loan to support development of their business activities in a country.

The Village or Community bank

The village bank in Tanzania has been one of important institutions that support village
community to access financial services in rural areas. The village bank in Tanzania
contributes very much on supporting household business activities accessing loan to
support business growth (Satta, 2002). There are efforts of making the village bank
operating legally in Tanzania. The micro finance policy established in 2017 recognises
the roles of village bank as important microfinance institutions playing significant roles
in supporting financial inclusion in rural areas as well as financing micro and small
business activities in tanzania

Savings and Credits Cooperatives Societies (SACCOs)

The establishment of SACCOS in Tanzania are considered important in supporting
development of micro and small business activities in Tanzania (Silvanus, 2011).
SACCOS enable the micro and small business operators in Tanzania participate in
20
saving as well as accessing credits to support business activities in a country. Through
SACCOS many micro and small business enterprises are able to access loan to promote
their business activities in Tanzania. SACCOS is one of important instrument in
supporting micro business activities in a country.

Factors affecting access to finance

Storey (2014) conducted a study on micro-sector credit market racial and gender
discrimination and presented evidence from Trinidad and Tobago. The study was based on
human capital theory and centered on the schooling, gender, work experience, and social
background of the holder while receiving bank loans. Deakins, et al(2015) conducted a study
on access to financing for SMEs and in particular whether there was still a disparity in debt
financing. Researchers suggested that demand-side factors that influenced SMEs ' access to
bank finance were triggered by fear of outright rejection and receiving less than they
expected.

Studies have also shown that women's access to credit and women's SME performance
differ substantially from men's. This was observed in McComick (2011), who noted that the
performance of women vs. men in the enterprise is different. It has been noted that women's
enterprises are smaller, less profitable, and start with less capital than those owned by men,
because women have no access to funds. The author concludes that gender business patterns
are supported by five institutions— the incorporation of the wife into the family of the
husband, The division of labor within the household, the division of ownership of property
(the practice of land ownership among men remains strong, even though women can now
buy and inherit land), the sharing of household expenditure and the allocation of educational
opportunities.

Together with Zecchini and Ventura (2016), Rosenberg (2016) claims that the interest
rates paid to small and medium-sized businesses reflect money taken out of the budgets
of customers, and it is unfair not only to cover the cost of borrowing. Even the lending /

21
interest rate, which only covers expenses and provides no benefit, can still be unfair if
the costs are too high due to avoidable inefficiencies resulting in poor financial
performance for SMEs. There is thus an inverse relationship between loan rates and
access to debt financing for the revival of industry. In reality, low loan rates can lead to
improved access by SMEs to debt financing, thus improving profitability and growth;
while high loan rates restrict access by SMEs to debt financing, rendering stagnant
performance of SMEs inevitable (Wanjohi, 2016). In Uganda, the average lending rates
of financial institutions remained high, ranging from 18% to 26% on average, primarily
due to lack of competition in the banking sector.

Kamweru (2011) argues that younger companies have no credibility and no credit
history that external finance providers can use to determine their creditworthiness; as
such, they are more limited in the use of external financing. On the other hand, he argues
that older companies have a well-established credit background and have built up a good
reputation with external finance providers; as such, the use of external finance is less
limited. Over the years, the credibility and credit history of older companies in doing
business decreases the knowledge asymmetry issue and lets businesses access external
financing easily.

Among other things, Fraser (2004) quoted in Obamuyi (2014) and Beck et al. (2016)
observed that size and age influences borrowers ' financing relationships. A research by
Beck (2017) indicates that SMEs in developing countries are more limited due to the
vulnerabilities in financial and legal structures by funding obstacles. He studied more
than 70 developing countries and concluded that governments have roles in building
suitable institutions, providing the regulatory framework, and implementing market-
friendly activist policies to reduce barriers to SME financing. The author also warns
about the government's excessive involvement in SME funding. Fatoki and Smit (2016)
noted that internal factors in South Africa such as management skills, resources,
networking and business information and external factors to SMEs such as the

22
macroeconomy, the legal environment, ethical interpretation, crime and corruption
constrain new SMEs to access credit.

A research by Olomi et al. (2014) reveals three major restriction groups in Tanzania that
restrict access to finance for SMEs. The potential of SMEs themselves in terms of their
low level of knowledge and skills, underdeveloped market culture, lack of family or
personal separation of business, poor recorded credit history and a propensity for them
not to pursue all available financing options. The second limitation is linked to the
limited ability to work with SMEs, including a small number of skilled workers and
limited experience contributing to the development of clear, straight jacket goods with
low and easy to assess risks. The third group concerns enabling climate deficits in terms
of laws that protect borrowers at the expense of lenders, lack of national identification
system, and credit reference offices. The literature shows that small and medium-sized
enterprises face huge obstacles in accessing bank finance. Most of the obstacles that
have been identified are from the perspective of SMEs.
2. 4 Gap and Conceptual Framework of the Study
This study was based on household economic portfolio conceptual model propounded
by. Much information found in such studies is the extent to which such financial
institution are affecting wellbeing of the population they are served. Instead this study
intends to assess the factors affecting access to finance among small and medium
enterprises of Mpwapwa district.

23
2.5 Conceptual framework

Figure 2.1Conceptual framework

Firms characteristics
• Distribution of
Business by Age
• Size of the firm
• Location of the Firm
Access to Finance

Financial Characteristics
• Collateral
• Interest charged by
the Financial
Institutions

Source: Researcher design,(2018)

The conceptual framework above presents the sources of finance existing in the research
area including commercial banks, Microfinance, SACCOs and VICOBA. It also
highlights external factors affecting small business in the area including economic
conditions of the country, financial empowerment policy, political constraints,
technological constraints and environmental factors. Also it presents firm factors
including cost of outreach, lack of scalability, adequate collaterals, financial education
and high transaction costs.

2.6 Conclusion Remarks

The literature review explore different studies that have been conducted in Europe,
America, Asia, Africa, basing on the services provided by financial institutions in their
24
attempt to reduce poverty in their respective areas of operations. Much information
found in such studies is the extent to which such financial institutions are affecting
wellbeing of the population they are served. Instead this study intends to assess how
reliable are the financial services provided towards serving people of Mpwapwa District.

25
 CHAPTER THREE
RESEARCH METHODOLOGY

3.0 Introduction
The technique of research is the systematic way to solve the problem of study. It can be
interpreted as a scientific analysis on how systematically research is done. We study
various steps in research methodology that are usually taken by the researcher to
understand his / her research question along the reasoning behind them (Kothari, 2004).
This chapter describes methods or approaches used when conducting the research by the
researcher. It therefore sets out the areas of the analysis, the sampled population and the
nature of the experiment, the sampling method to be used to collect data, the data
sources and the type of data to be collected in order to obtain the relevant information..

3.1 Research design

A research model is a theoretical framework that is driven by science. It is the blueprint
for data collection, calculation, and analysis (Kothari, 2004). A descriptive research
model was used in this report. A descriptive survey research seeks to obtain information
about current phenomena by questioning individuals about their beliefs, attitudes,
behaviors or values (Mugenda et al. (2003), Lockesh (1984) insists that the object of
descriptive survey studies is to obtain relevant and accurate information. There is no
influence over the variables by the author. Only what happened should he report and
draw conclusions from the gathered evidence.

This design was therefore chosen because of its ability to ensure minimization of bias
and maximization of evidence that gathered. In the research, the researcher did not have
direct control over the variables both independent and dependent, as they are not easy to
manipulate. The aim of the researcher was to establish whether there existed significant
association among the dependent and independent variables.

26
3.2 Research population
The target population should have such measurable features, according to Mugenda et
al. (2003), to which the author would like to generalize the results of the study. In this
study, the target population was Mpwapwa District, which according to the 2012
Tanzania National Census population was 305,056 people.

3.3 Sample Size

The main objective of this step is to identify the specific population being surveyed, to
determine a suitable sample and to determine the criteria used to select the sample
(Marczyk, et al, 2005). The research was carried out in two major groups of people in
the selected group of financial services providers and financial services beneficiaries.
Beneficiaries included
The study sample were public servants, owners of bank accounts, Small and Medium
Entrepreneurs operating in Mpwapwa District while financial services providers
includes Banks and other Microfinance institutions operation in the research area such as
CRDB Bank, NMB Bank, TPB Bank, and FINCA. Due to the limited availability of
financial and time resources, the researcher used 132 respondents to represent the whole
population.

3.5 Sampling Procedures

The researcher used stratified simple random sampling technique in doing the study.
This used in order to put population in starters such that every respondent gets chance to
be included in the study. Also purposive sampling used on the human resource
department, because they have the needed information that the researcher intends to get.

3.6 Research instrument

3.6.1 Questionnaires
The researcher used researcher made questionnaires with four liker scale where different
questions designed regarding to the needs of the study and distributed to the population
27
sample select for the study. This method helped the researcher to collect data easy as
well as to get quality data since respondents had much time answer the questions. The
questionnaire gave the respondent confidence to answer the questions effectively.

3.7 Validity and Reliability of the Instrument

Content validity measured through expert judgment where by experts that have
experience and extensive knowledge about the topic used to measure the validity of the
instrument. These experts included senior lecturers and lecturers. They basically looked
into questions, language used in the questionnaire and the relevance of the whole
instrument which the researcher used.

3.8 Data gathering procedure

Before data gathering

Upon accomplishment and approval of the research proposal, the researcher obtained an
introductory letter from Mzumbe University, and an acceptance letter from Mpwapwa
District Office was given to allow the researcher to carry out the study within the
organization.

During data gathering

Because of some respondents ' nature work and busy schedule, the researcher scheduled
appointments for the respondents through the Human Resource Managers. The
researcher had the opportunity to provide the necessary explanation on some issues
where there was a need. The author also used secondary information by analyzing the
available related textbooks, journal articles, periodicals, manual dissertations,
publications and websites of selected financial institutions operating in the Mpwapwa
District.
After data gathering
The data collected through questionnaires was coded, edited, categorized and entered
into a computer for the Spread sheet software for data processing and analysis.

28
3.9 Data Analysis
A computer used to draw tables. Microsoft Excel used to determine the frequency and
percentages, which helped the researcher to interpret the findings in Chapter Four. At the
end of each section, data was summarized into major events and results, noticeable
points and answers were grouped into similar pages whereby the interpretations and
analysis of data findings were shown.

3.10 Ethical considerations

The researcher took into consideration on secrecy of opinion as well as information from
the individual together with the organization information. To protect any fraud against
the organization my work is going to be highly protected and not given to any one
without the permission from the authorized authority. There have been several ethical
questions that were viewed by the researcher when designing research that was used by
human participants.

Disclosure: The potential attendee was fully informed about the scope and intent of the
study, the methods to be used and the potential benefits for the individual and/or
community, the ability to take part in the research with relatively predictable dangers,
pressures and inconveniences, and alternatives

.Understanding The participant's clear explanation for understanding what has been
explained and the opportunity to discuss questions and be answered by the researcher
must be given. Written in lay language, the informed consent document avoided any
technical jargon.

Voluntariness: The author ensured that the willingness of the participant to engage in
the study was voluntary, free of any coercion or assurances of benefits that were unlikely
to result from participation.

29
Competence: The investigator ensured that consent was given by the student. Due to
mental state, disability, or emergency, the participant may not be capable if it was in the
best interest of the participant to participate.

Consent: The potential human subject was allowed to participate in the research study,
preferably in writing, although sometimes it was more appropriate to give oral consent
or consent.

30
 CHAPTER FOUR
DATA ANALYSIS, PRESENTATION AND DISCUSSION

4.1 Introduction
The findings of the study presented and addressed in this chapter on the evaluation of
factors affecting access to finance among small and medium-sized enterprises in
Mpwapwa District. The section explains and demonstrates the findings from the field
with respect to the purpose of the study, the research aims, research questions and sub-
themes found in chapter one. The study is also based on the theoretical and quantitative
studies found in chapter two of the review of related literature. The point of view and
observations of the author will also be included.

This chapter divided into two sections where the first section presents and discusses the
general characteristics of respondents. The second section discusses the specific
objectives of the study which are to discuss the effect of firms characteristics on Small
and Medium Entrepreneurs (SME’s) access to finance in Mpwapwa District, to discuss
the effect of demand for collateral affect access to finance of Small and Medium
Entrepreneurs (SME’s) in Mpwapwa District and to discuss the effect of interest rates
charged affect access to credit finance by Small and Medium Entrepreneurs (SME’s) in
Mpwapwa District

4.1.1Response rate
This study targeted different SME’s members in Mpwapwa district were the researcher-
distributed questionnaires to 132 members who were randomly selected in this study.
The (filled) returned questionnaires were 132, which represents the response rate of
88%as demonstrated in table 4.1

31
Table 4.1: Response Rate
Questionnaires Number Percentage
Filled and Returned 132 88
Non-Returned 18 12
Total 150 100

Source: Research findings, (2018)

4.2 Demographical Characteristics of the Respondents

It is very important to determine the characteristics of the individual respondents, as the
respondents helped the researcher understand the value of the information obtained from
the field. This part provides basic information about respondents characteristics, such
information include their sex, marital status, education level and age. All these
characteristics as explained as below.

4.2.1 Gender of respondents

Gender is an important aspect in the rural area studies where in practice women are not
given priority in participating social or economic activities in the societies. Hence the
variable investigated to determine the proportion of gender participation in this study.

Table 4.2: Respondents Gender

Sex Frequency Percentage (%)
Male 75 57
Female 57 43
Total 132 100

Source: Research findings, (2018)

The table 4.2 shows that 57 percent of respondents were male and 43 percent of
respondents were female. The finding shows that majority of respondents were male
compared to male. Also the findings revealed that both male and female involved in the
study and therefore avoiding biasness based on gender to enrich the findings.

32
4.2.2 Age of Respondents
Age of the respondents was among of the important characteristics in understanding the
respondents’ views about the particular problems; whereby each age group differ
experience and maturity in accessing the finance.

Table 4.3: Respondents Age

Frequency Percentage (%)
18- 25 28 21.2
26-35 49 37.1
36-45 41 31.1
46 and above 14 10.6
Total 132 100

Source: Research findings, (2018)

Table 4.3 above shows, that on the basis of age criteria 21.2% of all respondents were
between 18 and 25 years old, 37.1% of them were between 26 and 35 years old , 31.1%
of respondents were between 35 and 45 years old and 10.6% of all respondents were 46
years old and above. The findings imply that most of respondents had an age ranging
between 26 years old and above. This will make enrich the study as the majority of
respondents was mature and has an experience on matters about social life.

4.2.3 Level of Education of Respondents

Training enhances the ability of people to use their resources efficiently and effectively,
and training is also one of the most important characteristics that could affect the ability
of the individual to make decisions and the way some particular social phenomena look
and understand. In a way, an individual's response is likely to be influenced by their
academic status, so it becomes important to know the respondent's educational
background. The author therefore analyzed the' educational rate ' parameter and the
educational data presented in Table 4.4.

33
Table 4.4: Respondents education level
Frequency Percentage (%)
Non-formal Education 18 14
Primary education 27 21
Secondary education 43 32
Advanced level 20 15
Higher Learning 24 18
Total 132 100

Source: Field data, 2018

Table 4.4 above shows that, 13.6% of all respondents had non-formal education, 20.5%
of all respondents were of primary education, 32.6% of all respondents were of
secondary education level, 15.2% of all respondents were of Advanced education Level,
18.2% of all respondents were of higher learning education. From the table above there
is an implication that the majority of respondents were educated. Also the study
involved respondents of all levels of education and therefore avoiding biasness based on
education level.

4.2.4 Distribution of Business by Age

Table 4.5 presents findings on distribution of business by age, were large portion of the
respondents represented by 39% had run their businesses for more than 5 years, distantly
followed by those who had been in business between 3 and 4 years at 35%. The
percentage of small-scale house holder entrepreneurs who had run their corresponding
business for less than a year was 16% while the remaining respondents (10%) had run
their businesses for between 1 and 2 years. This implied that a great deal of the small
scale householder entrepreneurs had sufficient business skills to have at least demanded
for credit financing if not actually accessing some credit facilities, and thus formulate a
suitable sample for the study.

34
Table 4.5: Distribution of Business by Age
Nature of Business Frequency Percentage
Above 5 years 52 39
3-4 years 46 35
1-2 years 13 10
Below 1 year 21 16
Total 132 100

Source: Research findings, (2018)

4.3 Firm’s characteristic on the Small and Medium Entrepreneurs (SME’s) access
to finance
Study finding shows that the majority of respondents agreed that the company's size is
the determining factor for accessing loans, 44 percent of respondents agreed, while 28
percent of respondents agreed strongly. Nonetheless, 10% and 2% of respondents
disagreed and strongly disagreed that the company's size is not the factor in receiving
credit, although 16% of respondents were unable to make a decision.

Furthermore, findings shows that small firms faces difficulties in accessing loans
compared to matured firms, were 72 percent of the respondents agreed and 12 percent of
the respondents disagreed.

Researcher also investigated the willingness of financial institution to finance small

firms located in the rural areas, the findings reveals that majority of the respondents 38
and 28 percent agreed and strongly agreed respectively that financial institution are
unwilling to finance small firms. Moreover, 23 percent of the respondents expressed that
financial institutions were willing to finance the small firms and 11 percent of the
respondents were not able to decide.

Small and Medium Entrepreneurs (SME’s) located in the urban are successful in access
to loans compared to firms located in rural areas. In this study the findings shows 72
percent of the respondents agreed that firm location has effect on access to credit, were 7
percent disagreed and 11 percent of the respondents were not able to decide on weather
35
firm location has effect on access to finance.

Table 4.6: Firms Characteristics on the SME’s access to finance

Strongly Disagr Neutra Agree Strongly
Disagree ee (%) l (%) (%) Agree (%)
(%)
Size of firm has the effect in accessing the 5 (4) 11 (8) 23 (17) 60 33 (25)
loans (46)
Small Firms face difficulties in 2 (2) 13 (10) 22 (16) 58 37 (28)
accessing loans compared to big firms (44)
Financial Institution are unwilling to finance 8 (6) 22 (17) 14 (11) 50 38 (28)
small firms located in rural areas (38)
Location of the firms has an effect in 0 7 (5) 31 (23) 43 51 (39)
accessing the loan (33)

Source: Research findings, (2018)

4.4 Demands for Collateral by Financial Institution

The researcher investigated the extent to which financial institution in Mpwapwa
District demand collateral for small scale householder entrepreneur to access finance
assistance from the institutions. The findings are presented in the table

Table 4.7: Demand for Collateral by Financial Institutions

Response Frequency Percentage
Strongly Agree 105 80
Agree 22 17
Neutral 5 3
Disagree - -
Strongly Disagree - -
Total 132 100
Source: Research findings, (2018)

The study shows that majority of the respondents (80 percent) strongly agreed that
financial institutions requires collateral to access finance assistance. This was further
supported by the respondents were 17 percent agreed on the demand of collateral by the
financial institutions and 4 percent of the respondents neither agreed nor disagreed.

36
4.4.1 Types of Collateral Owned by SME’s
To understand the effect of collateral to SME’s the respondents were asked to indicate
the type of collateral in their belongings. Their response were presented in table

Table 4.8: Types of Collateral Owned by SME’s

Types of Collateral Frequency Percentage
Land 34 26
Livestock 46 35
Household Properties 18 14
Agricultural Equipment 23 17
Vehicle 11 8
Total 132 100

Source: Research findings, (2018)

The findings revealed that there was uneven distribution of collateral from the SME’s,
were livestock was the main source of collateral to access financial assistance. Land was
the second main source of collateral with 26 percent, were households properties (14%),
agricultural equipment (17%) and vehicle was (8%).

4.4.2 SME’s Perceptions on the Collateral requirement by the Financial Institution

The researcher assessed the SME’s perception on collateral demand by the financial
institutions were the response were analyzed by using Mean and Standard Deviation
(SD) of the Likert scale variable used in the study.

37
Table 4.9: SME’s Perception of Collateral demanded by Financial Institutions
Statement Min Max Mean SD
The ability to repay is the considered factor by Financial 3 5 3.86 0.592
Institutions
Financial Institution guarantees the value of collateral is 2 5 3.84 0.716
adequate to access the credit assistance to SME’s
The type of collateral in my possession is acceptable by the 2 5 3.93 0.902
financial institutions
Collateral is the major hinder factor to my access to finance 1 5 4.58 0.481
assistance

1: Strongly Disagree, 2: Disagree, 3: Neither agree nor disagree, 4: Agree, 5: Strongly

Agree
Source: Research findings, (2018)

The table 4.9, shows that collateral is the main hindrance factor for SME’s to access the
financial assistance (M=4.58, SD=0.48). Furthermore, the respondents agreed the type
of collateral that they had would be acceptable by financial institutions (M=3.93,
SD=0.90), and that the value of the collateral was sufficient to assure them access to
finance assistance from financial institutions (M=3.84, SD=0.72). However, the
financial institutionsconsidered the ability to repay loans rather than the collateral an
entrepreneur has(M=3.86, SD=0.59).

These findings suggest that demand for collateral poses a formidable challenge to
SME’s, given that while the financial institutions seem to have a strong focus on the
need for them to have collateral rather than their individual abilities to repay the
borrowed amount, the form of collateral may not be acceptable and neither would its
value match the demands of the financial institution.

38
4.5 The Influence of Interest Rate in accessing Credit
The researcher aimed to determine if SME’s felt that the interest rate charged by the
financial institution influenced their decision to access financial assistance, then the
researcher examined the effective length of payment period of the loan undertaken from
financial institution and analyse respondents perceptions on the limitations posed by
interest rates charged and the effects of these perceptions on access to credit finance.

4.5.1 The Influence of Interest Rate in making decision of taking loans on SME’s
The respondents were asked to indicate whether the interest rate charged by the financial
institutions influenced their decision and capacity of accessing finance facility. The
findings are presented in table 4.10

Table 4.10: The influence of Interest Rate in accessing Credit facility

Response Frequency Percentage
Yes 112 85
No 20 15
Total 132 100

Source: Research findings, (2018)

The majority of the respondents (85%) acknowledged that certainly, interest rates
charged by financial institutions influences their decision on whether to take loans or
not. Only 18% of the respondents disagreed that interest rate influenced their decision-
making.

4.5.2 The Length of Credit Repayment Period

The length of the repayment period has a bearing on the amount of interest charged on
the principal loan amount. The respondents were therefore asked to indicate the
maximum length of repayment time of the highest amount of loan they had ever taken
from financial institutions. Their responses are presented in table 4.11.

39
Table 4.11 Repayment Period of the Loan
Repayment Period of the Loan Frequency Percntage
One year 68 51.5
Two years 26 19.7
Three years 29 21.9
None 9 6.8

Total 132 100

Source: Research findings, (2018)

Slightly over half of the respondents (51.5%) had taken a year to replay their highest
amount of credit accessed. The findings also shows that 21.9% of the respondents took
three years to repay, while 19.7% of the respondents took them 2 years and 6.8 percent
of the respondents had never accessed loan from financial institutions.

4.5.3 SME’s Perception on Interest Charged

Researcher also investigated the perception of respondents on the interest charged,
however 5-point Likert scale used in analysis with the mean and standard deviation. The
response are presented in the table 4.12

Table 4.12: Small and Medium Entrepreneurs (SME’s) perception on the Interest
charged
Min Max Mean SD
Fear of not be able to repay the loan due to in interest charges 1 5 4.76 0.562
Amount of Interest charged discourage starting and rural SME’s 1 5 4.11 4.89
Financial Institutions charges excessive interest on credit finances. 1 5 4.30 0.763
Interest charged by the Financial Institutions is related with the 1 5 4.65 0.339
collateral of the loan

Source: Research Findings, (2018)

From table 4.12 the findings shows that, SME’s tended to strongly agree that they fear
applying for the loan since they are not sure whether they are able to repay the loans due
to the interest charged by the financial institutions (M=4.76,SD=0.56). Moreover, the

40
respondents linked the amount of interest charged by the financial institutions with the
collateral they are required to have (M=4.65, SD=0.34), also respondents agreed that
financial institutions charges excessive interest charges which in turn hinder the ability
of rural SME’s to access credit. Therefore, in general respondents agreed the amount of
interest charged by the financial institutions discourage their ability to access credit
finance.

4.6 Discussion of Findings

The study sought to find out whether the demand for collateral affects access to credit
finance by SME’s in Mpwapwa District, to examine the effect of interest charged on
access to credit finance by SME’s in Mpwapwa district and firm characteristics of
SME’s on access to financial assistance.

Regarding the demand for collateral and how it affects access to credit finance, these
findings are consistent with the huge body of empirical study showing that access to
credit finance is influenced by collateral statistically significant. Fatoki and Asah (2011)
identified that small and medium-sized enterprises with collateral are much more likely
to be successful in their credit applications than non-collateral SMEs. The findings also
align with Bougheas et al (2005) who identified that collateral is an important factor for
SMEs to access debt financing, and Omboi (2011) who found that mainaim for SMEs is
not seeking, but that credit is lacking the necessary collateral. Additionally, Barbosa and
Moraes (2004) note that owners / entrepreneurs of SMEs who invest heavily in solid
assets tend to have higher monetary power because they can borrow at lower interest
rates if their debt is secured by such assets.

The finding is consistence with Kamau (2009) microfinance requires to have collateral
as security in accessing loan from the financial institutions Kamau (2009) collaterals is
an important indicator for financial institutions in offering loan to support business
activities in the economy. Beaver (2002) without collateral most of biashara loan in a
country fail to get loan supporting business development in a country. Collaterals are

41
important for micro finance institutions to have assurance for the customer repay loan
and the bank may use it to recover the loan when the customer fail to pay the loan

The finding is linked to the argument that while significant progress has been made in
lending to medium and small-sized enterprises, banks proceed cautiously as many of
these enterprises do not have collateral protection or asset registers. As one of the terms
of access to credit facilities, most banking institutions need collateral protection. This
becomes a burden on the majority of SMEs who may not have capital resources deeds to
pose as loan protection.

Collateral is often considered as part of the supply mechanism of bank debt, according to
ogawa and Suzuki (2000). Collateral used as an information asymmetry-reducing
mechanism between borrower and lender by lending institutions and therefore an
important part of the credit acquisition process (Atanasova and Wilson, 2004).
Information asymmetry is essentially the difficulty involved in obtaining adequate
information from the borrower on which lenders can base creditworthiness assessments.
Higher collateral availability is expected to increase bank debt supply as collateral can
mitigate the information asymmetries between borrower and lender.

The entrepreneur's willingness to pledge collateral positively affects the credit request's
quality as perceived by the bank. Collateral can be seen as a means of preventing the
high-risk businessman from moving from a lower-risk project to a higher-risk project
after the loan has been approved or making less effort to implement the project
proposed. The risk of losing the pledged collateral would prevent the entrepreneur from
taking any risk-shifting behavior after receiving the loan (Menkhoffet al., 2006). Women
have no leverage over properties including land and buildings that could be used as
collateral, making it difficult for them to access credit financing (Mpunga, 2004).

With regard to the extent to which interest rates charged affect SMEs ' access to credit
finance, the foregoing results are largely in line with the findings of previous studies
such as Amonooet al (2003), which reported that high interest rates were an obstacle to
42
SMEs ' demand for credit in Ghana, and Masoud (2013), which found that interest rate
adversely affected credit take-up Ehrmann (2000) argues that higher interest rates lead to
a decline in financial availability and induce small businesses to reduce inventories,
incur high production costs and experience sharp sales declines that ultimately affect
their profits.

Okurut (2004) concluded that most small-scale entrepreneurs seeking credit could access
it, but that costs and conditions could be prohibitive for high-risk borrowers, concluding
that two factors influencing the decision of SMEs to apply for credit are interest rates
and collateral required by formal financial lending institutions. This could clarify the
indifference of the SME to Mpwapwa District credit finance.

The findings revealed that small firms size have problems in accessing loans than big
firms and older firm (more than 3 years) have more experiences of applying for loans
than younger firms below 3 years. This is supported by the study done by Berger and
Udell (2002), and Fatoki and Asah (2011) who indicated that firm size effects SME’s
access to finance. This is because smaller or younger SME’s are less preferred by banks
as the result faces higher cost of financing as related to big and older firms. In their
study, they also revealed that there was a positive correlation between firm size and
SME’s access to debt financing. In addition, Oliveira and Fortunato (2006) specified that
smaller firms faces difficulties in accessing finance hence affecting their progress
because of lack of necessary cash flow and are incapable to rely on bank financing.

The findings revealed that SME’s located in urban areas are able to easily access debt
financing as compared to those located in rural areas. This result agreed with the
research done by Fatoki and Asah (2011) in their research findings revealed that there
was a positive correlation between location and access to credit financing by SME’s

The findings also show that younger firms (less than 3 years) face challenge in access
loans as compared to older firms. These findings supported by study done by Klapper
(2010) and Ngoc, Le and Nguyen (2009) it was established that firms face hardship and
43
more costs in accessing external financing from lenders because information asymmetry.
In addition, it also revealed that there was a positive correlation between firm’s age and
access to debt financing by SME’s.

The finding is consistence with Céline, (2004) spport and financing micro and small
business activities is an issues in many African countries. There are lot hindrances
facing micro finance institution supporting development of micro business activities.
The financial institutions in Kenya and Uganda have been facing challenges related with
increasing defaulting of loans and credits provided to micro business activities.

The finding is consistence with Murduch and Hashemi (2003), various studies on
microfinance and micro business growth and recorded increases number of successful
micro business accessing loan from miro finance are relative small as compared to
demand . They refer to projects in India, Indonesia, Zimbabwe, Bangladesh, Ethiopia
and Uganda which all shows very positive respond to access loan to support micro
business activities however number of micro business qualifying accessing loan to be
smaller as compared to the demand. Mayoux (2001) Microfinance programs that
contribute to smoothing the income and expenditure from peaks and troughs, thereby
helping the poor to cope with unexpected shocks and emergencies.

Finding is related with Agri-systems (2003) on the contribution of financial institutions

on development and growth micro small enterprises in Tanzania indicated that financial
institutions has strong and positive contributions on growth and development of micro
business activities however number of micro business which access finance are relative
few as compared to the need. Kasuga (1998) indicated that micro business depend upon
access to finance from financial institutions to expand their business activities in the
economy. Kashuliza and Kydd (2006) there is higher probability of business growth for
the business accessing loan from the financial institutions in Tanzania

The finding is related with Mkwizu (1992) lack of awareness on appropriate use of loan
from the financial institutions among micro and small business enterprises has been a
44
source for them to divert loan for activities not related with business activities as the
result affect ability to pay back the loan. The financial institutions reduce size of loan to
provide for micro business activities due to default rate in Tanzania. The efforts of
educating micro business operators on appropriate use of credits to support business
activities remain very important in Tanzania

The finding is related with Most reports (Rutherford, 1999, Lwoga, 1999, Mugwanga
1999 and Mutesasira, 1999a) in Tanzania number of micro business enterprises
accessing loan to support their business has been increasing day after day due to
increasing microfinance institutions in Tanzania. However, Bagachwa (1995) despite
number of microfinance institutions has been increasing in Tanzania but they provide
loan to micro and small enterprises at higher interest rate ranging from 20 to 35 % which
affects credibility of micro and small enterprises to pay back the loan. The cost of
borrowing loan from micro finance institutions affects growth of micro enterprises in
Tanzania

45
 CHAPTER FIVE
CONCLUSION AND RECOMMENDATIONS
5.0 Introduction
This chapter summarizes results, conclusions and recommendations, policy implications
and further research areas. This starts with the conclusion and recommendations
overview of findings, policy implications and areas for further research.

5.1 Summary

The purpose of the study was to examine the factors affecting SMEs ' access to credit in
the case of the Mpwapwa study district. The research was conducted with the following
objectives: discussing the influence of business characteristics on Small and Medium
Entrepreneurs (SMEs) access to finance in Mpwapwa District, discussing the impact of
demand for collateral on access to finance for Small and Medium Entrepreneurs (SMEs)
in Mpwapwa District, and discussing the effects of paying interest rates on access to
finance.

A descriptive analysis model used in this study by using open and close-ended questions
to prepare quantitative results. Stratified random sampling using the Statistical Package
of Social Sciences (SPSS) to select a sample size of 132, while analyzing data using
descriptive statistics. Data obtained was coded using various variables and descriptive
statistics such as frequencies, mean, percentage, standard deviations and tables used to
analyze and interpret data.

The study findings on firm characteristics and access to credit revealed that most of the
respondents agreed that size of the firms has relationship with the access to loans,
SME’s located in rural areas are faces difficulties in accessing credit finance compared
to those located in urban areas and younger firm (less than 3 years) have less
experiences on applying for credit than older firms higher than 3 years.

46
5.2 Conclusion
Small firms experience a challenges in accessing credit from banks as compared to big
SME’s, location of a firm also affects access to finance, older firms that have been
around for a long time have more experience in accessing finance than younger firms
and credit does not enable SME’s achieve or meet their expansion plan.

Demand for collateral negatively affects access to credit to SME’s in Mpwapwa district.
Large portion of these businesspersons do not own collateral possessions due to
discrepancy power relations at the household level, yet the value of their business cannot
provide enough sanctuary against which they can secure credit finance. Therefore it is
concluded that there is negative collation between collateral and access to credit to
SME’s in rural areas.

Interest rate negatively affects choice of financing decision of SME’s for their
businesses. Higher interest rates charged on credit increases the cost of credit leading to
a decline in the availability of credit finance to SME’s. Overall, the high costs of credit
as a result of interest rates are prohibitive for the SME’s.

5.3 Recommendations
SMEs growth and development in Tanzania can be contributed by increase of access to
financial services through reducing the challenges contributing to limiting access to
credit. Based on small and medium enterprises, government interventions and financial
institution below are the recommendations

5.3.1 Government Interventions

In order to reduce challenges relating to access of credit due to poor record keeping and
poor business management should restructure the education system to reduce number of
people in SMEs sector who create challenges in accessing some financial services due to
operating business informally. Furthermore through restructuring of education system,
will promote use of advanced technology to change in the production and provision of
SMEs services to the customers to better in quality and quantity.
47
Interest rate also is a challenge the government should maintain periodical check on the
interest rate suitable for the SMEs, through fixing interest rates depending on the size of
the firms to increase growth of SMEs and reduce monopoly large firm(s).Furthermore to
levy specific tax on financial institutions which the burden can’t be transferred to the
borrowers through increase of interest rates and charges thus to reduce the cost of
acquiring loan to the small and medium enterprises.

Market for the produced products by small and medium enterprises is still low. Due to
low quality of the service and the goods produced, the government should reduce cost of
importation of technology associated with production and provision of services for the
SMEs to increase adoption of Morden technology in production and provision of service
to improve quality and quantity. Due to stiff competition due to foreign products and
services the government should increase the importation cost to reduce competition
through boost the demand for the domestic products

Fraud committed by the SMEs due to lack of enough information by the financial
institutions. The government should create an information system which can assist in
sharing of information among financial institutions which can assist in reducing fraud
such as non-performing loans. Furthermore information system should assist clients of
financial institution in determining which financial institutions have easier and
favourable borrowing and other financial institutions to reduce the monopoly in financial
institutions due to lack of information to SMEs

Flexibility in acquiring source of finance is still low. The government through Dar es
Salaam Stock Exchange should emphasize SMEs in understanding the use of venture
capital and public market to attain proper capital structure. Findings indicate most of
SMEs are still dependant on debt other than equity in both start-ups of the enterprise and
at operational costs

48
5.3.2 Small and Medium Enterprises
Low access of credit and other financial services is mainly due to number of reasons as
indicated in findings. The study recommend the involvement of government and private
authority and constant consultancy should be taken into consideration during start-up of
SMEs and during operation to take into consideration proper build-up of capital
structure to avoid overdependence on credit only, to maintain formal record keeping
consistent with domestic and international regulations and to insure growth of the SMEs
with compliance to the national laws and regulations.

5.3.3 Financial institutions

The constraints facing SMEs in accessing credit is mainly due to the conditions set by
the financial institutions. Financial institutions should restructure on the conditions and
procedure to acquire finance to improve the level access to credit to the SMEs

The financial institutions should cooperate with the government, NGOs and the private
sector stakeholders in creation and amendment of financial policies periodically to
insure the availability of current financial policy which favours SMEs in current period.
Furthermore the financial institutions should prepare seminars and training with SMEs
or business and investment sector to constantly communicate the requirements,
challenges and benefit of the financial services provided and received

There should be a close relationship between MFIs and SMEs to find out the best way to
work together for mutual benefits. This will eventually provide room for discussion of
the existing problems and come up with better solutions. On the same thinking the study
recommends that there should be more forums whereby MFIs and SMEs meet and
discuss issues related to loans and business

Financial institution should insure periodical flexibility on creating of new services

which can both reduce the cost of financial services, bringing financial services even
closer to the need and even create ease of access of the financial services. Furthermore
49
flexibility in pricing the financial services is also beneficial to the SMEs accessing
financial services

5.4 Suggested Areas for Further Research

The study recommends areas of further research as follows;
Firstly, the study was only limited to financial characteristics, firm characteristics and
individual factors as main cause of limiting access to finance
Secondly, the study was only limited to 132 sample size in Mpwapwa district, Dodoma
which cannot be generalized to the overall population of the country. The future studies
can use a larger sample size to determine different or similar results.
Future study could also conduct cross sectional research design with other regions to
Dodoma
Lastly the study was only limited in SMEs as the population the future study should also
consider including both SMEs and large firms in determining what affect their access to
finance

50
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APPENDICES

APPENDIX A: Introduction letter

Dear Respondent,

I am a student from Mzumbe University undertaking a Masters Degree in Accounting

and Finance; I am conducting a research study on the Factor Affecting Access to
Finance Among Small and Medium Enterprises (SME’s) Mpwapwa District. I seek your
assistance to provide information on this topic by filling these questionnaires. All
information you give will be confidentially treated and will be used solely for this
research and for academic purpose. No source or individual will be identified or
comment attributed to the originator. I thank for your co-operation.

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APPENDIXII: Questionnaire for Financial Services Beneficiaries
SECTION A:
Questionnaire to Respondents
1. Gender (Sex) of respondent :( Please tick appropriate answer)
(a) Male ( )
(b) Female ( )

2. Marital status (Please tick appropriate answer)

(a) Single ( )
(b) Married ( )
(c) Widowed ( )
(d) Widower ( )

3. What is your age group? (Please tick appropriate answer)

(a) Age between 18 – 30 year ( )
(b) Age between 31 – 40 year ( )
(c) Age between 41 – 50 year ( )
(d) 51 years old and above ( )

4. What is your education level (Please tick appropriate answer?

(a) Primary school ( )
(b) Secondary school ( )
(c) Diploma ( )
(d) Bachelor Degree ( )
(e) Post graduate ( )
(f) Others, Specify ……………………………………………………..

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5. Distribution of the Business by Age
(a) Above 5 years ( )
(b) 3-4 years ( )
(c) 1-2 years ( )
(d) Below 1 year ( )

PART B: FINANCIAL CHARACTERISTICS THAT AFFECT SME’S ACCESS

TO CREDIT FINANCE

1. Collateralisamong of the factor that posed difficulties in acquiring credit finance?

(a) Strongly Disagree ( )
(b) Disagree ( )
(c) Neither Agree not Disagree ( )
(d) Agree( )
(e) Strongly Agree ( )

2. What is the type of collateral by your SME’s

(a) Land( )
(b) Livestock ( )
(c) Household Properties ( )
(d) Agricultural Equipment ( )
(e) Vehicle ( )

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3. Among the following reasons what do you think is the reason that hinder your ability
to secure financial assistance

Statement 1 2 3 4 5
The ability to repay is the considered factor by
Financial Institutions
Financial Institution guarantees the value of collateral
is adequate to access the credit assistance to SME’s
The type of collateral in my possession is acceptable
by the financial institutions
Collateral is the major hinder factor to my access to
finance assistance
1: Strongly Disagree, 2: Disagree, 3: Neither agree nor disagree, 4: Agree, 5: Strongly
Agree

4. Is the Interest Rate factor that influence decision making on taking loan from
financial institutions?
(a) Yes ( )
(b) No ( )

5. What is the maximum length of the loan repayment from the financial
institutions
(a) 1 year ( )
(b)2 years ( )
(c) 3 years ( )
(d) None ( )

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 6. What is your perception on the Interest charges from the Financial Institutions
1 2 3 4 5
Fear of not be able to repay the loan due to in interest
charges
Amount of Interest charged discourage starting and
rural SME’s
Financial Institutions charges excessive interest on
credit finances.
Interest charged by the Financial Institutions is related
with the collateral of the loan
1: Strongly Disagree, 2: Disagree, 3: Neither agree nor disagree, 4: Agree, 5: Strongly
Agree

PART C: FIRMS CHARACTERISTICS THAT AFFECT ACCESS TO CREDIT

FINANCE
Statement 1 2 3 4 5
Size of firm has the effect in accessing the loans
Small Firms face difficulties in
accessing loans compared to big firms
Financial Institution are unwilling to finance small firms
located in rural areas
Location of the firms has an effect in accessing the loan

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