The Impact of SME Financing on Economic Growth in Zimbabwe (1989-2019)

Author

Chimatira, Alison

Title

The Impact of SME Financing on Economic Growth in Zimbabwe (1989-2019)

Abstract

Small and Medium scale Enterprises (SMEs) are important for the success of economic growth
and development. There is a global increase in recognizing the importance of Small and
Medium Scale Enterprises in terms of supporting economic growth and development. The
primary purpose of this study was to assess the contribution of SMEs financing towards
economic growth in Zimbabwe. Specifically, the study investigated the impact of SMEs
financing on GDP growth. The study focused on the classical and the modern theories mainly
the Neoclassical Growth Theory, Finance-Growth Theory, lending theory, Signaling theory,
the pecking order theory and the Access to finance Theory of Change. This study adopted an
explanatory correlational study design since it helped the researcher to comprehend and
describe how SME financing drives economic growth. In this study all SMEs that received
funding from the government through SMEDCO constituted the population since 1989. The
SMEs sector was selected due to its importance in Zimbabwe achieving the economic pillar of
Vision 2030. The data gathered was presented and analyzed in a way that enabled statistical
inferences to be made. Statistical methods of presentation such as descriptive statistic tables,
correlograms and multiple linear regression model were used to help in achieving meaningful
interpretation. Tests were performed on sample data to ensure that required conditions were
met before regression modelling. The model was fitted using EViews 7.1 statistical data
analysis package. In a correlational study, the researcher examined whether and to what degree
a statistical relationship exists between SMEs financing and Economic Growth. This study
employed Classical Linear Regression Model (CLRM) to ascertain the statistical relationship
between SMEs financing and Economic Growth. To evaluate the appropriateness and validity
of the model the study analyzed the properties of the statistical distribution of the residuals
generated by the fitted model to check for autocorrelation, heteroscedasticity and normality.
The overall significance of the model was also evaluated by inspecting the model’s coefficient
of determination (R-squared) and the probability value for the F-statistic. The estimated model
found SMEs financing to have a significant positive effect on Economic growth with respect
to GDP growth. The Reserve Bank of Zimbabwe (RBZ) should make sure that SMEs have
proper accounting records so that they can have access to loans within the banking sector.
Moreover, the RBZ should stabilize the cost of borrowing through strengthening the monetary
policy. Small scale business operators should avoid investing in unprofitable business so that
they will be eligible for loan applications.

Date

2023

Publisher

BUSE

Keywords

Financing

Economic Growth

Supervisor

Mr Bindu