Effect of lending by commercial banks on the financial performance of SMEs: case study of Bindura SMEs

Author

Mudzengerere, Owen Batsirai.

Title

Effect of lending by commercial banks on the financial performance of SMEs: case study of Bindura SMEs

Abstract

This study investigated effect of lending by commercial banks on the financial performance of SMEs. This study sought to investigate the relationship between commercial bank financing and the financial performance of SMEs, examine barriers faced by SMEs in obtaining commercial bank financing, explore the commercial banking products available to small and medium-sized enterprises. A total of 109 were distributed to SMEs in Bindura using stratified random sampling technique. Out of the distributed questionnaires, 100 usable questionnaires were returned representing 91% response rate. Descriptive techniques were used to analyze the data. The data was analyzed using descriptive statistics including frequency tables, percentages, pie charts and bar graphs. The findings from the study indicated majority of the population dominated the agricultural sector. Over half of the surveyed businesses in Bindura struggled to obtain financing due to a lack of collateral. Theories of the study used were Packing Order theory, the Agency theory and the static trade-off theory. The pecking order theory helps SMEs make informed decisions about financing based on cost, risk, and the message they want to send to the market. Consequently, many SMEs in the town rely on personal savings to launch their ventures. The study suggests collaboration between the Reserve Bank of Zimbabwe and the Zimbabwean government to create practical policies and a robust feedback system. This would improve access to finance for SMEs. Additionally, the study recommends government oversight of commercial bank interactions with SMEs to ensure fair practices, including managing interest rates on SME loans. Further studies are recommended to look beyond this specific area. If there are studies of lending practices and SME performance in other parts of Zimbabwe, there could be a better overall picture of how these two factors work together throughout the country.

Date

June 2024

Publisher

BUSE

Keywords

Commercial banks,

Financial performance,

Lending SMEs,

Static trade-off theory

Supervisor

N/A