Financing of Small and Medium

Abstract

The study assessed the extent to which Small and Medium Enterprises (SMEs) in Tanzania utilise debt financing to finance their operations and identified the factors affecting the utilisation of debt financing. This study was conducted on 33 organisations from different industries across the city of Dar es Salaam using a semi-structured questionnaire survey. The findings from this study indicated that a larger proportion of respondents made use of debt financing and 83% of respondent SMEs utilised debt financing from banks during the financial year ended 2008. The results suggest that the financial market in Tanzania has improved significantly. The study also provides evidence to support previous research that a company’s level of debt at any time will depend on the business owners’ characteristics; and internal and external characteristics of the firms. It is evident from this study that banks play a very important role in financing SMEs. All respondents pointed out banks as the organisations supporting SMEs. Therefore the promotion of credit guarantee schemes to commercial banks would be the best way for the government to facilitate SMEs access to debt financing. Credit guarantee schemes can help banks to reduce the perceived risks and providing incentives to them to lend to SMEs.