Working Paper Series: Special Edition of 2016 to 2018 Interns

Using a survey of SMEs in Cote D’Ivore Abo et al. (2013) employed bi-variate analysis and found that for most SMEs, inadequate collateral and lack of financial information were the principal constraints to obtaining bank credit. Further, information asymmetry between lender and SMEs were cited as another hindrance to obtaining bank loans. Principally because of lack of collateral on the part of the borrower, banks look for formal financial information, which is lacking amongst most SMEs given their size and length of years in operation. Using cross-country data from the World Bank Enterprise Surveys (WBES) for a group of developing countries Wang (2016), estimated a probit model and found that high interest rates, complicated application procedures and high collateral requirements were found to be some of the most serious constraining factors in accessing finance. Sharma & Gounder (2011) also used a probit model and found that bank collateral, paperwork, interest and fees was among the main concerns expressed by enterprises with and without financing in Fiji. In the case of those without financing (bank loan), 90.0 per cent of those attributed the foregoing list as the reason why they could not access a facility. Cole & Dietrich (2014) estimated a bivariate probit model using WBES data for 41,000 SME in 80 countries. Findings revealed that even though firms needed credits they were discouraged from applying for credit, as they were much more likely to be denied when they applied. In developing countries, of the firms that needed credit, it was estimated that 44 per cent of them did not apply because they were discouraged from doing so. High interest rates and large collateral requirements were some of the main impediments that discouraged firms from applying for credit. Additionally, it was found that length of years in operation, size of firm and growth were important characteristics in facilitating firms to secure financing. Using the World Bank Enterprises Survey 2009 Nu Minh Le (2012) carried out a study on what determines access to credit by SMEs in Vietnam using a logit model. Based on findings; machinery, bank fund and national sales was positively related with the probability of procuring credit whereas the probability of possessing an overdraft facility did not improve the likelihood of accessing credit. Additionally, possession of financial statements did not have an impact on the ability to access credit as it was found that many enterprises possessed two different bookkeepings;

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