Investment Policy And The Role Of The Banking Sector In Financing Small And Medium Enterprises

ABSTRACT

The aim of this thesis is to review the investment policy of the banking sector and the ease of SME access to bank finance. Secondly, to determine the extent to which bank finance contributes to the success of SMEs. This study used both qualitative and quantitative methods. In order to test the extent to which bank finance contributes to the success of SMEs the study used the Ordinary Least Square (OLS) regression method to analyze cross-sectional data. Whereas under qualitative method, descriptive research design was used; in addition both secondary and primary data was generated through face to face interviews and survey questionnaire. This study found that the most important source of money to start-up a small business is from own savings and loans borrowed from banks. Contrary to the study by (Migiro, 2005; De la Torre, MartinezPería & Schmukler, 2010; Ramsdem, 2010; Su & Sun, 2011) the evidence in this thesis indicate that access to finance is a minor obstacle in financing SMEs. However, SMEs unable to obtain access to finance cited a lack of collateral, high interest rates and loan application procedures being complicated as the main reasons. Among the ways in which SMEs could succeed are: tax relief and mentoring services. Moreover, the empirical test found that the amount of bank approved loans has a positive effect on the performance of SMEs as measured by ROA.