Seed Capital Challenges For Small And Medium Enterprises (Smes): A Case Of Dodoma Municipal

ABSTRACT

The main objective of the study was to assess the funding arrangements available to

SMEs in Dodoma region. Specifically the study assessed the source of funds that

exists for the start-up of SMEs in Dodoma Municipal, outlined the main challenges

to credit for start up of SMEs in Dodoma Municipal, identify sustainable sources of

funding start up of SMEs in Dodoma Municipal and Identified ways of improving

credit availability, accessibility and delivery to SMEs in Dodoma Municipal.

A cross sectional research design was adopted, 80 SMEs from five streets of

Dodoma Municipal were randomly selected. Key informants were randomly selected

from commercial bank, focus group discussions were also done in the selected

streets. Data were collected in selected streets through administration of

questionnaire. Secondary data was collected from Library books and publications

from the internet and the ministry of Industry, Tanzania Chamber of Commerce and

SIDO. Data were analyzed using Statistical Package for Social Science software to

obtain frequencies and percentages in order to summarize results. Qualitative data

collected through focus group discussion and key informant interview method were

analyzed using structural function content analysis method.

The findings of the study show that the sources of funds for SMEs were mainly

Personal savings and contribution of friends and relatives, only a small percent

comes from business loans, government support and donors contributions. The study

revealed that lack of security, bureaucracy of bank officials and long procedures

were the major challenges of getting loans to SMEs in Dodoma Municipal. The study

identified ways of improving credit delivery to SMEs; these include reduced interest

rate, introduce loan guarantee schemes and reduced loan requirements such as

security.

It was recommended that there is a need of improving SMEs access to credits, by

encouraging private sector to open up more financial institutions and existing ones to

increase its networks, this will increase credit availability to SMEs and makes its

delivery sustainable. Financial institutions should revise their lending procedures and

reduce loan Interest rate to enable SMEs to break even and repay their loans earlier.

Also the government and private sector should establish loan guarantee schemes to

increase access to credits to start up of SMEs in Dodoma Municipal.