The relationship between lending rates and borrowing levels by SMEs

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University of Dar es Salaam
The average lending rates by Commercial Banks and MFIs in Tanzania has been falling from 25% in the year 1990s to 16% recently. Despite the above trend there was a circumstantial doubt as to whether borrowing levels by SMEs has been proportionate with falling rates. Descriptive research design was applied because the problem was well known and therefore the desire was to test the variables. 34 questionnaires were administered to SMEs in the following areas in Dar Es Salaam, Kinondoni, Mlimani City, Sinza Kijiweni, Temeke, Kariakoo, Magomeni and Kimara Temboni. The Questionnaires intended to test as to how SMEs respond to changes in interest rates and how it affects their borrowing decisions. Also 6 questionnaires were administered to six commercial banks which are NBC, CRDB, STANBIC, Standard Chartered Bank, Akiba Commercial Bank, and Tanzania Postal Bank and three to MFIs which are FINCA T Ltd, PRIDE Tanzania and Dar Es Salaam Community Bank. The intention was to asses as to whether any deliberate changes in interest rates had any relationship with borrowing levels by SMEs.The study reveals that there is no strong relationship between changes in interest rates and borrowing decisions by SMEs in Dar es Salaam. Since, Dar Es Salaam region is a good representative sample of all regions in Tanzania whereby there is presence of all banks and MFIs, the study can generalize that the same situation applies in Tanzania as a whole. Based on the research findings, this study recommends various strategies that need to be taken by the government, and financial institutions that engage in the lending business. Among of the strategies is for the government to formulate regulatory authority for MFIs so that they are regulated and monitored for the benefit of SMEs. There should be consistent sensitization for SMEs and people at large to build culture of saving, borrowing and repaying, Government cooperate with entrepreneurship centers like UDEC to build business incubation centers. MFIs should include in their marketing strategies aspects of promoting different loans, through different media about the loans they offer, conditions etc.
Available in print form, East Africana Collection, Dr. Wilbert Chagula Library, Class mark (THS EAF HG1642.T34T45)
Borrowing levels, lending roles, Dar es Salaam
Tairo, E. S (2008) The relationship between lending rates and borrowing levels by SMEs, Master dissertation, University of Dar es Salaam. Dar es Salaam.