An analysis of the determinants and consequences of under financing small business enterprises in Tanzania.

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University of Dar es Salaam
The researcher revisited NBC (1997) Ltd, SIDO and Pride (T) Ltd lending programmes to the small Business Enterprises sector. Small Enterprises promoters were interviewed and some visited to collect information that helped to analyse and explain the causes and effects of underfinancing the SBEs in Tanzania. This research has been prompted by symptoms, which are evident among the small enterprises and the lending institutions. NBC's loan portfolio had accumulated overdue debts coupled with very low loan recovery rates. Small Businesses lack the optimal combination of resources leading to unsystematic and erratic growth patterns. One possible explanation is improper financing decisions done by various players including entrepreneurs, lenders and general economic factors. Underfinancing causes have been traced through project planning, lending and project implementation and control processes. The identified factors differ in importance among institutions and borrowers although they do overlap from one situation to another. These factors limit optimal capital required sustaining businesses operations. The causes responsible for underfinancing SBEs in Tanzania are; poor project plans, risk exposure, limited capacity of borrowers, limited capital, variations of loans provided, interest rate setting, collaterals, loan covenants, timing of interest and principal repayments, profitability of businesses, poor management, inflation and lending officer actions. It has been found that, there is a difference though not significant between proposed optimal capital required to what has been injected. This is augmented with evidence that, loan amount disbursed is different to what was applied in the NBC. Variations in loans is explained by limitation of collaterals, financials, business viability and risks, duration of bank client relationship, poor credit appraisal and fluctuations in foreign exchange rates. Underfinancing of SBEs have impact on lending Institutions profitability and future prospects, due to a symbiotic relationship that exist between the two players.
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Small business, Tanzania, Small Enterprises
Malongo, A. L. I. (1998). An analysis of the determinants and consequences of under financing small business enterprises in Tanzania. Master dissertation, University of Dar es Salaam. Available at (