The role commercial banks practices on the growth of small and medium enterprises in Tanzania: evidence from the selected commercial banks in Dar es Salaam

Abstract

This study examined the role of commercial banks practices on the growth of small and medium enterprises in Tanzania. The study was guided by four research objectives which were to find out the extent to which commercial banks credit solutions, trade finance, foreign exchange and Omni channels services influence the growth of small and medium enterprises in Tanzanian. The study was carried out in Dar es Salaam region and fifteen (15) commercial banks were selected from three municipalities namely ilala, Kinondoni and Temeke Municipal. The study was informed by Finance Led Growth theory. The study used mixed research methods under the cross-sectional research design. Under qualitative approach, the purposive sampling method was applied in order to gather in depth information from the selected six (6) key informants. On the other hand, through quantitative approach convenient sampling method was used to choose the main respondents of the study from the fifteen (15) selected commercial banks studied from the three (3) municipals. The study applied descriptive and inferential statistics in the data analysis. In inferential analysis, data analysis was performed by using model Fitness, Analysis of variance, correlation Analysis and Multiple linear regressions through the application of SPSS software. The study found out that commercial banks practices of credit solutions, trade finance and foreign exchange had significant influence on the growth of the small and medium enterprises (SMEs) in Tanzania. Nevertheless, the commercial banks Omni channels services indicated less significance influence on the growth of small and medium enterprises despite the providing Omnichannel services. The study observed that banks need more efforts to promote digital banking to small and medium enterprises, the study further identified that Omni channels is less preferred by the most users. From the findings of this study, a number of policy recommendations were provided. The study suggests government should formulate policies which will create conducive environment in the areas of economy, legal and institutional framework that will enable banks to support the growth of small and medium enterprises in Tanzania. Moreover, the government should ensure accessibility of eligible commercial banks to borrow from the existing national loan guarantee scheme which will enable them to provide cheap loans to small and medium enterprises. Furthermore, the study recommends that government should create an enterprise finance guarantee for viable small and medium enterprises with neither collateral nor credit history. The study recommends that commercial banks should provide services beyond those in their core banking proposition so as to access the profitable untapped small and medium enterprises segment.