Credit access by small and medium enterprises in Tanzania: a case study of Dar es Salaam city

The contribution of SME sector in economic development has been recognized worldwide. The main challenge of the sector to contribute fully is a limited access to finance. This study examined the factors influencing access to credit by SMEs operators. Data collection was conducted through self-administered questionnaire to 300 SMEs owners in Dar es Salaam city distributed across Ilala, Temeke and Kinondoni municipalities. Information was sought for three key research questions related to challenges of lending among SMEs, reasons for bad loans and factors influencing credit access by SMEs from lenders. The statistical analysis of data involved descriptive and logistic regression to establish the association between dependent and independent variables. Descriptive analysis showed that the major challenges that lenders encounter when lending among SMEs include; high interest charged that pool bad borrowers who are likely to default and collateral requirement as the decisive factor for loan approval. Furthermore, descriptive analysis shows that the main reasons for bad loans among SMEs operators in the region include poor credit management, high interest rate, short term repayment and poor business skills. The logistic results indicated that business information is the critical factor that largely influences credit access by SMEs in the region. Other factors include startup capital and age of the SMEs operator. Therefore, SMEs operators should maintain attractive attributes to stimulate lenders to extend credit to financing their business operations. The government should strategically regulate the stringent conditions and requirements posed to SMEs operators while education should be offered to SMEs operators in the region to improve their business operations. Further areas of research can be on social-political factors and simultaneous demand and supply factors on their influence on credit access.