An economic evaluation of factors affecting acquisition and repayment of NBC loans by small scale Industries in Tanzania

In many developing countries small scale industrialization has been identified as an important strategy for economic development. However, the development of small scale industries requires financial support from formal and informal sources because the majority of people in these countries are poor. In providing the financial support most developing countries have been facing two main problems. The first problem is that the majority of people in these countries do not get this financial support in form of credit from formal sources. Secondly, those who get the credit from formal sources do not make the repayments, sometimes the repayments are not made in time. It was the task of this study therefore, to analyse the factors that influence and determine small scale industries' borrowing and credit repayment from formal sources in Tanzania. In view of the difficulties of quantifying all the explanatory variables, the econometric analysis was supplemented by the qualitative analysis. On the econometric analysis single equation model was used to investigate the factors. The linear regression OLS technique was used to estimate the parameters and to establish the significance and signs of the estimated coefficients. The findings of the econometric analysis showed that collateral security, owner's equity, transaction costs, market integration, interest rate and anticipated profit are significant determinants of borrowing; while market integration and the number of visits by bank officers are significant determinants of credit repayment. In the light of the findings we recommended that there is a need of changes in the whole process of borrowing and credit repayment. The changes include the improvement of all factors that enable the SSIs' sponsors to more profitable use of credit and become more acceptable clients to the formal sources. These factors include the improvement in market integrative by opening Bank branches all over the country, the improvement in •the resource base of the SSI's sponsors and the reduction of transaction costs. On the credit repayment part of it default problem can be solved by discouraging under financing of the projects, imperfect project analysis, unrealistic repayment schedule, high propensity to consume and by reducing the number of loan cases per field staff.