Factors influencing access to credit by small and medium enterprises in South Sudan

Abstract

This study looks into factors that affect SMEs' access to finance in Juba City Council, South Sudan. The study's stated goals included establishing a link between interest rates and SMEs' access to credit, examining the effects of collateral requirements on SMEs' access to credit, and determining the impact of inflation rates on SMEs' access to credit. Governments are beginning to focus more and more on SMEs as a key component of sustainable and inclusive economic growth as the world's economies struggle with ongoing issues. Shocks to supply and demand occurring at the same time have severely hurt SMEs. This indicates that SMEs are in extreme need of funding at a time when financial institutions are particularly cautious. The study's explanation of SMEs' access to credit was based on the financial inclusion theory, Fisher's theory of interest rates, and the information asymmetry hypothesis. The intended audience was South Sudan's Juba City Council's registered SMEs. A total of 6,004 SMEs were included in the sample, making 375 SMEs. The sample size was determined using the Yamane sampling technique using the list of all registered SMEs operating under the Juba City Council. Cross-sectional design was used in the study. Using survey questionnaires, data on research variables was gathered from stakeholders in SMEs management at various levels. The situation of SMEs access to credit in relation to interest rate, collateral, and correlational study was described or characterized. The study found a significant association between interest rate and credit availability (r=0.936), which was supported by data. The findings demonstrated that SMEs' access to credit decreased by 1.5054 units for every unit rise in interest rate. t (344) = -13.8918, p 0.05, indicated that this effect was statistically significant at 5%. The idea that there is no discernible connection between interest rates and credit availability was thus rejected. The study also found a significant (r=0.959) link between the need for collateral and SMEs' ability to acquire finance. The study's findings indicated that a unit increase in the amount of collateral required would result in a 1.50491-unit drop in the amount of credit available to SMEs. This result showed that there was a statistically significant negative correlation between the collateral demand and SMEs. A need for policy creation and/or a shift in practices by stakeholders has been identified based on the study's findings. Decreased loan interest rates are thus advised by the study for banks and other financial institutions. Since the analysis shows that the value of loans allowed per each loan are less than $500 and that more than half of the loans are not approved, decreasing the interest rate on SMEs lending would preferably enhance the volume of loans valued at that amount. Banks and other financial institutions should rethink their policies about small business loan repayment capabilities and adopt a less risk-averse mindset in favour of conducting research on SMEs' loan repayment capacities. Innovative practices from banks and other financial institutions are encouraged.