Assessing the Access to Finance by Small and Medium-Sized Enterprises from Financial Institutions in Blantyre City-Malawi

Abstract

SMEs are an integral part of the economy in Malawi. The paper assesses the access to finance by SMEs from financial institutions in Malawi by highlighting the obstacles that SMEs face in their effort to raise finance. The quantitative research approach was adopted in conducting the study. Questionnaires were circulated to 100 SMEs in the City of Blantyre-Ginnery Corner and the SMEs were selected using the random sampling techniques. The following major findings were revealed. There are financial institutions that are willing to provide funds to SMEs for growth and expansion but most Malawian SMEs fail to meet the lending requirements demanded by these institutions. Chief amongst these is the inability by most SMEs to provide collateral or security and audited financial statements for their businesses. On the other hand, for the small number that is able to access finance, they are faced with high interest rates which make it very difficult for them to grow. The other constraints include lack of finance, stiff competition in the sector, high taxes and corruption and bribes to access contracts. Another interesting revelation is that SMEs relationship with their bankers is not healthy. Most SMEs consider their relationship to be average despite recent focus by the banks on SMEs businesses. The study recommends the enforcement of the Credit Reference Bureau Act 2010 to help financial institutions identify and lend to creditworthy SMEs; banks should soften their adverse risk attitude of over reliance on collateral rather than on business cash flows. The government should also consider provision of tax incentives to banks’ lending to SMEs; stabilisation of the economy to achieve lower inflation and interest rates and formulation of government policy on SMEs that would compel Ministries, Departments and Agencies to allocate a proportion of contracts to SMEs in any tender. Lastly, financial institutions should revisit their approach to SME banking.