Commercial bank financing to micro, small, and medium enterprises (MSMEs): the mediating and multi-group effect analysis

Abstract

Although the MSMEs sector received relatively sufficient funding from commercial banks, this funding could not bring significant vertical growth to the sector due to different factors. This study is therefore aimed at investigating the repressing factors of commercial banks financing to MSMEs. To achieve the objective, survey data from 411 Micro, Small, and Medium Enterprises owner-managers in Ethiopia were collected using a random sampling technique. The Confirmatory Factor Analysis (CFA) and Structural Equation Model (SEM) result revealed that the total effect of bank finance on the performance of micro, small, and medium enterprises is less than its direct effect due to the competing mediation effect of behavioral finance. Moreover, the result revealed that the relationship between bank finance and performance of Micro, Small, and Medium Enterprises was not significantly moderated by the gender of owners and the size of Enterprises. The result implies that commercial banks should (1) assess the behavior of owner-managers and (2) deal with it before sanctioning loans to ensure the efficient utilization of accessed funds.

RÉSUMÉ

Bien que le secteur des MPME ait obtenu un financement relativement suffisant des banques commerciales, celui-ci n’a pas pu entraîner une croissance verticale significative de ce secteur en raison de différents facteurs. Cette étude vise par conséquent à examiner les facteurs de répression du financement des MPME par des banques commerciales. Pour atteindre cet objectif, des données d’enquête ont été recueillies auprès de 411 propriétaires-gérants de micro, petites et moyennes entreprises en Éthiopie, à l’aide d’une technique d’échantillonnage aléatoire. Le résultat de l’analyse factorielle confirmatoire (CFA) et du modèle d’équation structurelle (SEM) a révélé que l’impact total du financement bancaire sur la performance des micro, petites et moyennes entreprises est moindre que son effet direct en raison de l’effet de médiation concurrent de la finance comportementale. Il a également révélé que le rapport entre le financement bancaire et la performance des micro, petites et moyennes entreprises n’était pas significativement modéré par le genre des propriétaires et la taille des entreprises. Le résultat implique que les banques commerciales doivent (1) évaluer le comportement des propriétaires-gérants et (2) traiter avec eux avant de sanctionner des prêts dans le but de garantir l’utilisation efficace des fonds accessibles.

Keywords:

• Mediating effect
• moderating effect
• micro
• small
• and medium enterprises
• banks finance to MSMEs

MOTS-CLÉS::

• Effet médiateur
• effet modérateur
• micro
• petites et moyennes entreprises
• finance comportementale
• compétence des entrepreneurs

Acknowledgments

During the data collection phase, different individuals have assisted and we would like to thank the Ethiopian MSMEs Agency officials and workers.

Competing interests

Authors have no competing interest that all the data and analysis were done by them.

Declarations

Availability of data and material

Data for the study was collected from MSMEs in Ethiopia during the time from October 2017 to April 2018.

Authors’ contributions

This study is basically conducted by the corresponding author (AAE). However, the guide has also contributed to his idea in every part of the manuscript. Therefore, the contribution could be equally marked for both authors.

Notes

1 DCA is the Authority USAID missions used to issue loans guarantees to private lenders to address the needs of local businesses by using partial credit guarantees to mobilize local financing in developing countries. In Ethiopia, it motivated commercial banks to finance MSMEs with partial credit guarantee sheme. Thus, banks share only 50% of the default risk and DCA take the remaining 50%.

Additional information

Funding

For this Specific research, no funding agency or organization has participated that the cost of the study was covered by the researcher.

Notes on contributors

Amare Abawa Esubalew

Amare Abawa Esubalew is a Ph.D. candidate in the Department of Commerce, Mangalore University. He is also a Faculty member at Addis Ababa University, Department of Management. His areas of research interest are Entrepreneurship and Small Business Management, Financial Management to MSMEs, and Human resource Management for SMEs.

A. Raghurama

A. Raghurama was a Professor in the Department of Commerce, Mangalore University. He worked in different capacities in the University from the Chairman of the Department to the Dean of the Faculty. Though he passed away before the paper gets published, his contribution was remarkably important.