EFFECTS OF CHOICE OF CREDIT FACILITIES ON FINANCIAL PERFORMANCE OF SMALL MEDIUM, ENTERPRISES IN RWANDA. A CASE SMEs REGISTERED WITH PRIVATE SECTOR FEDERATION OF RWANDA
Journal Title: European Journal of Business and Social Sciences - Year 2017, Vol 6, Issue 6
Abstract
Of recent SMEs’ financial performance has received a growing attention in both economic and financial literature, much of which is in the developed economies. Much of the existing literature largely focuses on the macroeconomic and microeconomic factors that influence firm financing, and limited attention given to the choice of the financing facilities on performances thereof. The purpose of this study was to analyze the choice of credit facilities on the financial performance of SMEs in Rwanda. Specifically, the study focused on the choices made based on the effect of interest charged on loan, trade credit, asset financing and service quality on financial performance of SMEs in Rwanda registered by private sector federation. This study was based on an exploratory design. The target population for the study comprised of top 100 SMEs in Rwanda registered by private sector federation. The sample size of this study was all the 100 SMEs. Census approach was used in this study since the sample was small. A questionnaire was used as main instrument for data collection from premises of the participant SMEs. The study used both primary and secondary data, where questionnaires was used for data collection. Cronbach’s alpha test was utilized in assessing reliability of research instrument. Data collected was analyzed through SPSS version 21. Data analysis involved statistical computations for averages, percentages, and correlation and regression analysis. Descriptive statistics and Correlation (using the Karl Pearson’s coefficient of correlation) was used to analyze the data and establish the relationship between the dependent variables and the set of independent variables. From the findings of the study, it was concluded that external borrowings are considered to be the cheapest source of financing because of the tax benefits; SMEs access to external sources of funding depends largely on the development of financial markets, and bank loans and overdrafts are the most widespread debt financing methods for SMEs hence it was recommended that there should be an appropriate capital structure that generates the maximum profit for the SMEs, as too less equity financing increases the control of the owners to a large extent, banks should improve transparency on their internal ratings, SMEs should strive to better understand banks‟ loan requirements, deliver clear, complete and timely financial and performance data, and improve rating-relevant factors such as cash flow, equity, accounting, controlling, management, the business strategy, collateral and guarantees and public policy should promote a code of conduct for minimum ratings disclosure, foster venture capital, and improve tax treatment of retained earnings.
Authors and Affiliations
David Kogu Muchiri| Jomo Kenyatta University of Agriculture and Technology, Kigali, Rwanda, Jaya Shukla (PhD)| Jomo Kenyatta University of Agriculture and Technology, Kigali, Rwanda, Ms. Jacklinne Kibachia| Jomo Kenyatta University of Agriculture and Technology, Kigali, Rwanda
Keywords
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