Analysis of credit accessibility and its effects on small and medium sized enterprises (SMEs) in Mogadishu – Somalia

ABSTRACT 
Small and Medium Enterprises (SMEs) play an important role in the socio-economic development of any country. They provide an appropriate channel for the achievement of national macroeconomic objective in terms of employment generation at low investment cost and enhancement of apprenticeship training. The objective of the study is to; (i) to identify the factors influencing access to credit by small medium enterprises in Mogadishu – Somalia (ii) to determine the effect of access to credit  on financial performance of small medium enterprises in Mogadishu – Somalia. The study adopted descriptive and regression analysis to analyze the data. The study used a sample of 100 respondents out of whom 70 responded. Data analysis was done using STATA version 14.0.    The study finds that:  (i) Gender, collateral security and size of the business affects credit accessibility by SMEs. The SMEs that had collateral and were operated by men accessed credit this greatly affected the amount of loan accessed and the SMEs that were small never accessed credit since they had no assets to present as collateral and savings allowed the entrepreneurs a chance to borrow from the banks and also measured their revenue generation capacity. (ii) Savings, number of workers employed, credit accessibility and improved relation with the financial institutions influences SME performance positively. Due to increased profits SMEs were able to save, acquire more assets and use more capital in the business and entrepreneurial development skills provided by financial institutions played a key role in the performance of SMEs. The study concludes that; (a) the accessibility of credit from credit facilities affects positively the financial performance of the SMEs to a very great extent. Some of the SMEs in Mogadishu have been able to make savings while others have not through their respective MFIs. (b) Training has improved the management skills of the entrepreneurs in Mogadishu in financial management, record keeping and business management. This study therefore recommends that; (i) the management of MFIs revise their lending policies and requirements so as to ensure that most of the traders can be able to access credit more easily. (ii) The MFIs use that traders savings as part of collateral since most may not have large tracts of land or the physical collateral needed. (iii) The training on investment monitoring be offered more hours since it was established that the traders had not improved their skills in the region.