“The survival of business enterprises and access to finance: the case of 4 African countries”

Microfinance institutions render essential services to start-up small, micro, medium-sized enterprises (SMMEs) by way of extending loans to entrepreneurs. SMMEs operating in South Africa have relatively better access to microfinance loans in comparison with those operating in Nigeria, Kenya and Ethiopia. A survey was conducted in order to compare the relative ease of access to microfinance loans in South Africa, Nigeria, Kenya and Ethiopia based on a survey conducted in the four Sub-Saharan African countries. The ease of access to microfinance loans was assessed based on criteria defined by Barry and Tacneng (2014). A total of 401 SMMEs participated in the study. Loan applicants were asked to provide answers to questions that indicated the ease of securing loans and meeting loan repayment conditions. Emphasis was placed on the demand for collateral as a requirement for extending loans to applicants, the assessment of entrepreneurial and auditing skills of loan applicants, the difficulty of meeting loan repayment conditions, and adherence to regulations and guidelines recommended by governments. Descriptive, bivariate and multivariate methods of data analyses were used for data analyses. The study found that about 21% of SMMEs were satisfied with the ease of securing loans, whereas the remaining 79% of SMMEs did not. The ease of access to microfinance loans varied by country in which South African loan applicants were the most satisfied in comparison with the remaining three countries. Securing microfinance loans, as well as fulfilling loan repayment conditions were easi-est in South Africa, and most difficult in Ethiopia. In terms of ease of securing loans and meeting loan repayment conditions, the order of nations was ranked as South Africa, Nigeria, Kenya and Ethiopia. In all four countries, the ease of access to micro-finance loans was influenced by country of business operation, extent of benefits realized by SMMEs, and highest level of formal education.


INTRODUCTION AND BACKGROUND
The main purpose of research was to critically examine the ease of borrowing loan from formally registered microfinance institutions in South Africa, Nigeria, Kenya and Ethiopia.Barry and Tacneng (2014) have defined criteria for determining the ease of borrowing loan from microfinance institutions.Although microfinance agencies are expected to complement services provided by commercial banks, they are characterized by financial inadequacy, lack of adherence to guidelines and policies issued by national governments, poor leadership, low ethical standards and poor professional standards.Microfinance agencies are expected to play a noble role by enabling SMMEs to bridge their immediate financial shortcomings.Chakrabarty and Bass (2013) have shown that microfinance agencies in developing nations such as South Africa, Nigeria, Kenya and Ethiopia often flout guidelines and operational policies.According to the authors, this limitation is attributed to lack of effective monitoring and evaluation mechanisms in all four nations.Okpara (2010) has cited two key causes of poor microfinance services in Sub-Saharan African nations such as Nigeria.These are failure to hold microfinance agencies accountable to licensing conditions and lack of financial capacity.In all three countries, microfinance institutions (MFIs) do not adhere strictly to guidelines that are recommended by national governments and central banks.As a result, entrepreneurs with the potential for sustained growth are denied access to credit by MFI institutions.Two motivating factors for the survey were the need for comparing the quality of microfinance services in the four African nations and the quest for reliable empirical evidence and scientific studies.Kemboi and Tarus (2013) have conducted a study in Kenya and have concluded that Kenyan SMMEs demand collateral and impose stringent loan repayment conditions on applicants.The authors have suggested practical remedial actions that require monitoring and evaluation from the Kenyan National Government.Regulation is required in order to ensure service quality standards, fairness and adequate compliance with relevant guidelines and regulations.The demand for improved and affordable microfinance services in South Africa, Nigeria, Kenya and Ethiopia is robust (Newman, Schwarz, & Borgia, 2014).Jaffaris, Saleem, Abideen, Kaleem, Malik, and Raza (2011) have shown that microfinance institutions need to be strictly regulated and monitored as a means of ensuring fairness and objectivity in the disbursement of funds to SMMEs.The authors have argued that microfinance institutions must be monitored by regulating authorities and central banks in order to ensure satisfactory compliance with service standards.The goal of this research was to describe the strengths and weaknesses of microfinance services rendered by microfinance agencies operating in South Africa, Nigeria, Kenya and Ethiopia.

South African SMMEs and access to finance
The cost of borrowing money from microfinance institutions in South Africa is costly.The requirements for borrowing money from microfinance institutions as well as loan repayment conditions are also not easy to meet (Newman, Schwarz, & Borgia, 2014).According to the authors, the key reasons are the demand for collateral, high service charges and high interest rates.The model from Bangladesh has successfully alleviated abject poverty among unemployed rural women.The key to the success achieved in Bangladesh is the provision of loan guarantee by the national government.The other equally important success factor in Bangladesh is Grameen Bank's dedicated service in assessing, evaluating, monitoring and controlling the disbursement and recovery of loan money extended to SMMEs and various applicants such as community-based associations.The big role players in Nigeria are the Nigerian Ministry of Finance, the Nigerian Central Bank, various Nigerian commercial banks and the Stock Exchange of Nigeria.In addition to the formal sector, the informal sector also extends microfinance services to operators of SMMEs in manners that suit lenders and borrowers.
There is enough demand for both formal and informal loan services.However, it is not so easy to regulate and monitor the ease of securing loan money from informal microfinance service providers.The ease of access to loan money from informal microf-inance agencies varies depending on residential area (rural or urban), economic sector, the financial capacity of microfinance service providers, and the degree to which regulations are enforced by the Nigerian government.

Kenyan SMMEs and access to finance
In Kenya, microfinance institutions play a major role in the national economy by making finance available to aspiring entrepreneurs and innovative young graduates of vocational schools, technical colleges and universities.Microfinance agencies operating in Kenyan cities and towns are routinely used for securing loans.Wijesiri and Meoli (2015) have stated that it is not easy to determine the percentage of money borrowed from microfinance agencies that is utilized according to approved plans of action.Kenyan microfinance agencies assist start-up SMMEs by granting them with fast and easy money required for business operation.Since Kenya declared independence from Britain in May 1963, microfinance agencies have played a major role in the Kenyan economy along with commercial banks and insurance companies.Microfinance agencies have taken credit for alleviating poverty among men and women, as well as the unemployed youth.

METHODS AND DATA
An exploratory, descriptive and cross-sectional study design was utilized for conducting the research.In the months of October, November and December 2017, data were collected from a stratified random sample of 401 SMMEs for the study (154 from South Africa, 132 from Nigeria, 88 from Kenya, and 27 from Ethiopia).Data were collected by a postdoctoral research fellow working at Tshwane University of Technology in Pretoria, South Africa as part of the study.Participants of the research were asked to complete a structured and self-administered questionnaire of study in which information was collected on 35 socioeconomic factors.The ease of access to loans was measured by the standards of Barry and Tacneng (2014) set out for assessing microfinance-related activities of interest to SMMEs.The analyses of raw data sets were performed by utilizing frequency tables, cross tabulated tests of associations, ordered probit regression and factor analysis (Chatterjee & Hadi, 2015).
The paper aims to construct a framework that could be used for improving the quality of services provided to businesses by microfinance institutions operating in South Africa, Nigeria, Kenya and Ethiopia.

RESULTS
Based on the criteria set out by Barry and Tacneng (2014), the results showed that 76 of the 401 SMMEs in the survey (18.95%) had a positive perception about microfinance services.The remaining 325 participants (81.05%) had a negative perception.Participants were selected from South Africa (38.40%),Nigeria (32.92%),Kenya (21.95%) and Ethiopia (6.73%).About 55% of participants had solely owned SMMEs.About 34% of participants were in the general services sector.Trade and commerce accounted for about 25% of participants.
Partnerships accounted for about 25% of participants.About 57% of participants were in distribution and sales.About 76% of participants were male.About 47% of participants had age of 31 to 40 years.About 32% of participants had age of 20 to 30 years.The percentage of participants who had completed secondary school level education was about 44%.The percentage of participants with Bachelor's degrees was about 16%.Table 2 shows figures for business-related characteristics.About 55% of businesses had operated for three to five years at the time of the study.About 25% of businesses had operated for six years or longer at the time of the study.The percentage of businesses that were owned by a single operator was about 60%.Family or group ownership accounted for about 27%.
Shareholding accounted for about 12%.The percentage of businesses in the wholesale or retail sector was about 62%.About 72% of businesses employed five or fewer employees in their businesses.4 quantifies the key difficulties and benefits associated with loans.For about 23% of applicants, the task of securing a loan from microfinance agencies was extremely difficult.For about 54% of applicants, the task was harder than expected.About 46% of participants indicated that they managed to improve their investment and production capacities by taking loan money from microfinance agencies.About 40% of participants indicated that the amount of profit realized by taking a loan from microfinance agencies was less than expected.Table 5 quantifies the task of meeting key requirements for loan approval by microfinance agencies.The table shows that only 23% of applicants managed to meet the demand for collateral easily enough.For about 43% of applicants, the task of collateral constituted a major difficulty.Showing proof of fixed assets was a major problem for about 36% of applicants for a loan.Showing proof of current audit report was a major problem for about 49% of applicants for a loan.Showing proof of tax compliance was a major problem for about 47% of applicants for a loan.Showing proof of valid trading license was a major problem for about 6% of applicants for a loan.).The second most popular suggestion was that trade restrictions, heavy bureaucracy and red tape should be eased (35%).The third most popular suggestion was a call for training (13%).The fourth most popular suggestion was that tax waiver should be granted to start-up and newly established businesses at their infant stages (7%).The fifth most popular suggestion was that there must be a policy on promoting local content and diversity of business operations (6%).Bivariate analysis showed that 9 of the variables of study were highly significant predictors of efficiency in microfinance institutions.The p-values were equal to 0.000 for all 9 variables of study.These were: country of operation, duration of service, perception on benefits of microfinance institutions, highest level of education, past history of bankruptcy, extent to which business has improved by taking loan, extent of difficulty in securing loan, ability to meet requirements for securing loan, and year of registration.Table 9 shows regression coefficients from ordered probit regression along with p-values and 95% confidence intervals.The results in Table 10 show that the provision of poor microfinance services to SMMEs is significantly associated with country of business operation, the perception that the benefits realized by SMMEs from microfinance institutions are insignificant, and low level of formal education.Table 11 shows extracted factors and eigenvalues.The factors extracted above indicate that the adequacy of microfinance services is dependent upon the same set of factors indicated in Table 10.
The key finding of study is that microfinance agencies need to be closely supported, monitored and evaluated in order to ensure adequate compliance with government regulations, and to protect vital attributes such as fairness, objectivity, transparency and easy access to finance to all SMMEs.
MFIs have alleviated abject poverty by lending out money needed by start-up SMMEs in South Africa, Nigeria, Kenya and Ethiopia.Microfinance agencies in South Africa were the best, followed by Nigerian, Kenyan and Ethiopian microfinance agencies.Microfinance agencies in Ethiopia had the lowest capacity in comparison with agencies in South Africa, Nigeria and Kenya.Lack of capacity in respect of financial capital was a major obstacle in Nigeria, Kenya and Ethiopia.The results confirm the importance of efficient microfinance services as a means of reducing poverty and promoting profitability in SMMEs.The results also show that microfinance agencies often lack resources for providing loans to SMMEs at more affordable rates.The study has shown that microfinance regulations and guidelines are often disregarded by microfinance agencies, as well as SMMEs.
The key mandate of MFIs is to give out small loans to SMMEs so that they could meet their operational and business related needs conveniently.
SMMEs need financial assistance that comes with reasonable interest rates and minimal bureaucracy (Addae-Korankye, 2014).Figure 1 shows a suitable framework of study.
Microfinance agencies have successfully alleviated poverty in all Sub-Saharan African countries by providing loan services to SMMEs.Some of the key challenges for microcredit are lack of lending capacity and political interference in MFI institutions.A framework is vital for ensuring value for money.In this regard, the ability of microfinance institutions to respect and abide by the relevant regulations, guidelines and legislation in South Africa, Nigeria, Kenya and Ethiopia is critically important.Operators of SMMEs need speedy, highly efficient, reliable, affordable and transparent loan services.

CONCLUSION
The study has shown that microfinance institutions render services that are highly demanded by businesses in all four African countries in the study (South Africa, Nigeria, Kenya and Ethiopia).Everything considered, 21% of the 401 SMMEs in the study were satisfied with the ease of securing loans from microfinance institutions, whereas the remaining 79% of SMMEs were not.The study has shown that microfinance institutions in all four countries lack financial capacity for meeting demands for loans from SMMEs, and that they require collaterals for extending loans to businesses.Regulations and guidelines set out by central banks are not adhered to sufficiently in all four countries.Loan repayment conditions are quite stringent in all four countries.Ease of access to microfinance loans was easiest in South Africa in comparison with Nigeria, Kenya and Ethiopia.The implication of study is that there is a need

The realization of measurable benefits by SMMEs
Adequate services The provision of microfinance services to SMMEs with elements of compliance with regulations and legislation, reliability, responsiveness, assurance, empathy and tangibles

Figure 1 .
Figure 1.Framework for improved services to SMMEs by microfinance institutions Nega and Schneider (2014)d for collateral and a proven track record of paying back loans.The relatively higher interest rates imposed by microfinance agencies and stringent loan repayment conditions are a major deterrent to SMMEs.Microfinance agencies operating in Kenya are ranked as the best in the entire East African region according to studies conducted bySegun and Anjugam (2013).According to Otieno and Moronge (2014), microfinance agencies in Kenya have failed to exploit the education section of the economy fully to their own advantage.They are quite reluctant to lend money to applicants who seek loan services.Musamali and Tarus (2013) have pointed out that microfinance agencies are heavily involved in the services sector of the economy, and that they are only marginally interested in the education sector for financial reasons.The microfinance agency KADET has only 220 customers.The microfinance agency ECLOF has only 211 customers.The microfinance agency SISDO has only 202 customers.The agency Adok Timo has only 173 customers.Nega and Schneider (2014)have pointed out that about 35% of Kenyans have difficulty in securing loans at affordable rates, mostly due to high interest rates imposed on loans by microfinance institutions.The authors have pointed out that about 30% of Kenyans have no access to banking services.Most of these Kenyans live in rural areas.
Worku, 2008))Meoli (2015)overnment, poor and unemployed Kenyans can improve their low socioeconomic status by taking microfinance.The key problem in Kenya has been lack of capacity among microfinance institutions.Examples of some of the key obstacles are lack of capacity, improper regulations, inability to enforce the law, stiff competition with commercial banks, failure to produce innovative and diversified products, lack of profitability, lack of stability, and lack of monitoring and evaluating services to microfinance institutions (MFIs).Wijesiri and Meoli (2015)have shown that formal money lending institutions, as well as traditional microfinance agencies such as commercial banks, Equity Bank of Kenya, K-Rep Bank of Kenya, Family Bank of Kenya, the Co-operative Bank of Kenya, Faulu Bank of Kenya, Finance Trust Bank of Women of Kenya, SMEP Bank of Kenya, Kadet Bank of Kenya and Jamii Bora Bank of Kenya, provide loans to operators of SMMEs.However, the loan criteria imposed on SMMEs by lenders such as ordinary commercial banks is quite stringent.According to the authors, the Kenya is home to several microfinance agencies that offer loan services to operators of SMMEs in almost all economic sectors.In the East African region, Kenyan microfinance agencies provide the best and most professional loan services to operators of SMMEs (Siwale & Ritchie, 2012; Roitch, Lagat, & Kogel, 2015).The authors have shown that Kenyan microfinance institutions have the largest capacity in the East African region in comparison with other East African economies.The study conducted by Schwitay (2014) has found that there are 25 large microfinance institutions in Kenya that extend loans to SMMEs to the tune of about 2 billion American Dollars to about 2 million operators of SMMEs.plicants(Ayele,2015).They also impose stringent loan repayment conditions on applicants.Furthermore, their lending capacities are quite poor (E.Worku & Z.Worku, 2008).

Table 1 .
General characteristics of participants of study (n = 401)

Table 2 .
Duration of operation of businesses (n = 401)

Table 4 .
Difficulties and benefits associated with loans (n = 401)

Table 5 .
Assessment of difficulties in meeting requirements for loans (n = 401)

Table 6 .
Defaulting on loans taken from microfinance institutions (n = 401)

Table 7 .
Ways and means in which national government can assist SMMEs (n = 374)

Table 10 .
Significant two-by-two associations

Table 11 .
Extracted factors and eigenvalues