Relationship Lending and Credit Access by Small Enterprises in Moshi Municipality, Tanzania

Abstract

Small enterprises play a significant role in driving economic growth, reducing poverty, and creating job opportunities in Tanzania. Developing on this background, the study investigated the influence of relationship lending on credit access by small enterprises in Moshi Municipality, Tanzania. The study pursued three specific objectives; to examine the relationship lending practices by small enterprises; to determine the influence of length of relationship lending on credit access by small enterprises; and to analyse the association of multiple lending relationships and credit access by small enterprises. Through a cross-sectional research design, data were collected from 290 small enterprises in Moshi Municipality using a survey questionnaire. Descriptive statistics and logistic regression model were used in data analysis. The study revealed that most of small enterprises owners accessed loan from bank once per year with an average repayment period of one to six months. The study also found that the length of relationship and collateral had significance and positive influence on small enterprises’ credit access (0.596, Wald χ2 (1) = 5.092, p=0.024; 0.357, Wald χ2 (1) = 6.851, p=0.009). Borrowing from multiple lenders was also found to have significant positive influence on small enterprises credit access (2.186, Wald χ2 (1) = 15.393, p= 0.000, while services and size of the firm (-1.749, Wald χ2 (1) = 9.888, p=0.002; -0.221, Wald χ2 (1) = 5.481, p=0.019 were found to have significant negative influence on small enterprises credit access. In conclusion, length of relationship, collateral and multiple lending relationship have significant influence on credit access by small enterprises. It is recommended that small enterprises owners should stay in close contact with their lenders. There is also a need for the government to increase its spending on credit guarantee programs to increase access to loans for start-up businesses, small enterprises and individuals without established credit histories.