Relationship lending and credit access by small enterprises in Moshi municipality, Tanzania

Abstract

Small enterprises drive economic growth, reduce poverty, and create job opportunities in Tanzania. This study aimed to assess the influence of relationship lending on credit access by small enterprises in Moshi Municipality, Tanzania. The study's objectives were to examine the relationship lending practices by small enterprises, determine the influence of the length of relationship on credit access by small enterprises, and analyse the association between multiple lending relationships and credit access by small enterprises. Data were collected from 290 small enterprises in Moshi Municipality using a cross-sectional research design and a survey questionnaire. Descriptive statistics and logistic regression models were used in data analysis. The study revealed that most small enterprise owners accessed loans from banks once per year with an average repayment period of one to six months. The study also found that the length of the relationship and collateral had a significant 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, the length of relationship, collateral, and multiple lending relationships significantly influence small enterprises' credit access. It is recommended that small enterprise owners should stay in close contact with their lenders. The government also needs to increase its spending on credit guarantee programs to improve access to loans for start-up businesses, small enterprises, and individuals without established credit histories.