An Investigation Into Challenges In Accessing Finance By SMEs In Windhoek: A Case Study Of The John Pandeni Constituency

ABSTRACT

Small and medium size enterprises (SMEs) play a significant role in the economy in terms of sustainable growth, employment generation, development of entrepreneurial skills and contribution to export earnings. In Namibia, SMEs contributed 14 per cent to the annual Gross Domestic Product (GDP) and employs more than 160 000. However, access to finance is a major obstacle for developing and sustaining the SMEs sector as an engine for employment creation and poverty alleviation. It remains difficult to access funds from financial institutions, especially during start-up. Thus, this research investigated the challenges faced by SMEs in accessing finance, focusing on the SMEs operating in the John Pandeni Constituency, Windhoek. A mixed research design was used and a convenient sample size of 54 SMEs concentrated at the Soweto Market was chosen due to the convenience of having all registered SMEs housed in one complex. The findings of the research revealed that at each stage SMEs have different financial requirements and will source their financial needs from different sources. The problem of access to finance occurs due to the gaps that exist between the suppliers of external financing and the demand for financial resources. The research observed that there are still numerous impediments facing entrepreneurs in SMEs who want to start a business, with the financial institutions arguing that their reluctance to extend credit to small enterprises was due to high administrative costs of small-scale lending, asymmetric information, high risk perception, and lack of collateral. The research recommends that SMEs improve their knowledge of the financial procedures and the workings of the financial institutions, as it is crucial to their survival, while the financial institutions are implored to engage SMEs on improved support and contractual terms in order to reduce information asymmetry, moral hazards and adverse selection. Finally, the government is implored to update the SME Policy and improve its institutional framework to enhance SME participation in the greater economy.