Financial Access and Small and Medium Enterprises Development in Rwanda

Abstract

The study sought to assess the impact of factors influencing access to finance on the growth of small and medium enterprises (SMEs) in Rwanda, highlighting a significant gap in the current understanding of how financial access affects business development within this context. The specific objectives were to evaluate how credit offerings, interest rates, and business risks influence the development of SMEs and to propose solutions to the challenges related to financial access for these businesses in Rwanda. Employing a descriptive research design, the study utilized a survey method to gather insights into the determinants of financial access and their effects on business growth, focusing on SMEs in Kigali. The target population comprised 4,112 employees from SMEs in Kigali, with a sample size of 98 respondents selected to represent this group. Data was collected through questionnaires, and both primary and secondary data sources were used. Analysis was conducted using descriptive and inferential statistics via the Statistical Package for Social Sciences (SPSS). The findings revealed that high transaction costs and interest rates, along with stringent collateral requirements, hinder SMEs' ability to access finance. It was also found that the size of an enterprise plays a crucial role in loan approval decisions, with smaller enterprises facing greater challenges in securing loans due to perceived higher risks. The study concludes that reducing transaction costs, simplifying loan application processes, and offering more flexible loan repayment options could enhance SMEs' access to finance. The study recommends lending institutions and the government work together to create a more conducive environment for SME financing, including adherence to regulated interest rates to prevent the exploitation of SMEs and to encourage their growth and development in Rwanda. Keywords: Financial access and business development, small and medium enterprises