Deconstructing involuntary financial exclusion: a focus on African SMEs

Amon Simba, Mahdi Tajeddin (), Leo Dana and Domingo E. Ribeiro Soriano ()
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Mahdi Tajeddin: Sobey School of Business at Saint Mary’s University
Domingo E. Ribeiro Soriano: Facultad de Economía de la Universitat de València Edificio

Small Business Economics, 2024, vol. 62, issue 1, No 11, 285-305

Abstract: Abstract Small and medium-sized enterprises (SMEs) struggle to obtain credit when credit ratings and collateral are used as criteria to assess their credit applications. In the context of Africa, the financial markets have gaping institutional voids, and contextual insights into SMEs’ experiences remain underdeveloped. Drawing on the stakeholder-agency theory of debt financing, this paper advances the scholarly conversation by theorising about how collateral security, collateral security value and the gender of SME owners lead to the involuntary financial exclusion of many manufacturing businesses in Africa. Analysis of the World Bank Enterprise Survey (WBES) dataset reveals that collateral security and collateral security value, together with gender biases in Africa’s financial markets, reduce credit access potential. Consequently, SMEs’ perceptions of the likelihood of obtaining credit for business purposes are reduced. Empirical results for 13,783 SMEs across 41 African countries indicate that the motivations to apply for credit also diminish. These observations contribute to entrepreneurial financing and SME research.

Keywords: Credit access; Collateral security; Gender; Financial exclusion; SMEs; Africa (search for similar items in EconPapers)
JEL-codes: C12 G29 G32 L21 L26 L60 M10 O55 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s11187-023-00767-1

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