Impact of Credit Constraints on Financial Performance of Small and Medium Size Enterprises

Terence Achiangea Aminkeng (), Song Huaming (), Ngoe Bosambe Mukete () and Gershom Endelani Mwalupaso ()
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Terence Achiangea Aminkeng: Nanjing University of Science and Technology
Song Huaming: Nanjing University of Science and Technology
Ngoe Bosambe Mukete: Nanjing Agricultural University
Gershom Endelani Mwalupaso: Nanjing Agricultural University

The European Journal of Development Research, 2024, vol. 36, issue 4, No 5, 868-896

Abstract: Abstract Small and medium-sized enterprises (SMEs) are fundamental to national economic development through poverty alleviation and employment creation. However, credit constraints severely challenge small and medium-sized enterprises’ (SMEs) performance. Therefore, this study aims to establish the link between credit constraints and the financial performance of SMEs. The paper further examines whether the differences in performance between constrained and unconstrained firms can contribute to poverty reduction. To this end, the endogenous switching regression was applied to the cross-sectional data from a firm-level survey involving 520 SMEs from Cameroon. The paper considered four credit constraint categories: risk, quantity, price, and transaction cost. Results reveal that 74% of SMEs are credit constrained, and the majority (43%) are quantity constrained. Interestingly, risk and price-constrained SMEs are mainly more profitable than unconstrained SMEs, while quantity and transaction-cost-constrained SMEs are less profitable than their counterparts. Consequently, the impact on poverty reduction is equally varied. The scholarly and policy implications of the study are that alleviating credit constraints among SMEs does not always augment the profitability of the SMEs and contributes towards poverty eradication.

Keywords: SMEs; Financial performance; Credit constraints; Poverty alleviation; Cameroon (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (2)

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DOI: 10.1057/s41287-023-00615-8

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