Osano and Languitone Journal of Innovation and Entrepreneurship (2016) 5:13

DOI 10.1186/s13731-016-0041-0

RESEARCH Open Access

Factors influencing access to finance by

SMEs in Mozambique: case of SMEs in
Maputo central business district
Hezron Mogaka Osano1* and Hilario Languitone2

* Correspondence: hezron.osano@
gmail.com Abstract
1
Africa Nazarene University, P.O. Box
53067 - 00200 Nairobi, Kenya SMEs play an important role in the economic development of Mozambique. Access
Full list of author information is to finance is important for the growth of SMEs. Thus, the purpose of the study was
available at the end of the article to establish the factors that influence access to finance by SMEs. The factors that
were addressed included structure of financial sector, awareness of funding opportunities,
collateral requirements, and small business support services. The target population was
2725 which comprised of 2075 staff of three Banks, namely BIM Bank, BCI Bank, and
Standard Bank and 650 SMEs in Maputo Central Business District. The research focused
on a sample size of 242 SMEs and 324 staff of the named Banks. Descriptive and
inferential research design was used. Structured questionnaires were used to collect the
primary data. The findings from the study were that there is a relationship between the
structure of the financial sector and access to finance by SMEs; there is a relationship
between awareness of funding and access to finance by SMEs; there is a relationship
between collateral requirements and access to finance by SMEs; and there is a
relationship between small business support and access to finance by SMEs. The
study findings are significant since they would enable the government to come up
with appropriate regulation, funding programs, and schemes toward improvement
of access to finance by SMEs. This study concludes that small business support
services should be provided to SMEs to improve access to finance and that there is
a need for more funding programs and financial schemes to assist SMEs. It is further
concluded that since information is concerned with funding opportunities by SMEs, then
relevant information should be available and known to all players in the financial market.
Keywords: Collateral requirements, Small business support services, Structure of financial
sector, Awareness of funding opportunities, Access to finance

Background
The accessibility of finance by SMEs has stirred attention of academicians and policy
makers worldwide for many decades. Discussion on the problem of access to finance
by SMEs in Mozambique has taken place in form of seminars and several debates for
the purpose of improving the finance line for SMEs and to formally integrate their
contributions in the economy (MIC, 2007). This is because finance is a significant
element for determining the growth and survival of SMEs (ACCA, 2009). Access to
finance allows small businesses to undertake productive investments and contribute to
the development of the national economy and alleviation of poverty in most of Sub-
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Osano and Languitone Journal of Innovation and Entrepreneurship (2016) 5:13 Page 2 of 16

Saharan African countries (Beck and Demirguc-Kunt, 2006). External finance for small
and medium enterprises is essential for boosting start-up businesses. In addition, with-
out external finance, small and medium enterprises will probably not be able to com-
pete in an international market, to expand the businesses and strike linkages of
business with the large firms. Further, access to finance is the most serious barrier to
expansion of businesses and start-ups which have been mentioned by existing SMEs
and potential operators (Olomi and Urassa, 2008).
In the context of Mozambique, the small enterprises are those with less than ten em-
ployees and medium enterprise with employees between 11 and 50. The large enter-
prises are those which have more than 50 employees. It is observed that 98.6 % of
Mozambican firms are composed of SMEs. They provide more employment, diversifica-
tion, and stimulus for innovations, mobilize social and economic resources, and provide
a greater level of competition. In this regard, the government needs to employ suitable
strategies in order to minimize the scarcity of bank financing for SMEs in the country
and drive the national economic development (MIC, 2007). This pattern is repeated in
Brazil, where SMEs account for 99 % of formal companies (IBGE, 2007), and in the UK
where 99.8 % of the jobs are in SMEs (FSB, 2012).
Only 5 % of the SMEs are financed through banking institutions meaning they use
other financing lines for both investment and working capital (MIC, 2007). Practically
many of the SMEs finance their projects through their own funds, family funds, and
friends’ funds due to a number of difficulties in accessing bank financing (MIC 2007).
Non-banking institutions, non-governmental development banks, also finance SMEs.
The non-banking institutions include PODE (Development of Enterprises’ Projects)
that provide long-term financing in a period of 2.5 to 7 years (MIC, 2007). In addition,
some other non-banking institutions focus in funding small agriculture and some other
sectors. Those institutions include GAPI (Society for Management in Financing and
Promoting the SMEs), FFPI (Small Industries Funding Program) which provide funds
for small industries, and FARE (Funds for Aiding and Rehabilitation of the Economy)
(MPD, 2007). There are a number of challenges SMEs face that prevent them from
conducting their businesses effectively and efficiently. The cost of finance products in
the country is high (25–30 %). Even if the financial market is stabilized, banks face is-
sues of high overhead costs and this influences the price of finance products (MIE, 2010).
The financial institutions have highlighted several constraints encountered by SMEs
which limit the provision of finance products to SMEs. The constraints faced by SMEs are
associated with the lack of clear financial plans, the accounting documentation, higher
rate of interest, and the lack of collateral requirements (MIC, 2007). There remain in the
country important policy challenges on the lending side.
As in other countries in the world, Mozambique focuses on both demand and supply
side (Central Bank of Mozambique, 2013). The demand side encourages the commer-
cial banks to provide finance to the small businesses through guarantees and provide
more financial assistance through the affordable cost of capital, micro-finance, and
innovation fund. On the supply side, this focus is in diminishing the asymmetries of in-
formation between the two players (lenders and borrowers). The relevant information
between lenders and borrowers should be provided to improve the situation (Central
Bank of Mozambique, 2013). Yet, small and medium enterprises still face a number of
constraints in accessing bank financing attributed to lack of collateral requirements,
Osano and Languitone Journal of Innovation and Entrepreneurship (2016) 5:13 Page 3 of 16

structure of the financial sector, awareness of funding opportunities, and small business
support services (Manasseh, 2004).
Indeed, financial constraints in Mozambique weigh down the SMEs and many of
them collapse during the first year of start-up due to lack of financial resources to run
the business. SMEs contribute over 20 % of the country’s revenue (MPD, 2007). There-
fore, an improvement of the financial systems is necessary as is the need to adopt suit-
able mechanisms in order to assist small businesses financially.
Therefore, this study investigated the factors influencing access to finance by SMEs
in Mozambique in order to set some light on how the problem of access to finance
would be addressed to reduce the number of SMEs collapsing.

Literature review
This section presents both the theoretical and empirical review of the related literature
on the subject under study.
Theoretical review

Information asymmetry theory Information asymmetry theory postulates that when

two parties are making decisions or transactions, there exists a situation where when
one party has more or better information than the other. Thus, information asymmetry
may cause an imbalance of power between the parties.
In this context, for example, the borrowers are more likely to get more information
than the lenders. Information related with the risk associated with the investments is
likely to be available to the borrowers. Matthews and Thompson (2008) observed that
this may lead to the problems of moral hazard, where a party will take risks because
they assume final cost of that risk, as well as adverse selection, where there are adverse
results because parties have different/imperfect information; therefore, the problems
may cause inefficiency related to the flow or transfer of funds from the lenders (surplus)
to the borrowers.
Furthermore, for overcoming these issues, the financial intermediaries use three
major ways such as providing the commitment for long-term relationship with the cli-
ents. The second way is through the sharing of the information. Lastly is through the
delegation and monitoring of the credit applicants. When the customers borrow money
directly from banks, the banks should consider the need for relevant information to be
addressed and so as to redress the asymmetry of the information (Matthews and
Thompson, 2008).
It is argued that the acuteness of information asymmetries between bankers and entre-
preneurs is the main stumbling block to SME financing in Sub-Saharan Africa. However,
the gap between banks and SMEs can be narrowed by developing financial systems that
are more adapted to local contexts. In addition, avenues should be explored for sharing of
risks and reduction of perceived risks by banks by promoting sustainable guarantee funds
to facilitate better access to financing by SMEs (Leffileur, 2009).
Empirical review
Many factors have been considered for the purpose of explaining the scarcity of bank
financing by SMEs. Anzoategui and Rocha (2010) have suggested that competition in fi-
nancial sector is more crucial. The lack of it can actually raise the price of financial
Osano and Languitone Journal of Innovation and Entrepreneurship (2016) 5:13 Page 4 of 16

products and influence directly the growth of small firms and the younger firms in the
world. They have also added that the low level of competition in the financial sector
can probably affect the stability of the banking industry.
In the context of UK, it is believed that access to finance by SMEs is closely affected
by the differences in commercial banks or the practices and the policies of the supply
side of finance. It is argued that most of the commercial banks in UK differ in terms of
the relationship between those lending institutions and the entrepreneur (BBA, 2002;
Watanabe, 2005). The World Bank (2003) identified a number of factors that constitute
constraints by SMEs to access finance. These factors include distortions of financial
sectors, lack of know-how on the banking part, information asymmetry (access to busi-
ness information), and the high risk in lending to small businesses.
The study of Beck (2007) identified that the weaknesses in financial and legal systems
present, in the developing countries, an obstacle in accessing finance products. When
Beck analyzed 70 developing countries, he concluded that the local government has
actually the entire responsibility to build institutions. Market activities should be under-
taken in friendly manner in order to provide a proper regulatory framework to reduce
financial constraints by SMEs. Some studies (Bigsten, 2003; Yitayal, 2004), with the
main focus on the developing countries, observed that the lack of collateral require-
ments, high risks, information asymmetries, small credit transactions particularly of
rural households, and the distance between lender-borrowers as the main causes for
credit variation among the different and existent sources of credit. In addition, the
same researchers state that the policy and the type of financial institution in one or in
other way determine access to finance.
It has been remarked that interest rates charged by banks in Sub-Saharan Africa cre-
ate disincentives for most borrowers to acquire funds to invest in their businesses on
one hand. On the other hand, the interest rates charged by banks discourage most
small businesses from applying for bank financing (Diagne and Zeller, 2002; Foltz, 2004).
Fatoki and Smit (2011) in South Africa grouped the major factors that influence the low
access to finance by SMEs in two ways; internal and external. The internal factors include
the business information, collateral, networking, and managerial competences. External
factors constitute the legal environment, crime and corruption, ethical perceptions, and
macro-economy.
Olomi and Urassa (2008), in the study based in Tanzania, identified three major
groups of constraints of access to finance by SMEs. The first group of factors included
the capacity (low level of knowledge and skills), under-developed culture of business,
non-separation of the business between personal issues and family, credit history of
SMEs, and lack of knowledge of available finance services. The second group of factors
included the number of competent personnel and lack of experience of SMEs. The
third group of factors is related to the regulation of the environment where transactions
occur between lenders and borrowers, lack of system identification, and credit refer-
ence bureaus.
From the study of Brownbridge (2002), it is noted that loan term places an important
element when it comes to lending issues. The loan term affects the revenue of lending
institutions (banks), the repayment schedule of credit applicants, the financial cost of
customers, and also the sustainability of the use of the finance products. It is further
stated that in most cases the loan period and the size present obstacles for accessing
Osano and Languitone Journal of Innovation and Entrepreneurship (2016) 5:13 Page 5 of 16

bank financing and the interest rate affects access to finance in some few cases. Several
studies (Kaufmann and Wilhelm, 2006; World Bank, 2003; USAID, 2005; USAID, 2007)
found that the major problems concerning access to finance for small businesses in
Mozambique are basically related with the high interest rate charged on financial prod-
ucts and the inefficient banking services, than would be justified by economic reasons.
Thus, interest rates in Mozambique are at higher levels compared to other Sub-
Saharan African countries. Furthermore, the differences in interest rates vary based on
the currencies. The loans made on the domestic currency Metical (MZN) carry higher
interest rates than those made in US dollar (USAID, 2007).
The commercial banks of Mozambique impose excessively high interest rates and fees
in various services, such as transfer of funds, account statements, banking guarantees, and
letters of credit. Many SMEs do not attempt to acquire finance from commercial banks
due to the high interest rates charged (Kaufmann and Wilhelm, 2006). Consequently,
most of the SMEs use their own capital, funding from family and friends for working cap-
ital, and investment capital as well. The World Bank (2003) shows that 90 % of working
capital and 64.9 % of new investments were financed by SMEs’ own capital, compared to
6.9 % working capital and 8.2 % of new investments which were financed by the banking
institutions indicating low access to finance by SMEs in Mozambique. We consider a
number of factors that affect access to finance by SMEs in Mozambique.

Collateral requirements Collateral refers to the extent to which assets are committed
by borrowers to a lender as security for debt payment (Gitman, 2003). The security as-
sets should be used to recover the principal in case of default. SMEs in particular pro-
vide security in form of properties (houses, the businesses, the car, and anything that
could actually bring back the principal) in case of default on loans (Garrett, 2009).
Security for loans must actually be capable of being sold under the normal conditions
of the market, at a fair market value and also with reasonable promptness. However, in
most banks, in order to finance SMEs and to accept loan proposals, the collateral must
be 100 % or more, equal to the amount of credit extension or finance product (Mullei
and Bokea, 2000).
Moral hazard issues can be reduced by collateral requirements by increasing and
adding a potential cost to borrowers when those are not making their best effort.
Sometimes the borrowers extract the funds provided by the lenders for their own
personal and private use. Therefore, the collateral requirements when in place can
reduce negative consequences that can rise due to an improper utilization of the funds
by SMEs. It is evident that most SMEs are denied and discriminated by the lenders in
providing financing. This is because of high risk and for not having adequate resources
to provide as collateral (Kihimbo et al. 2012).

Small business support services Governments all over the world have designed a
number of support services for SMEs which include the policy initiatives and support
programs for the purpose of creating and developing the SME sector. Support
programs are designed to assist SMEs in order to link them to the larger developmental
vision of the nation with the main focus being poverty reduction and growth of small
firms (Charbonneau and Menon, 2013).
Osano and Languitone Journal of Innovation and Entrepreneurship (2016) 5:13 Page 6 of 16

A number of initiatives for SME support are in place in many countries which in-
clude Brazil, Argentina, Chile, Uruguay, and Mexico. In the European Union and other
countries, such initiatives are covered by the specific acts of SMEs: in India by Micro
and SME Development Act, in Kenya by Micro and Small Enterprises Act, in Malaysia
by SME Master plan, in Tanzania by the SME Development Policy, and in the USA by
the Small Business Act (Charbonneau and Menon, 2013). The government of Kenya
has put in place the Micro and Small Enterprises Act as initiative aimed at encouraging
all Kenyans in establishing SMEs by creating an enabling environment for small busi-
nesses to thrive and enhancing access to funding (Rambo, 2013).
For their sustenance, SMEs need to use ICT in order to become more competitive
and to provide opportunities to participate in the global value chains (Charbonneau
and Menon, 2013). Small business support services are provided by national agencies,
both private and public. Indeed, most SMEs are not aware of funding programs and
that most SMEs face difficulty in accessing funds to invest in their projects.
It is pointed out that in South Africa there are a number of financial schemes and
funding programs that support the SMEs’ access to finance. In this context, these
schemes and funding programs are promoted by both the private and the public agen-
cies. Despite availability of those funding programs in South Africa, there was a low
awareness of funding programs especially government support schemes (DTI, 2010). In
Mozambique, a number of difficulties in supporting SMEs have been discussed. In
resolving these difficulties, some initiatives have been developed for the purpose of
dealing with the issue of access to finance by SMEs. One of such initiative was the con-
ference of “Know and Use Financing SMEs” organized by IPEME, entrepreneurs, banks,
and insurers to discuss finance constraints by SMEs (MIC, 2007). The banking schemes
and insurance institutions are the bridge for linking these funds to SMEs and the
implementation of funding. Therefore, there is need for mutual understanding of the
obstacles and difficulties in accessing bank financing. It is pointed out that SMEs gener-
ate, in total, more jobs than larger companies and are fundamental to the competitive-
ness of the country as well as in stimulating innovation (IPEME, 2013).
The government plays a crucial role by leveraging small business owners to imple-
ment additional funding mechanisms for SMEs by encouraging, promoting and sup-
porting private initiatives (MIC, 2007). In addition, the Institute for the Promotion of
Small and Medium Enterprises has several programs for creating and strengthening
businesses, providing integrated assistance in management and business development
(training and preparation of business plans). However, these programs seem not to be
enough as the rate of rejection is higher particularly for bank sponsored schemes in fi-
nancing SMEs (IPEME, 2013).

Structure of financial sector Competition in the financial sector is more important

particularly for the cost of services and products in the banking industry. Furthermore,
the level of competition in the financial sector provides and determines the price of
financial products and the level of access to finance by small businesses (Thorsten and
Maksimovic, 2003). The direct competition in the banking industry may impact on the
growth of new firms and younger firms. If there is low competition, this will undermine
the overall stability of the banking industry. In addition, the products and services
Osano and Languitone Journal of Innovation and Entrepreneurship (2016) 5:13 Page 7 of 16

might be expensive and there will be less growth of new firms (Anzoategui and
Rocha, 2010).
The banking system regulatory structure should have a greater implication between
concentration of the market and access to finance. It is important to note that when
there is a high regulatory regime, then entry barriers may increase. In most cases, the
competitiveness of the banking system will not rely on the actual market structure but
will rely on the regulatory regime of the country (Black and Philip, 2002). There is no
clear relation between regulatory restriction, interference of the government on the
process of intermediation and banking system’s competitiveness and SMEs’ access to
finance. However, the regulatory restrictions may reduce the efficiency and competitive-
ness in the banking system and further block banks from using their information
advantages (Scott and William, 2001).
The ownership structure of banks may influence the relation between access to finance,
market power, and costs of external financing. Local domestic banks are more likely to pur-
sue more information, better enforcement mechanisms than the foreign owned banks, and
foreign banks may be willing to lend to opaque borrowers (Cetorelli and Michele, 2001).

Awareness of funding opportunities The flow of information in the financial market

is crucial for both SMEs and financial providers (Falkena et al. 2001). In order for SMEs
to identify potential supplier of financial services, they require enough information.
The financial institutions require information to enable them to evaluate the potential
risks associated with the SMEs that apply for bank financing and also to access the
location where the same SMEs will be operating and its market segments (Othieno,
2010). Information is concerned with awareness of funding opportunities by SMEs. In
addition, information asymmetry is that relevant information is not available and
known to all players in the financial market (Agostino, 2008). Information asymmetries
are actually concerned with the two players in the financial market. In this case, the
borrowers know more about their business cases and the bankers may not know more
about it on one hand. On the other hand, it entails the lack of timely, accurate, quality,
quantity, and complete information regarding the ability of the applicants to repay back
the loan and to access financial products from the banking institutions (Bazibu, 2005).
A study by Agostino (2008), conducted on agricultural sector, pointed out that the
failure of the current African market is because of the number of the current agricul-
tural credit problems. These problems are associated with the imperfection of the infor-
mation in the risk presences. The failures of the market mostly occur due to the fact
that it is costly to screen credit applicants. The imperfections of the information affect
almost all small holder farmers who are in most cases African women.

Access to finance For SMEs, there are two external financing that are mostly import-
ant for financing the businesses. The first is the equity financing which is provided in
form of venture capital and available for new small businesses (Deakins, 2008). How-
ever, due to lack of equity financing, the small businesses go after debt financing that is
mostly provided by the banks and non-banking institutions. Indeed, access of debt fi-
nancing is very limited especially for SMEs due to the requirements for the provision
of debt (Deakins, 2008).
Osano and Languitone Journal of Innovation and Entrepreneurship (2016) 5:13 Page 8 of 16

Equity financing The equity financing method refers to the extent to which the com-
pany issues a certain portion of shares of its stock and in return receives money.
Depending on how the SMEs raise the equity capital, the debtors have to relinquish a
certain portion of the business often 25 to 75 % of the business (Covas and Haan, 2006).
Gomes et al. (2006) pointed out that equity financing is a method for raising funds for
any investments. In this context, equities are issued in the form of common stocks which
gives a claim to share in the net incomes after expenses and taxes. Equity holders are paid
periodically in form of dividends and can be considered as a long-term security as there is
no maturity date. In South Africa, as in other countries in the world, there is a mispercep-
tion that a broad supply of debt financing to SMEs will overcome most development
problems that SMEs face. In practice, SMEs without a proven track record experience
debt financing’s shortage (Mahembe, 2011).
The Cruickshank Commission of UK highlighted that intervention of the government in
the past meant to stimulate the provision of debt finances had been misdirected. However,
intervention of public policy has to be reoriented away from debt financing, in order to put
in place and emphasize initiatives that help to facilitate the provision of equity financing to
small businesses. The national government should then support the expansion and estab-
lishment of venture capital funds. According to Cruickshank Commission, there are a
number of results of the market failure in the provision of SMEs’ equity financing. These
include insufficient SME risk capital being available to SME sector, mainly to high growth
potential SMEs and illiquid equity market for small firm sectors (Falkena et al., 2001).

Debt financing Debt financing refers to the case where companies get finance
products in a form of loan from lending institutions and give their promise to repay
back at a given period of time and interest rate (Cooper and Ejarque, 2003). Further-
more, debt financing is the most common instrument used in the financial market for
obtaining funds for investments and to finance new businesses including SMEs. This
involves an agreement between the lenders and the borrowers, concerning the fixed
interest rate to be paid for the loan in a given period of time. The maturity date of a
debt of less than 1 year is considered as short-term debt and more than a year is con-
sidered as the long-term debt (Mahembe, 2011). Debt financing includes, therefore, the
secured loans which involve the collateral requirements for securing bank financing.
When the SMEs default on the loan commitments, banks usually rely on collateral to
recover the money invested in a particular business (Falkena et al., 2001).
In the case of unsecured loans, the lender provides loans taking into account the
borrower’s reputation. For that transaction to take place, a strong relationship between
the borrowers and the banks is needed. Loans of this kind are usually short term and
the rate of interest is often high (Cole, 2003). Most of the lenders are more unlikely to
provide unsecured loans to the small businesses unless there was a lot of business that
were made in the past between the borrower and lender, otherwise the lender will still
insist that the borrower provide collateral for the loans. The insistence of the lenders
on collateral relies on the borrower’s present financial and economic conditions. The
loans are actually subjected to the repayment period which include short time (less
than 1 year or between 6 and 18 months), the intermediary term (the repayment
between 3 years), and the long term (paid back in 5 years) (Falkena et al., 2001).
Osano and Languitone Journal of Innovation and Entrepreneurship (2016) 5:13 Page 9 of 16

Bank financing is important for the growth of small firms. Young businesses and any
other enterprises in the world including SMEs depend mostly on bank financing to boost
the business and to carry out new investments and projects. In addition, funding of invest-
ment includes equity and other forms of debt. The various studies on the area of access to
finance have pointed out the challenges that SMEs face, in Mozambique in particular and
in the world in general, which include the lack of collateral, cost of capital, business plan,
and number of lending institutions (USAID, 2007; Anzoategui and Rocha, 2010;
Brownbridge, 2002; Fatoki and Smit, 2011; Olomi and Urassa. 2008; Beck, 2007).

Conceptual framework of the study

The conceptual framework of this study shows the focus on the factors influencing ac-
cess to finance by small and medium enterprises. The variables in the conceptual
framework are tested as hypotheses to establish the relationships between variables.
The independent variables of this study include the collateral requirements, structure
of financial sector, small business support services, and awareness of funding opportun-
ities and the dependent variable is the access to finance by SMEs. The measures or in-
dicators for access to finance include the amount of financing provided to SMEs as a
total funding, increase in number of SMEs accessing bank loans, and the percentage of
bank financing as total of SMEs’ funding. Figure 1 shows the conceptual framework
showing the relationship among variables.

Methods
Descriptive and inferential research design was used. In this study, both simple random
sampling and stratified sampling were used. Simple random sampling was used in order
to select the SMEs from the total population. The stratified sampling was used to
classify the respondents into categories that included the relevant management and the
staff dealing with SMEs from BIM Bank, BCI Bank, and Standard Bank.
The target population of the study was 2725 which comprised 2075 of bank staff of
BIM Bank, BCI Bank, and Standard Bank and 650 small and medium enterprises in
Maputo Central Business District. The SMEs were those licensed and which operate
under the legal framework of doing business in Mozambique. The population of the

Fig. 1 Conceptual framework

Osano and Languitone Journal of Innovation and Entrepreneurship (2016) 5:13 Page 10 of 16

banks included the staff of BIM Bank, BCI Bank, and Standard Bank which were
accessed in their respective Banks Head Offices (INE, 2012).
To determine the sample, the following formula provided by Easterby-Smith et al.
(1999) was used by the researcher.

 
N
SS ¼ Z 2 pq ð1Þ
E 2 ðN−1Þ þ Z 2 pq

Description

 SS = required sample size;

 z = z value at 95 % confidence level (1.96);
 p = the population in the target population estimated to have characteristics being
measured (50 %);
 q = 100 − p = 50 %;
 N = total population;
 E = margin error.

Assume 50 % of the population being measured. A sample size of 242 SMEs was
computed from a population of 650 SMEs and 324 employees from a population of
2075 employees from three banks split (as in Table 1) were taken.
From the data collected, out of the 242 questionnaires administered to SMEs
owners, 123 were filled and returned; and out of the 324 questionnaires that were
administered to employees working in the banks, 222 were filled and returned.
This represented a response rate of 50.8 and 68.5 %, respectively. This corroborates
Bailey’s (2000) assertion that a response rate greater than 50 % is adequate. This
implies that based on this assertion the response rate in this case of 50.8 and
68.5 % is good. Data obtained from research instrument was analyzed using the
Statistical Package for Social Science (SPSS). Data were also arranged in a mean-
ingful form, into tables of frequencies, percentages, and charts.

Results
This section presents results and findings from the study. The first section deals with
the background information of the respondents; while the other five sections present
findings of the analysis, based on the objectives of the study where both descriptive and
inferential statistics have been employed.

Table 1 Sample size for banks

Banks Employee population Sample size Percentage (%) sample
BIM Bank 805 126 39
BCI Bank 860 133 41
Standard Bank 410 65 20
Total respondents 2075 324 100
Osano and Languitone Journal of Innovation and Entrepreneurship (2016) 5:13 Page 11 of 16

Validity and reliability results

Validity results
Validity refers to the degree to which the measures of the instruments measure what it
is supposed to measure (Joppe 2000; Mugenda, 2008). Face validity of a measuring
instrument was established by pre-testing questionnaires on four SMEs. The research
assessed the clarity and ease of use of the research instruments and any sensitive,
biased items were identified and modified.
Content validity of this study was determined by first discussing the items in the in-
strument with three experts who indicated against items (with a rating scale of 1–4) in
the questionnaire whether it measured what it was meant to measure or not in relation
to the research objectives. Content validity index of 0.802 was computed. Mugenda and
Mugenda (2003) recommend a content validity index of above 0.5, indicating that the
validity of the instrument was acceptable.
Reliability results
Reliability of research instruments indicates the degree to which the research is without
bias therefore ensured consistent measurement across time and the several items
within instrument (Kothari, 2004). The study used the Cronbach’s alpha coefficient to
determine the internal consistency of the scale that was used to measure the reliability
of the variables of the study. In this regard, a Cronbach’s alpha of 0.6 is considered sat-
isfactory and 0.7 to 0.8 good (Cooper and Schindler 2008; Mugenda and Mugenda,
2003; Sekaran and Bougie, 2013). The alpha coefficients were all greater than 0.7, indi-
cating an acceptable reliability of the instruments. The instrument therefore was appro-
priate for the study (see Table 2).

Pearson’s correlation matrix

The study conducted a correlation analysis of the variables of the study which included
collateral requirements, awareness of funding opportunities, structure of financial
sector, and small business support services and access to finance. To establish the rela-
tionship between the variables, the study used Karl Pearson’s coefficient of correlation
(see Table 3). It was found that there was a positive correlation between collateral
requirement and small business support services (r = 0.331). It was also found that
there was a positive correlation between collateral requirement and structure of finan-
cial sector (r = 0.564, sig. 0.1, two-tailed). However, there was no significant correlation
between all the independent variables and access to finance.

Regression analysis
Multiple regression analysis was used to establish the relationship between the variables
of the study. In doing so, the regression model below was used: y = β0 + β1x1 + β2x2

Table 2 Reliability results

Variable Cronbach’s alpha Number of items
1. Collateral requirement 0.7319 3
2. Small business support services 0.8462 3
3. Awareness of funding opportunities 0.7453 3
4. Structure of financial sector 0.7558 3
Osano and Languitone Journal of Innovation and Entrepreneurship (2016) 5:13 Page 12 of 16

+ β3x3 + β4x4 + ε. where y = dependent variable (access to finance); β1 − β4 = model

parameters or coefficients; x1 − x5 = independent variables namely structure of financial
sector, awareness of funding opportunities, collateral requirements, and small business
support services; and ε = error terms.
Table 4 shows a model summary and indicates the adjusted R square used as test for
model fitness. The F-test was carried out to test the significance of the regression
model in predicting the dependent variable (access to finance). From the results, it was
found that the four independent variables moderately predict access to finance in SMEs
(adjusted R squared = 0.703). That means the model explains 70.3 % the variance in the
access to finance; 29.7 % of variations are brought about by factors not captured in the
objectives. Therefore, further research should be conducted to investigate the other
factors (29.7 %) that affect access to finance in SMEs. The regression equation appears
to be very useful for making predictions since the value of R2 is close to 1. Table 5
indicates the ANOVA (F-test results for the regression model).
The null hypothesis was rejected because the linear regression F-test results (F = 4.244;
and 446 df) are significant at p < 0.05. Therefore, the null hypothesis (Ho) was rejected
and concluded that the regression model linearly explains the access to finance. Therefore,
the study accepted alternative hypothesis:

Ha1: There is a relationship between collateral requirement and access to finance;

Ha2: There is a relationship between small business support services and access to finance;
Ha3: There is a relationship between awareness of funding opportunities and the access
to finance; and
Ha4: There is a relationship between structure of financial sector and the access to finance

The study conducted a multiple regression analysis so as to determine the re-

gression coefficients (β) which shows that all the independent variables of collateral
requirement, awareness of funding opportunities, structure of financial sector, and

Table 3 Pearson correlation coefficient matrix

Collateral Small business Awareness of Structure of Access to
requirement support services funding financial sector finance
opportunities
Collateral 1 0.331 0.054 0.564a 0.087
requirement
Sig. (two-tailed) . 0.046 0.11 0.021 0.625
Small business 0.331 1 0.062 0.141 0.294
support services
Sig. (two-tailed) 0.056 . 0.716 0.425 0.091
Awareness of funding 0.054 0.062 1 0.065 0.055
opportunities
Sig. (two-tailed) 0.760 0.726 . 0.716 0.756
a
Structure of financial 0.564 0.141 0.065 1 0.309
sector
Sig. (two-tailed) 0.001 0.425 0.716 . 0.076
Access to finance 0.087 0.294 0.055 0.309 1
Sig. (two-tailed) 0.625 0.091 0.756 0.076 .
a
Correlation is significant at the 0.01 level (two-tailed)
Osano and Languitone Journal of Innovation and Entrepreneurship (2016) 5:13 Page 13 of 16

Table 4 Coefficient of determination (R2)

Model R R square Adjusted R square Standard error of the estimate
1 0.273a 0.747 0.703 0.71611
a
Predictors: (constant), collateral requirement, awareness of funding opportunities, structure of financial sector, and small
business support services

small business support services to the dependent variable have a significant contri-
bution to access to finance (Table 6).

Discussion
This section discusses the findings from the study, and also it draws the conclusions
based on the objectives of the study.

Discussion of findings
Influence of collateral requirements in access to finance
The study sought to establish the influence of collateral requirements on access to fi-
nance. Collateral refers to the assets committed by borrowers to a lender as security for
debt payment (Gitman, 2003).
The study found that collateral requirements influence access to finance by SMEs in
Mozambique. It is evident that most SMEs are denied and discriminated by the lenders
in provision of financing. This is because of high risk and for not having adequate re-
sources to provide as collateral. The study also found that houses, land, and businesses
are used as security and that banks demand SMEs to post the collateral in order to re-
duce moral hazard. This finding is in line with the findings of Mullei and Bokea (2000)
that banks ask for collaterals in order to finance SMEs and to accept loan proposal and
that the collateral must therefore be 100 % or more, equal to the amount of credit ex-
tension or finance product.
Further, the study revealed that collateral creates disincentive to the SMEs to acquire
bank financing and that SMEs are discriminated by banks due to high risks in lending
to them. This finding concurs with Kihimbo et al. (2012) that most SMEs are denied
and discriminated by the lenders in providing financing.

Effect of small business support services in access to finance

The study found that small business support services influence access to finance by
SMEs. Charbonneau and Menon (2013) suggest that SMEs for their sustenance need to
use ICT which can then make them become more competitive and provide opportun-
ities to participate in global value chains. Small business support services are provided
by national agencies, both private and public.

Table 5 ANOVA
Model Sum of squares df Mean square F Sig.
1 Regression 6.227 14 1.557 4.244 0.034a
Residual 18.831 432 0.649
Total 25.059 446
a
Predictors: (constant), collateral requirement, awareness of funding opportunities, structure of financial sector, and small
business support services
Dependent variable: access to finance
Osano and Languitone Journal of Innovation and Entrepreneurship (2016) 5:13 Page 14 of 16

Table 6 Regression coefficients

Unstandardized coefficients Standardized coefficients t Sig.
B Standard error Beta
(Constant) 1.138 0.3917 2.905 0.000
Collateral requirement 0.479 0.2397 0.586 1.998 0.001
Small business support services 0.157 0.0724 0.238 2.169 0.033
Awareness of funding opportunities 0.423 0.1897 0.609 2.229 0.031
Structure of financial sector 0.258 0.1304 0.387 1.979 0.003
a
Dependent variable: access to finance in SMEs

Also the respondents agreed that small business support services could improve ac-
cess to finance and that there are enough number of funding programs and financial
schemes to assist SMEs but most of them are not able make proper proposals for fund-
ing. This finding agrees with Rambo (2013) observations that most SMEs are not aware
of funding programs and that most SMEs face difficulties in accessing funds to invest
in their projects.
Influence of the structure of financial sector in access to finance
The study showed that that the regulatory regime in Mozambique influences access to
finance. This study finding disagrees with the findings of Scott and William (2001) that
there is no clear relationship between regulatory restriction, interference of the govern-
ment on the process of intermediation and banking system’s competitiveness and
SMEs’ access to finance. This study therefore concludes that the regulatory regime
should increase the efficiency and competitiveness in the banking system and make ac-
cess to finance easier.
Effect of awareness of funding opportunities in access to finance
The study found that awareness of funding affects access to finance. It was found that
there is information asymmetry. The financial institutions know very little about the
SMEs. Information asymmetries are actually concerned with the two players in the
financial market. In this case, the borrowers know more about their business cases and
the bankers may not know more about it on one hand. On the other hand, it entails
the lack of timely, accurate, quality, quantity, and complete information regarding the
ability of the applicants to repay back the loan and to access financial products from
the banking institutions.
The study revealed that the banks require more information to evaluate potential
risks associated to SMEs. The flow of information in the financial market is crucial for
both SMEs and financial providers (Falkena et al., 2001). In order for SMEs to identify
potential suppliers of financial services, they require enough information. This study
therefore infers that availability of information is essential to both the banks and the
SMEs. This will enhance the understanding of the potential risks associated with the
SMEs that apply for bank financing and also to access the location where the same
SMEs will be operating and its market segments (Othieno, 2010).

Conclusions
There are a number of observations: SMEs need to use ICT to sustain businesses and
to become more competitive and that small business support services could improve
access to finance; there is not enough number of funding programs and financial
Osano and Languitone Journal of Innovation and Entrepreneurship (2016) 5:13 Page 15 of 16

schemes to assist SMEs; majority of SMEs are not aware of funding programs and
financial schemes provided by the government and private sector; and public and pri-
vate sectors have not put in place enough funding programs and financial schemes to
assist SMEs. In addition, it has been observed that houses, land, and businesses were
provided as security and that banks demand SMEs to provide collateral in order to re-
duce moral hazard; collateral creates disincentive to the SMEs to acquire bank finan-
cing and that SMEs are discriminated by banks due to high risks in lending to them.
The banking systems and regulatory structure impede access to finance by SMEs. It is
further concluded that the banks require more information to evaluate potential
risks associated to SMEs in Mozambique. The study concludes that SMEs should
be sensitized about funding programs and financial schemes provided by the government
and private sector and that public and private sectors put in place funding programs and
financial schemes to assist SMEs. The present study was confined to SMEs in
Mozambique. For further research, it would be useful to carry out a similar study across
East Africa and beyond and see whether the same results would be replicated.
Competing interests
The authors declare that they have no competing interests.

Authors’ contributions
The corresponding author has written the article and co-author has contributed in the collection, analysis and interpretation
of the results. Both authors read approved the final manuscript.

Author details
1
Africa Nazarene University, P.O. Box 53067 - 00200 Nairobi, Kenya. 2Gorongosa Turismo Transportes e Serviços, Lda.,
Avenida Eduardo Mondlane, no. 1139, Beira City, Mozambique.

Received: 22 December 2015 Accepted: 9 March 2016

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