EVIDENCIAS DE LA APLICACION PROPUESTA

This section is intended to achieve the first part of the main research objective, which is to investigate the extent of access to debt finance among SMEs in Uganda. The descriptive statistics in Table 7.2 show the results relating to the extent of access to debt finance using the ARa. These statistics in relation to the extent of access to formal finance are as follows: overdrafts 60.87%; bank loans 56.94%; bank credit cards 30%; debt securities 42.86%; hire purchase 30.43%; insurance finance 23.53%; invoice discounting 29.03%; participation loans 19.05%; shareholder loans 26.09%; and subordinate loans 30.77%. Access to debt finance rates relating to alternative finance are equity issuance (external equity investors) 21.05%; trade credit 63.64%; private placement finance 22.73%; crowd financing 14.29%; peer to peer finance 28.57%; grants and subsidies 18.75%; SACCOs 42.50 %; and family and friends 68.49%.

Previous studies conducted in Uganda by ADB (2012), Calice et al., (2012) and Johnson and Niño-Zarazúa (2009) based on the Ra indicate that SME access to debt finance

168 is below average, at 42%. This study, which measures access to debt finance based on the ARa, has found that SMEs access bank loans at a rate of 57%. In addition, the findings provide useful insights in relation to the diversity of various forms of finance. For example, Calice et al. (2012) indicate that SMEs in Uganda access bank loans as the major source of finance. The findings in this study reveal that, with formal finance, SMEs access more bank overdrafts, at a rate of 60.87%. The higher access to bank overdrafts among SMEs in Uganda could be explained by the nature of the overdraft system, which is based on agreement with the bank and other factors such as faster processing speed; the fact that funds are available for emergency cash needs; and permission for multiple disbursements (Centenary Rural Development Bank (CERUDEB), 2015). Ayyagari et al. (2010) argue that bank overdrafts offer greater financial flexibility, whereby allowance is given to the entrepreneur to temporarily spend more than the funds available on the account to cover short-term financing needs.

Therefore, bank overdrafts in Uganda offer more flexible debt to help overcome the hierarchical obstacles associated with the loan application process. Furthermore, the terms associated with bank overdraft facilities are convenient for the majority of SMEs in Uganda. For example, an affordable commitment fee of only 2% is charged; the loan term is up to a maximum of 12 months, which is suitable for short-term financing; the repayment procedure is made through good account deposits; and interest is linked to the bank’s prime lending rate and charged on the declining balance (CERUBED, 2015). Similarly, overdrafts are quick to arrange and do not attract transactional charges and hidden costs once the obligations are honoured in a timely fashion.

However, according to National Small Business Survey (NSBS) (2015) in Uganda and the studies conducted by Degryse and Cayseele (2013) and Beck et al. (2004), overdrafts should not be used as long-term sources of finance, because using an overdraft

169 persistently may cause the bank to question the financial stability of the enterprise. The descriptive statistics further indicate that subordinate loans are the least popular form of finance, accessed by 19.05% of SMEs. Subordinate loans are recommended for businesses with high growth potential and with established cash inflows, which are expected to reach a positive operating income within a year (CBE, 2015). However, SMEs in Uganda normally do not have established cash generating activities for sustainable inflows of revenues and do not forecast income for over a year, so do not qualify for subordinate loans (Nangoli et al., 2013).

170 Table: 7.2: Extent of ATDF

Forms of finance Extent of access to debt finance

Formal finance Mean of

Applied Std.dev Skew Kurt

Mean of Received Extent of ATDF (%)

Std.dev Skew Kurt

Bank overdrafts 0.20 0.40 1.00 0.32 0.12 60.87 0.33 0.34 0.56

Bank loans (excluding overdrafts) 0.63 0.49 0.53 -1.00 0.36 56.94 0.48 0.61 -1.00 Factoring (invoice discounting) 0.26 0.44 1.00 -0.80 0.08 30.00 0.27 0.18 0.27 Leasing or hire purchase 0.37 0.48 0.57 -1.01 0.16 42.86 0.37 0.92 1.01 Credit line or credit cards 0.40 0.49 0.41 -1.06 0.12 30.44 0.33 0.34 0.56

Debt securities 0.15 0.36 0.90 0.08 0.04 23.53 0.18 0.15 0.91

Other loans (related company or

shareholders) 0.27 0.45 0.91 -0.91 0.08 29.03 0.27 0.18 0.27

Subordinate loans 0.18 0.39 0.97 0.79 0.04 19.05 0.18 0.15 0.91

Participation loans or similar

financing instruments 0.20 0.40 0.52 0.32 0.05 26.09 0.22 0.08 0.91

Insurance 0.23 0.42 0.33 -0.24 0.07 30.77 0.26 0.43 0.93

Alternative finance

Business angels 0.17 0.37 0.83 1.36 0.04 21.05 0.18 0.15 0.91

Trade credit 0.48 0.50 0.09 -1.03 0.30 63.64 0.46 0.86 -1.00

Private placement finance 0.19 0.40 0.59 0.54 0.04 22.73 0.21 0.54 0.91

Crowd financing 0.06 0.24 0.72 1.06 0.01 14.29 0.09 0.72 0.01

Peer to peer finance 0.12 0.33 0.34 0.56 0.04 28.57 0.18 0.15 0.91

Grants or subsidies 0.14 0.35 0.11 0.51 0.03 18.75 0.16 0.03 0.91

SACCOs 0.35 0.48 0.65 -0.61 0.15 42.50 0.36 0.01 0.08

Friends and family 0.64 0.48 -0.57 -0.71 0.44 68.49 0.50 0.27 -1.00

171 In terms of alternative finance, the descriptive statistics indicate that SME access to debt finance from family and friends is at a level of 68.493%, which is the highest form of finance accessed by SMEs, followed by trade credit at 63.636%. These findings are consistent with the empirical literature (NSBS, 2015), which indicates that 86% of SME start-ups are funded by their own capital, friends and families. The findings can be explained on the premise that, at start-up, financiers are not willing to finance enterprises without a record of accomplishment of credit from any finance provider. Hence, a proportion of SMEs would wish to borrow from microfinance institutions because MFIs are intended to finance start-ups. However, the high effective lending rates charged by MFIs make it even more expensive for SMEs to access such finance (BOU, 2014b). In addition, the extent of access to trade credit finance among Ugandan SMEs relates to the findings by Olawale and Akinwumi (2010) among SMEs in South Africa, who found that in Cape Town SMEs accessed trade credit more than other alternative forms of finance. 7.3. Determinants of access to debt finance

This section covers the descriptive statistics relating to the eleven hypotheses underlying the determinants of access to debt finance, as described in chapter five of this thesis. The descriptive statistics in Table 7.3 below indicate that effective lending rate (ELR) has the highest mean, at 3.72, followed by financial transparency (TSP), with a mean of 3.62. The other variables are firm age (FAG), with a mean of 3.56; collateral (CLT), with a mean of 3.48; transaction costs (TRC), with a mean of 3.44; ownership, with a mean of 3.41; education (EDU), with a mean of 3.35; gender (GEN), with a mean of 3.34; firm size (FSZ), with a mean of 3.33; and industry (IND) and experience (EXP), with means of 3.32 and 3.26 respectively.

172 Table: 7.3: Determinants of ATDF

Panel A “Applied and Received” approach

N Min Max Mean Std. Dev Skewness Kurtosis

ATDF 115 0.00 1.00 0.78 0.42 -1.08 -0.08 ELR 115 1.00 5.00 3.72 0.65 -1.17 3.87 TRC 115 1.00 5.00 3.44 0.66 -0.06 0.32 FAG 115 1.00 5.00 3.56 0.69 -0.29 0.45 FSZ 115 1.00 5.00 3.33 0.85 -0.16 0.29 IND 115 1.00 5.00 3.32 0.65 -0.15 1.33 OWN 115 1.00 5.00 3.41 0.75 -0.35 0.20 TSP 115 1.00 5.00 3.62 0.66 -0.56 1.63 CLT 115 1.00 5.00 3.48 0.75 -0.77 2.00 EDU 115 1.00 5.00 3.35 0.59 0.06 2.31 EXP 115 1.00 5.00 3.26 0.81 -0.31 -0.26 GEN 115 1.00 5.00 3.34 0.81 -0.35 0.19

Definition of variables: ATDF (access to debt finance), ELR (effective lending rates), TRC (transaction costs), FSZ (firm size) IND (industry), OWN (ownership), TSP (financial transparency), CLT (collateral), EDU (education), EXP (experience), GEN (gender)