FACTORS AFFECTING ACCESS TO CREDIT FACILITIES BY SMALL AND

MEDIUM ENTERPRISES IN MOYO DISTRICT, UGANDA

BY

LOKUJO EMMANUEL JOBS

19/MBA/KLA/EVE/0027

SUPERVISORS
DR. MICHAEL KIWANUKA
MR. JP SSENYONDO

A RESEARCH PROPOSAL SUBMITTED TO THE SCHOOL OF MANAGEMENT

SCIENCE IN PARTIAL FULFILMENT OF THE AWARD OF THE MASTER’S
DEGREE IN BUSINESS ADMINISTRATION (FINANCE) OF UGANDA
MANAGEMENT INSTITUTE
OCTOBER, 2023
 TABLE OF CONTENTS

TABLE OF CONTENTS...............................................................................................................i

LIST OF ACRONYMS AND ABBREVIATIONS.....................................................................ii

CHAPTER ONE............................................................................................................................1

INTRODUCTION.........................................................................................................................1

1.1 Introduction................................................................................................................................1

1.2 Background to the study............................................................................................................1

1.2.1 Historical Background............................................................................................................2

1.2.2 Theoretical Background..........................................................................................................4

1.2.3 Conceptual Background..........................................................................................................5

1.2.4. Contextual Background.......................................................................................................10

1.3 Statement of the problem.........................................................................................................12

1.4 General objective of the study.................................................................................................13

1.5 Specific objectives...................................................................................................................13

1.6 Research questions...................................................................................................................13

1.7 Hypotheses...............................................................................................................................14

1.8 Conceptual framework.............................................................................................................14

1.9 Justification of the study..........................................................................................................15

1.10 Significance of the study.......................................................................................................16

1.11 Scope of the study..................................................................................................................17

1.11.1 Content scope of the study..................................................................................................17

1.11.2 Geographical scope of the study.........................................................................................17

1.11.3 Time scope of the study......................................................................................................17

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1.12 Operational definitions of key terms and concepts................................................................17

CHAPTER TWO.........................................................................................................................20

LITERATURE REVIEW...........................................................................................................20

2.1 Introduction..............................................................................................................................20

2.2 Theoretical review...................................................................................................................20

2.3 Related literature review..........................................................................................................22

2.3.1 Cost of credit and access to credit........................................................................................22

2.3.2 Collateral securities and access to credit..............................................................................23

2.3.3 Number of financial institutions and access to credit...........................................................25

2.3.4 Summary of the literature review.........................................................................................26

CHAPTER THREE.....................................................................................................................27

METHODOLOGY......................................................................................................................27

3.1 Introduction..............................................................................................................................27

3.2 Research design.......................................................................................................................27

3.3 Study population......................................................................................................................27

3.4 Sample size and selection........................................................................................................28

3.5 Sampling techniques and procedures.......................................................................................28

3.6 Data Collection methods..........................................................................................................29

3.6.3 Document review..................................................................................................................30

3.7 Data collection instruments.....................................................................................................31

3.7.2 Interview guide.....................................................................................................................31

3.8.1 Validity.................................................................................................................................32

3.8.2 Reliability.............................................................................................................................33

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3.9 Procedure of data collection....................................................................................................33

3.10 Data analysis..........................................................................................................................34

3.10.1 Qualitative data analysis.....................................................................................................34

3.10.2 Quantitative data analysis...................................................................................................34

3.12 Ethical considerations............................................................................................................35

REFERENCES............................................................................................................................37

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 LIST OF ACRONYMS AND ABBREVIATIONS
ATM: Automatic Teller Machine

GoU: government of Uganda

ICT: Information Communication and Technology

OECD: Organisation for Economic Cooperation and Development

OWC: Operation Wealth Creation

PEAP: Poverty Eradication Action Plan

PMA: Plan for Modernization of Agriculture

SMEs: Small and Medium Enterprises

UBOS: Uganda Bureau of Statistics

USE: Uganda Securities Exchange

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 CHAPTER ONE

INTRODUCTION

1.1 Introduction

Small and Medium Enterprises (SMEs) form the backbone of most economies and they are a key

Source of economic growth, dynamism and flexibility in advanced and industrialized countries.

Micro and small enterprises play a vital role in creating employment (Nikaido et al., 2015).

Hence access to credit by these businesses can lead to high profit, wages and create more

employment which significantly alleviates poverty (Sievers & Vandenberg, 2007). Small and

Medium enterprises constitute the dominant form of business organization accounting for over

95% and up to 99% of enterprises depending on the country. In Uganda, they constitute over

96% (UBOS, 2016). Organisation for Economic Cooperation and Development OECD (2006)

notes that in OCED member countries SMEs provide between 60-70% of net job creation and

are important for bringing innovative products or techniques to the market. Access to finance is

therefore a significant element in the growth and survival of Small and Medium Enterprises.

This study assesses the factors affecting access to Credit Facilities of Small Medium Enterprises

in Moyo district, Uganda namely cost of credit, collateral securities and the number of financial

institutions as independent variables and bank loans and overdrafts, trade credits and debentures

as dependent variables. This chapter presents the background, statement of the problem, study

objectives, research questions, hypotheses, conceptual framework, significance, justification,

scope and operationally defined the variables.

1.2 Background to the study

This section focuses on historical, theoretical, conceptual and contextual aspects of the study

background.

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1.2.1 Historical Background
Micro-enterprises and microfinance industry have substantially grown across the globe

especially, after the year 2000. There is growing recognition of the important role these small

and medium enterprises (SMEs) play in economic development. Micro and small enterprises as

drivers of economic growth provide a key building block for social economic change but are

most vulnerable to external shocks due to their inherent limitation of access to credit. For SMEs

to survive and grow, access to credit play significant role (Ngo and Chi, 2017). Most of the

access to credit gaps relate to cost of borrowing, collateral requirements, the number of credit

providers in the market, firm size, knowledge and other associated risks (Owusu-Antwi, 2010;

Finscope, 2010).

In the global economic arena, access to credit facilities such as bank loans and overdrafts are

available for lending but they are costly and risky in terms of high processing fee and interest

charges, this drives away borrowers (Guirkinger, 2008).

In China and Japan, like in any other economy, access to credit facilities is imperative in

improving productivity, household income and overall consumption thus, this calls for timely

attention and thorough analysis of the credit sector to encourage Enterprises to borrow to

improve their businesses for better goods and services delivery to help improve people’s welfare

especially the very poor in the society (Synovate, 2010). It’s a common knowledge that Japanese

banks mostly, lend to their borrowers who have strong collateral securities (tangible assets) so as

to reduce the risk of default (Kung’u, 2011).

In the financial inclusion context of many African economies, SMEs need access to finance to

carry out their business operation and expansion. By this commentary, it was a common

knowledge that lack of access to credit facilities is the most serious barrier to creation, survival,

expansion and growth of businesses. The seeming lack of finance for SMEs was not only

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retarding their expansion per say, but also the growth of the continent’s economy, as

macroeconomic conditions in Africa severely constrained private sector access to credit. High

levels of government borrowing pushed interest rates up and crowded the private sector out of

the financial markets. This problem prompted most African governments to review their

monetary policies and credit sector reforms to improve lending to private sector by reducing

interest rate on credit facilities and reconsidering collateral requirement necessary for capital

investment (USAID DCA Ghana Impact Brief, 2009).

Uganda was not left out in the face of this challenge. The Gender and Enterprise Survey data

(2015) revealed that in Uganda, availability of internal and external credits, credit application

and outcomes, cost of credit define access to formal credit facilities and services. It further

reported that access to formal financial institutions which are pivotal in providing credit services

is wanting as they are still unevenly distributed by district: 41% and 48% of districts out of the

112 districts in Uganda lack access to any bank branch and ATM respectively, meaning rural

areas suffer from low coverage by formal financial-services outlets.

With interventions over the years as reported by Global Findex 2014, access to financial services

in Uganda has gradually improved, this has been mainly attributed to the rapid expansion of

mobile-money services and government initiatives such as Poverty Eradication Action Plan

(PEAP), the Plan for Modernization of Agriculture (PMA), Wealth for All Programme (Bonna

Bagagawale), Operation Wealth Creation (OWC), Entandikwa Credit Scheme among the poor

(Abola, 2011; Kasekende, 2011; Matovu & Okumu, 2010; Synovate, 2010).

In the FY 2019/2020 and FY2021/2022, GoU launched the Emyooga Wealth Fund and Parish

Development Model (PDM) respectively as a national wealth creation, household income

enhancement and development approach for which a significant amount of not less than one

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trillion shillings budgeted, targeting the grass-root population to help improve access to credit

and bring everybody into the money-economy. However, the success in realizing reasonable

financial inclusion of SMEs of these initiatives is yet to be seen (National Budget FY 2021/2022

and FY 2022/2023).

As a national programme, Moyo District has been and is a beneficiary of all these government

programme and initiatives; as such its story is not any different. But Moyo District’s small

business owners are still adversely faced with access to credit challenge. This is because not all

outputs are attained as planned. Have a look at the high interest rates, prohibitive collateral

requirements and limited number of financial institutions serving the population among others

(The State of Microfinance in Uganda 2014/2015 - AMFIU).

Like elsewhere in the World or Africa and Uganda in particular, SMEs access to finance and

costs of finance appears in surveys and analysis as one of the leading hurdles to realizing growth

and operational efficiency (Ogolla, 2013).

1.2.2 Theoretical Background

This research will be informed by the Theory of Social Capital advanced by Pierre Bourdieu

(1985). According to the theory, social capital is viewed as the sum of the resources, actual or

virtual, that accrue to an individual or a group by virtue of possessing a durable network

(Bourdieu & Wacquant, 1992). The Theory was based on the assumption that the more the

networking, the greater the social capital, the higher the priority of the norm of equality and the

easier to mobilize resources to be accessed by the actors. As explained by Allan Schmid &

Lindon J Robison (1995), the concept of social capital includes: obligations, expectations, and

trustworthiness of structures, information channels and norms and effective sanctions. All these

are geared towards resources mobilization within the network.

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 In light of this theory, it is expected that whenever individuals and organizations build and

maintain strong relationships or social networks among themselves, they can pool funds or

resources (social capital) which they can use to finance their operations, thus solving challenges

of access to credit facility.

Moreover, the more personal resources one has, the less likely one is to rely on strong ties. Like

most theories in management science, the social capital theory has not been spared by critiques.

For example, Bourdieu & Wacquant (1992) believe that social capital is a tool of the elite

deployed to ensure that the wrong people do not enter their circles. That the social capital

derived from these social networks benefit only members of the network. Whereas this may be

true for individual level networks, strategic SMEs can build networks strong enough to generate

social benefits. However, SMEs may be blocked by larger social networks of financial

institutions which target large business enterprises.

The Theory of Social Capital is applicable to the context of Access to credit facilities by SMEs

in Moyo District as the Entrepreneurs and Enterprises are encouraged and inspired to build and

maintain their own strong ties or relationships to mobilize resources which they can eventually

access and utilize other than relying on external credit facilities which are costly. It is at this

point that the study will be held to assess the factors affecting access to credit facilities by

selected SMEs in Moyo District, Uganda.

1.2.3 Conceptual Background

The key concepts in this study are factors and access to credit by selected SMEs in Moyo

District. Generally speaking, factors in accessing credits in the financial markets describe the

given elements that influence the availability and affordability in the acquisition of credit

facilities by the borrower. According to Kikonyogo (2000), the main factor that influences

acquisition of credit is the amount of interest rate charged on lending. However, access to credit
5
is influenced by several factors other than interest rate/cost of credit; namely processing fee,

collateral securities, the number of financial institutions. The main dimensions of the factors as

independent variable in this study will be cost of credit, collateral securities and the number of

credit (Odongo, 2014).

Saleemi (2007) defined cost of credit as the amount of money the borrower is obligated to pay

above the principal sum of money lent or the costs charged on the credit facility or borrowing.

All borrowings attract processing fee, interest, and penalties/fine in case of default charged on

the credit as a return on capital to the lender. These charges increase the amount (principal) to be

repaid (Togba, 2004). They not only affect loan payments, but they also have an impact on an

enterprise funding (Ogolla, 2013). Financial institutions set their interest rates on the basis of the

Central Bank Rates (CBR), which is the rate at which they transact with the Central Bank. The

CBR is in principle determined on the basis of the prevailing macroeconomic conditions by the

Central Bank/Bank of Uganda (Namatovu, 2010). According to Odongo (2014) cost of credit

may be fixed for the term of the loan, or adjusted to reflect changing market conditions.

According to Gitman (2003), Collateral refers to the extent to which assets are committed by

borrowers to a lender as security for debt payment. The security assets should be used to recover

the principal in case of default. SMEs in particular provide security in form of properties

(houses, the businesses, car, land), stock-holdings and Initial deposit(cash) 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). Much of the SME financing is provided

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primarily by banks with loans being backed by credit guarantees or collateral (Park, 2006). In

Uganda today, if a property is titled it works well as collateral for loans. Spousal consent is

required for taking loans when couples are legally married (National Financial Inclusion Strategy

2017-2022).

Evidence from the Uganda Securities Exchange (USE) Brochure (2013) indicates that banks

consider lack of collateral as high credit risk because of the transaction costs associated with

availing credit to such SME companies.

In reality, an improved access to finance is measured by the increased number of institutions

providing affordable credit to the rural poor or low income earners in all product segments.

Despite the recognition, the expected benefits have not trickled down to all the beneficiaries and

access is still low due to the limited number of functional microfinance institutions (The Tier 4

Microfinance Institutions Bill, 2015). Uganda’s financial system is composed of formal, semi-

formal and informal institutions. The formal institutions include Banks, Microfinance Deposit-

taking institutions, Credit Institutions, Insurance companies, Development Banks, Pension Funds

and Capital Markets. The semi-formal institutions include Savings and Credit Cooperative

Associations (SACCO) and other Microfinance institutions, whereas the informal ones are

mostly village savings and loans associations. Formal institutions are less prominent in rural

areas than urban areas and they only serve 14% of the rural population. Informal institutions play

an important role in the rural service provisions and serve approximately 12% of the rural

population (Bank of Uganda, 2015). The number of financial institutions offering credit in an

economy has an impact on the overall growth of an economy. As observed by Schoof (2006) an

inadequate number of financial institutions offering credit services to SME’s would constrain

development of the industries. When number of small scale traders is many whilst the financial

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institutions with the services customized to them are few (demand exceeds supply) the price of

the loan will be high therefore not affordable and hence low uptake by SMEs.

Access to credit in the financial market explains the ease or difficulty of acquiring credit/loans

by borrowers for purposes such as improvement of business performance, continuity and

expansion. According to Osoro & Muturi, (2013), Access to credit refers to the ability of

individuals and enterprises to obtain external funding to enable them ease cash flow problems.

Honohan (2008), also referred to access to finance as the possibility that individuals or

enterprises can access financial services such as credit, deposit, payments, insurance, and other

risk management services. Access to finance can influence the survival and growth of

entrepreneur behaviors among small and medium enterprises (Porteous May, 2005).

Credit facility: Credit in simple terms, is the ability to borrow money or access goods or services

with the understanding that the borrower pays later. This definition provides a precise meaning

and understanding to credit as a facility. Credit is generally defined as an agreement between a

lender and a borrower and it’s heavily linked to an individual or business' creditworthiness or

credit history. In accounting, a credit may either decrease assets or increase liabilities as well as

decrease expenses or increase revenue. The principal function of credit is to transfer resources

from those who have and don’t use them to those who don’t have and wish to use them, this is

done using different avenues e.g. granting of loans by banks and MFI’s to individuals who plan

to initiate or expand a business venture. The transfer is temporary and is made for a price, known

as interest, which varies with the risk involved and with the demand for, and supply of credit

(Kimuyu and Omiti 2000). According to Manasseh (2004) external financing or credit facilities

is kind of finance provided by person(s) other than the actual owner of the company who are the

8
company creditors. Manasseh (2004) further added that credit can be in any of the following

forms; overdrafts, trade creditors, lease financing, debentures, loans, among others.

Bank Credit: Bank credit or loan is known to be an amount of money loaned at interest by a bank

to a borrower, usually on collateral security, for a certain period of time. This is a sum of money

borrowed by a customer or a business from a bank or other financial institution to finance the

business. This study explains how banks and other financial institutions extend loan facilities in

form of cash credits, bank overdrafts, term loans etc to firms of Small and Medium Enterprises

or businesses. As banks generate profit through extending loans to their customers, these loan

facilities finance activities or operation of the customers. To secure the loan facility the borrower

is required to provide some security or create a charge on the assets of the firm before a loan is

sanctioned by the bank.

According to Manishi (2006), Trade credit is a loan in the form of goods. Trade credit is given

by one firm to another firm which buys the goods. This credit facility range from 15 days to

three months and granted on the basis of good will or reputation of the buyer, financial position

of the seller, volume of purchases, past record of payment and degree of competition in the

market. Trade credit is extended by the seller to the buyer of goods. Such credit appears in the

records of the buyer of goods as ‘sundry creditors’ or ‘accounts payable’. In this research, trade

credit is the credit facility extended by one trader to another for the purchase of goods and

services. Trade credit facilitates the purchase of supplies without immediate payment. It’s

commonly used by business organizations as a source of short-term financing. Trade credits

based on the conceptual framework was measured using trade acceptance, open account and

promissory note as its indicators.

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Debentures: Debentures are an important instrument for raising long term debt capital. A

business can raise funds through issue of debentures, which bear a fixed rate of interest payable

at specified intervals say six months or one year. The debenture issued by a business entity or

company is an acknowledgment that the entity has borrowed a certain amount of money, which it

promises to repay at a future date.

1.2.4. Contextual Background

Moyo District is one of the Local Governments in Uganda (Local Government Act CAP 243,

Section 3). It’s one of the oldest districts in Uganda created in 1956 before the declaration of

independence of Uganda. Originally, it was known as Madi District.Moyo is located in the

North-Western corner or West Nile region of Uganda. Moyo district lies 03°39N 31°43E with

an Area of 2,059km2. The Nile River forms its Southern and Eastern borders, South Sudan in the

North and Yumbe district in the Western side. It is about 640km via Arua and 480km via Gulu

from Kampala.

According to the population and housing Census 2014, Moyo had a total population of 137, 489

of which 67,937 (49.4 %) were males, and 69,552(50.6%) were female with a population density

of 80 persons per square kilometer. The main ethnic communities in the district include the

Madi, the Gimara, the Reli, the Kuku, Lugbara and Kakwa. They are found in Uganda as well as

South Sudan. Approximately 80% of households in Moyo District depend on subsistence

agriculture as their main economic activity. Only 9.7% of the population is dependent on earned

incomes and 0.4% on property income. . The major crops grown include sweet potatoes,

sorghum, cassava, simsim, groundnut, finger millet, maize, cowpeas and beans. Fishing is

another economic activity carried by the communities living along the bank of the Nile River.

The Nile River is the main source of fish within the district.

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In order to open doors for Entrepreneurial Development and Employment opportunities, Moyo

Technical Institute a public institution and Moyo School of Nursing and Midwifery were

established to impart modern skills in areas of ICT and computer applications, vehicle

mechanics, engineering, construction, catering, tourism and hotel management, electrical

installation, electrical repair and nursing. These investments have effectively responded to the

demand for technical and employable skills employers require and gave the youths confidence to

start business enterprises.

There is a significant growth in the business sector in Moyo District currently, with the

emergence of young Entrepreneurs who embrace businesses. Most of the business are owned by

civil servants and those who sought employment opportunities in South Sudan. These

Enterprises include among others Moyo Multipurpose Training Centre, Amatura Cooperatives

Ltd, Lefori Multi-Purpose Cooperative Ltd, Moyo Beekeeping Association Ltd, Amazon

Pharmaceutical Enterprise Ltd, Nasera suite - Hotel, Dreamz Club, Moyo Penhouse - Hotel,

Leam Hotel Ltd, Epiphany Education Services, St. Andrews College and Rarika Mixed Farm

Ltd.

Moyo district has only one resident commercial bank - Stanbic Bank operating an ATM and

several banking agents around town and neighboring trading centers. Stanbic Bank Moyo Branch

serves mainly the business community, NGOs and civil servants whose salaries are remitted

through it and the bank is also authorized to buy and sell foreign exchange, issue letters of credit

and offer loans to customers (Bank of Uganda - 2015).

The District has a number of SACCOs, most of them formed as a result of the “Prosperity for

All” program (2006 NRM Election Manifesto). These SACCOs include Mt Otce Metu SACCO,

MDLG Staff SACCO, Nile Belt Laropi SACCO, Gimara SACCO, and Moyo SACCO. Among

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these SACCOs, Moyo SACCO Ltd is the largest and leading SACCO with a membership of

more than 8,640 and a share capital of UGX 369,420,000, a saving portfolio of UGX

5,194,018,087 and a loan portfolio of UGX 4,900,644,804(Moyo SACCO 2010 AGM Report).

These SACCOs offer credit products such as business loan, agricultural loan, education loan,

emergency loan, Asset loan etc to the business community and the population. These SACCOs

are supported and supervised by the District Commercial Officer. There are VSLAs spread all

over the villages. They are formed by the village members and registered at the sub-counties to

financially and economically empower its members. The VSLAs accept voluntary savings from

its members and offer small amount of loans to its members to meet their daily financial needs.

Most of these VSLAs are supported by local politicians and development partners such as

Stromme Foundation, DRDIP, WENIPS, Creams, CEFORD, and LWF. Important to note Moyo

district has commercially underdeveloped and poor community, based on this background, the

population and business community of Moyo district is faced with challenge of access to credit

facilities.

1.3 Statement of the problem

SMEs are major backbone of most economic activities in Moyo District through massive

creation of employment and revenue generation. Most of these SMEs depend on credit/finance

facilities to survive and grow. To enhance access to credit, government has ensured lower

indicative Central Bank Rate, recommend issuance of both collateralized and non-collateralized

loans and increased the number of financial institutions/physical network of banking system

(2019 BoU Report on “Status of Financial Inclusion in Uganda).

Despite the efforts by the government, access to credit by SMEs in Moyo District remained

lower due to constraints such as unfavorable cost of credit and prohibitive collateral

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requirements (MDLG Commercial Report 2020). This report further indicates that only 15% of

the money set aside for loan at Moyo SACCO in particular, had been borrowed and utilized

representing very low access because most the SMEs cannot satisfy the requirements. An

expansive body literature states that SMEs access to credit is generally affected by various

factors including cost of credit, collateral requirements and number of credit service providers

but do not clearly explain how. This study will therefore assess the extent to which the said

factors affect access to credit facilities by selected SMEs in Moyo District Uganda.

1.4 General objective of the study

The general objective of the study is to assess the factors affecting access to credit facilities by

selected SMEs in Moyo District, Uganda

1.5 Specific objectives

i. To assess the effects of Cost of credit on access to credit facilities by selected SMEs in

Moyo District, Uganda.

ii. To assess the effects of collateral securities on access to credit facilities by selected SMEs

in Moyo District, Uganda.

iii. To assess the effects of the number of financial institutions on access to credit facilities

by selected SMEs in Moyo District, Uganda.

1.6 Research questions

i. How does cost of credit affect access to credit facilities for selected SMEs in Moyo

District, Uganda?

ii. How does collateral security affect access to credit facilities for selected SMEs in

Moyo District, Uganda?

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 iii. How does the number of financial institutions affect access to credit facilities for

selected SMEs in Moyo District, Uganda?

1.7 Hypotheses

The following hypotheses are formulated by the researcher to arrive at a scientific solution to

various propositions.

i. Cost of credit has a significant effect on access to credit facilities for SMES in Uganda.

ii. Collateral security has a significant effect on access to credit facilities for SMEs in

Uganda.

iii. The number of financial institutions has a significant effect on access to credit facilities

by SMEs in Uganda.

1.8 Conceptual framework

The conceptual framework provides an understanding of the interaction between the independent

variable (Factors) and the dependent variable (Access to Credit facilities). It will be used by the

researcher to guide the direction of the dissertation.

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 Independent Variable

Factors

Cost of Credit
Dependent Variable
 Processing cost
 Interest payable Access to Credit

 Penalty/Fines

Collateral securities  Bank Loans and Overdrafts

 Property title/License  Trade credits
 Inventories/Stock-holdings  Debentures
 Initial cash deposits

Number of financial institutions

 Commercial Banks
 Microfinance
Institutions/Saccos
 Money Lenders/VSLA

Source: Adopted from Catherine Wanjiku Ndungu (2014) and modified by the researcher

1.9 Justification of the study

Many investigations on determinants of access to credits/finance were conducted in Latin

America (Guirkinger, 2008), Asia (Kung’u, 2011), Kenya (Catherine W. Ndungu, 2016) and in

Uganda (Muhire, 2018). There is no well-known information about such a study in Moyo

District. For any SMEs to access credit facilities with ease, the cost of credits or finance ought to

be affordable, the collateral securities presented be acceptable and the financial institutions

should be available. Undeniably, as a rural district SMEs in Moyo district appear to be

vulnerable to high borrowing cost, absence of valuable asset base for collateral securities and a

15
limited number of Credit service providers impeding their ability to access credits for survival

(Bank of Uganda - 2015). This creates the need to undertake the study and its findings may

greatly benefit not only SMEs in Moyo District, but other communities interesting itself in

financial inclusion or willing to assess influential factors that affect access to credit services to

give birth and facilitate growth of its business entities.

1.10 Significance of the study

This study will be significant to a number of stakeholders notable those in the business spectrum

as it may expose and outline the major factors that influence access to credit by small and

medium enterprise operators in Moyo district. The study will assist SMEs by opening their eyes

on the ways of managing the challenges they are faced with and also search for alternative

sources of finance that would give them better chance of survival, growth and success in the

global competitive corporate setting.

Several studies have found SMEs fail to see their second birthday simply because they fail to get

financing to foster their growth, this study will seek to add to the existing literature on the factors

affecting access to credit facilities or financing from financial institutions both formal and

informal. Information in this study may also be used by Moyo District Local Government

commercial office, and subsequently other district or authorities when formulating policies on

financial inclusion and planning to make strategic responses. This will also aid them in building

an all-inclusive policy for all traders.

The academia and scholars may use the study to provide additional information to the present

content of knowledge and create basis for future research and reference point while handling

similar subject matter.

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1.11 Scope of the study
The scope of the study basically means all the things that will be covered in the research project

such as contextual/geographical scope, content scope, time scope.

1.11.1 Content scope of the study

The study will assess the factors affecting Access to Credit facilities by SMEs. Banking habits

and awareness about financial products and services like credits come within the purview of the

study.

1.11.2 Geographical scope of the study

This study will be conducted in Moyo District in West Nile Region. This study will observe

about 30 SMEs to extract or obtain significantly sufficient information.

1.11.3 Time scope of the study

The study will consider the period from 2019 to 2023. This is basically intended to enable the

researcher have sufficient time to assess the determinants of access to credit services or facilities

by the selected SMEs in Moyo.

1.12 Operational definitions of key terms and concepts

This section of the study provides the operational definition of all the key indicators of the

independent and dependent variables of the study.

Access to credit; in this study, Refers to the ease with which SMEs can secure financial

assistance or loans from lending institutions (Kitili, 2012). This is further explained as the

difficulty or the ease with which a business entity obtains or accesses finance or credit facilities

such as bank credits, trade credit, overdrafts. However, it’s prudent for any SME to easily obtain

finance or any credit facility at an affordable interest rate to start, operate and grow for continuity

(World Bank 2015).

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Cost of credit is the cost a borrower is obligated to pay above the principal sum of money lent as

well as the cost a lender incurs in providing a credit facility. These costs come in form of credit

processing cost, interest rate and penalties or fines in case of default by the borrower. Cost of

credit is attributed to both demand and supply side namely; cost of lending and cost of

borrowing. The higher the cost of borrowing the lower the demand for the credit product.

Similarly, the higher the cost of borrowing the lower the supply of credit product. Cost of credit

is spread along the credit processing and management stages (Togba 2004).

Collateral requirement. In lending agreements, according to Joan (1995), collateral is a

borrower’s pledge of specific property to a lender to secure repayment of a loan. The collateral

serves as protection for a lender against a borrower’s default. If a borrower defaults on a loan,

that borrower forfeits the property pledged as collateral. The lender then becomes the owner of

the collateral. Joan (1995) established that collateral is a major determinant of credit accessibility

by SMEs.

Financial Institutions. These are institutions that deal in credit provision and other financial

services such as saving, payment, and insurance. These include all formal, semi-formal and

informal financial institutions. The formal institutions include Banks, Microfinance Deposit-

taking institutions, Credit Institutions, Insurance companies, Development Banks, Pension Funds

and Capital Markets. The semi-formal institutions include Savings and Credit Cooperative

Associations (SACCO) and other Microfinance institutions, whereas the informal ones are

mostly village savings and loans associations (Bank of Uganda, 2015).

Credit facility: A credit facility is a particular type of credit made or provided to any business

by a creditor or a bank and other financial institutions in form of bank loans, trade credits,

overdrafts and debenture to finance its operations and growth and repay later with interest. Credit

18
facility in this study was classified and limited to three dimensions namely Bank credits, Trade

credits and Debentures.

Entrepreneurship. This is the managerial process for creating and managing innovations

(Drucker,2014). The possession of certain personality that exposes an individual towards

entrepreneurial behavior (Westhead, 2011)

19
 CHAPTER TWO

LITERATURE REVIEW

2.1 Introduction
This section reviews literature of previous scholars in line with the subject of the study; factors

and access to credit facilities. Literature review aims at critical examination, summarizing prior

research and clarifying alternative views. Literature review provides key information and

valuation of the variety of prevailing resources dealing with data and understands a given field

(Rowe, 2014). The main areas of literature review are; theoretical review, factors namely; cost

of credit, collateral securities, number of financial institutions and access to credit facilities

constructs such as the bank loans, the trade credits and debentures and summary. The sources of

the literature are secondary specifically journals, abstracts, publications, dissertations, text-books

and Internet.

2.2 Theoretical review

The study adopted social capital theory (SCT) by Pierre Bourdieu (1985). The concept of social

capital includes; fulfillment of obligations, expectations, and trustworthiness of structures;

information channels; and norms and effective sanctions. All of these social structures or

institutions involve cognition and mental images. The theory states that the social ties,

connections and or relations in a social structure are appropriable (Coleman, 1988). In other

words, social relations, ties or connections initiated for one purpose would be available for

appropriation for other purposes and hence would be beneficial. The concept of social capital is

concerned with the existence of social relations, ties, connections between and among actors, and

the structure and content of such relations as a resource (Adler and Kwon, 2002). The

assumptions of social capital theory (SCT) are based on concepts such as social relations, ties,

20
connections, obligations, expectations and trustworthiness ease access to credit facilities such as

loans in the absence of strong physical collateral securities and adequate financial information.

However, in critique of the theory, Davidson and Honig (2003) attest to the fact that weak ties

though useful may not enhance the generation of desirable social capital from a network.

Bourdieu & Wacquant (1992) believe that social capital is a tool of the elite deployed to ensure

that the wrong people do not enter their circles. That the social capital derived from these social

networks benefits only members of the network.

Social relationships may also have negative consequences such as creation of criminal networks

(Quillian & Redd, 2006). The exclusionary nature of social networks raise equity issues (Perkins,

Hughey & Speer, 2002). This may be a big challenge for SMEs as they try to accommodate all

members in the social network. Whereas some institutions may be well intentioned to join the

SMEs network, it is hard to predict behavior. Even the level of trust advocated for by Coleman

(1988), Putnam (1995) and Lin (1999) may be difficult to guarantee. Robert Putnam (1995)

added his view referring to Social Capital as “connections among individuals and organizations

with social networks and the norms of reciprocity and trustworthiness that arise from them” thus

benefiting them. To Putnam and his followers, social capital is a key component to building and

maintaining strong relationships. Similarly, according to Lin (1999), individuals and Enterprises

should engage in social networks in order to mobilize funds so as to be borrowed by those in

need and be repaid later. For the social network to produce positive results, there should be

strong ties among the individuals or organizations in the network like those derived from family

relationships as they provide secure and consistent access to resources (Quillian & Redd, 2006).

The social capital theory (SCT) operationalizes the concept of access to credit facilities in such a

way that social sanction created by trust, encourages Entrepreneurs to cooperate in the society to

21
enjoy financial inclusion, Coleman (1990). For instance when banks ask for collateral securities

as an assurance for future repayment to offer financial services such as loans. Entrepreneurs may

use their social capital in form of interpersonal and generalized trust and social sanction to

substitute and guarantee the loan and its future repayment, where there is no physical collateral

to secure such a loan (Atemnkeng, 2009). Similarly, this behavior interestingly makes it easy for

SMEs in Moyo district, to access credit facilities such as banks loans, trade credits and

debentures among others to finance the operations, growth and survival.

2.3 Related literature review

2.3.1 Cost of credit and access to credit

Cost of credit in this study is examined in two aspects namely; cost of borrowing which is paid

for by the borrowers (SMEs) and cost of lending which is incurred by the lenders but may

eventually be transferred onto the borrower. Cost of credit is classified in three different

categories such as: processing cost, interest payable and penalty/fine. These categories are

reviewed in line with access to credit facilities such as bank credits, trade credits and debentures.

All borrowings attract interest charged on the credit as a return on capital to the lender. These

charges increase the amount (principal) to be repaid. Togba (2004), provision of Credit

facilities/products attract costs from processing to repayment. The cost of borrowing is assessed

by the borrowers to ascertain if the credit facilities is affordable so as to apply for it or not. It’s

prudent for any SME to easily obtain finance or any credit facility at an affordable interest rate to

start, operate and grow for continuity (World Bank. 2015).

In the commercial market, bank credit/loan provision specifically requires business registration

/incorporation, credit/loan application, credit analysis (creditworthiness) and approval, credit

disbursement, debt repayment or collection. Though these activities are put in place to reduce

22
risk and define the requirements for SMEs to have access to credit facilities from financial

institutions and bank, they have costs attached. And these costs are transferred on to the

borrower in form of processing fee, interest on the credit and penalties (Kimutai and Ambrose,

2013). Interests not only affect loan payments, but they also have an impact on an enterprise

funding (Ogolla, 2013). High interest rates reduce business earnings which ultimately hinders the

business capacity to grow. High interest rates also affect a business cash flow in that one has to

set aside more money to repay the loans. This in turn reduces its disposable income hence

affecting the borrower’s ability to pay its other creditors. This calls for Small and Medium

Entrepreneurs to carefully examine the need to borrow or not to borrow.

On the other hand, banks and financial institutions extend credit facilities such as loans, term

loans and bank- overdraft among others to generate profits to finance their operating expenses.

But these credit facilities must be cost-effective. In case there is high cost of lending, banks

(lenders) may not be willing to extend credit facilities thus hindering access to credit facilities by

their clients/borrowers. According to Mazanai & Fatoki (2012) some banks are reluctant to

extend loans to Small Enterprises because of the high administrative cost on small scale lending.

These banks fear incurring more costs which they may not recover.

2.3.2 Collateral securities and access to credit

Collateral refers to an asset that a borrower uses to secure a loan from the lender. A lender gets a

Fall back in case of default where they can dispose the asset to recover their money. Kung’u

(2011) noted that secured loans are seen to have a low risk of default hence they are charged a

lower interest. Most SMEs’ do not have tangible assets that they can use to secure their loans

hence their borrowing is limited.

23
Similarly; according to Joan (1995), collateral is a borrower’s pledge of specific property to a

lender to secure repayment of a loan. The collateral serves as protection for a lender against a

borrower’s default. In this study, collateral security is being explained in three different

indicators namely; property title, inventory/stock-holdings and initial cash deposits. Banks and

financial institutions require SMEs in particular to provide security in form of properties (land,

houses, businesses, car), Stock-holdings and Initial deposit(cash) that could actually bring back

the principal) in case of default on loans (Garrett, 2009). Mullei and Bokea, (2000) show that

collateral security for loans must actually be capable of being sold under the normal market

conditions, at a fair market value and also with reasonable promptness. Most of the credit

providers prefer lending to SMEs/borrowers whose value of collateral pledged exceed the loan

amount applied for, besides requesting for personal guarantors (Gou, Holland and Kreander,

2014). 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.

Titled property, valuable amount of inventory/stock-holding and required initial cash deposit

may lead to significant improvement in credit access among the urban poor (Matovu & Okumu,

2010). Properties, available inventory and cash deposits greatly improve value, which offer

owners better collateral alternatives for long-term credit and higher borrowing level, which are

essential for investment. Therefore, potential borrowers with titled properties or high value assets

are expected to approach the formal sub-sector in which credit supply is usually backed by

tangible assets.

Anthony et al. (2013) and Odit & Gobardhum (2011) show that a firms’ collateral security, and

asset structure have a strong positive effect on the access to credit and the amount of loan

received by firms. They conclude that SMEs with a lower tangible assets in their total assets are

24
more likely to encounter difficulties in applying for formal credit because of the inability to

provide collateral required by the financial institutions.

BoU (2013) reported that many SMEs have been obstructed from obtaining credits from banks

due to their inability to provide collateral to secure the credit facility. According to The World

Bank (2013) the value of collateral needed to access a bank loan by SMEs in Uganda stands at

174.1 %. Which is extremely high and may definitely cut off Entrepreneurs who do not have the

securities for the loans they would wish to access. As the provision of collateral plays an

indispensable role in easing SME access to debt finance, SMEs that have more fixed assets tend

to utilize higher financial leverage (Nofsinger, 2011). The reason for this is that these firms can

borrow at lower interest rates as their loans are secured with these assets serving as collateral.

This explains why La Rocca (2011) describes collateral as the lender’s second line of defense.

Fatoki (2011) also asserts that a positive relationship between the use of collateral and the

strength of the borrower–lender lending relationship results into easier access to commercial

bank debt finance by SMEs.

2.3.3 Number of financial institutions and access to credit

The number of financial institutions offering credit in an economy has an impact on the overall

growth of an economy. As observed by Schoof (2006) an inadequate number of financial

institutions offering credit services to SME’s would constrain development of the industries.

According to Mwongera (2014), when number of small scale traders is many whilst the financial

institutions with the services customized to them are few (demand exceeds supply) the price of

the loan will be high therefore not affordable and hence low uptake by SMEs.

The Tier 4 Microfinance Institutions Bill (2015) explained that improved access to finance is

measured by the increased number of institutions providing affordable credit to the rural poor or

25
low income earners in all product segments. Despite the recognition, the expected benefits have

not trickled down to all the beneficiaries and access is still low due to the limited number of

functional microfinance institutions.

2.3.4 Summary of the literature review

The scholarly argument on access to credit is extensive, though searching for most of the key

information is a challenge. The arguments revealed that diverse studies to assess the extent to

which different factors affect access to credit facilities have been held. The scholars elaborated

on the cost of credit, collateral securities/requirements and the number of financial institutions as

the most determinant factors affecting access to credit facilities by Small and Medium

Enterprises. However, some shortcomings have been noted in the literature reviewed. Details of

more factors affecting access to credit facilities have not been well explained by the earlier

researchers. The study will be centered on a few factors affecting access to credit

services/facilities namely; the cost of credit, the collateral securities and the number of financial

institutions. The literature on the other hand also identifies and explains the main dimensions of

dependent variable with Bank credits (Bank loans, term loans and bank-overdraft), trade credits

and debentures as the credit facilities available and accessible to SMEs. Although the literature

review provides valuable information to some extent, there are geographical, scope, content and

methodological gaps. Geographically, most of the literature cited is outside the study area. The

content is not directly related to access to credit facilities. The research bridges the observed

gaps.

26
 CHAPTER THREE

METHODOLOGY

3.1 Introduction

This chapter will present a detailed description of methods on how the study will be conducted.

This Methods described in this chapter includes Research design, Study population, Sampling

procedure and technique, Sample Size, Data collection methods and instruments, Quality control

methods, Data processing, Analysis and presentation and Ethical considerations of the study.

3.2 Research design

This study will be guided by descriptive survey design which is a study that supports the state of

affairs of the study variables. In addition a triangulation approach will be used to assess the

factors affecting access to credit facilities to Small and Medium Enterprises in Moyo District as a

case study. The study will adopt a triangulation qualitative and quantitative approaches so as to

have wider chances of getting more accurate information. Therefore, the descriptive survey

deems to be the best strategy to fulfill the objectives of the study.

3.3 Study population

The study population will be 110 which will be obtained from Moyo District. The population

categories from which the sample population will be determined and selected will include Small

and Medium Entrepreneurs (30) operating in Moyo District, SMEs Managers (30), Managers of

ten (10) financial institutions (Commercial bank, microfinance and SACCOs) operating in the

district and Fifteen (15) Loan Officer from the financial institutions (Commercial bank,

microfinance and SACCOs). These population categories will be sufficient to inform the study

because they play key roles and have significant stakes in the access of credit facilities in Moyo

district.

27
3.4 Sample size and selection

The sample size will be 85 determined using statistical tables of Krejcie and Morgan (1970) cited

from Amin (2005). The sample size and sampling procedures are indicated in the Table 3.1

below

Table 3.1: Sampling Procedure

Category Total population per Sample size Sampling technique
category
Small and Medium Entrepreneurs 40 30 Simple random
(Owners)
SMEs Managers 40 30 Purposive

Managers of financial institutions 15 10 Purposive

(Commercial banks, microfinance
and SACCOs)
Loan officers 15 15 Purposive

Total 110 85

Source: Moyo District Commercial Office, Business Data (2020)

3.5 Sampling techniques and procedures

Sampling is the method of picking respondents from a population so as to study them and

generalize the results back to the population (Trochim, 2002). The study will apply both

randomized and non-randomized sampling approaches to select respondents. In particular,

purposive and simple random will be the sampling techniques that will be used for non-

randomized and randomized approaches respectively.

3.5.1 Purposive sampling technique

Purposive sampling in this study will refer to a sampling technique that involves identification

and selection of individuals or groups of individuals that are proficient and well-informed with a

phenomenon of interest (Ilker, Musa & Alkassim, 2016). The sampling will be applied in the

selection of population categories namely; the SMEs owners, SMEs Managers, Managers of

28
financial institutions (Commercial banks, microfinance and SACCOs) and Loan officers. Given

that these population categories are deemed to have varying levels of information relevant to the

study, the technique will be preferred to enable the researcher use his judgment and handpick all

members of those categories (Amin, 2005).

3.5.2 Simple random sampling techniques

Simple random describes a sampling technique that strives to avoid selection bias in selection of

respondents in sample population. The technique will be applied to select the SMEs owners in

Moyo district. The technique will aim at minimizing selection bias through providing an equal

and independent chance to all elements from that population category of being selected into the

sample population. In particular, each member of that category will be assigned a number and

after which one number at a go will be selected at random.

3.6 Data Collection methods

The study will utilize both quantitative and qualitative data collection methods from both

primary and secondary sources of data.

3.6.1 Questionnaire survey

The questionnaire survey is a data collection method where closed ended questionnaires

measured on five point likert scale is developed, according to the objectives of the study and

administered to defined respondents (Sekaran, 2003). The researcher will use questionnaires

since it helps in obtaining firsthand information. Creswell (2013) advised that depending on what

we are investigating, sometimes it is useful to start with questionnaires and follow it up with an

experiment or a series of interview. The method is very appropriate because it will enable the

researcher to collect a lot of data from very many respondents over a short period. (Mugenda &

Mugenda, 2008). Ongaki (2015) further mentions that a questionnaire contains questions for

29
attitude, opinion, belief and biography assessment. The method also minimizes bias since the

respondents will be able to answer the questions from their own perspective (Amin, 2005). This

will be applied to Small and Medium Entrepreneurs, Managers of the financial institutions and

Loan officers in Moyo district.

3.6.2 Interview

Baraceros (2007) explains that interview is the technique of collecting data where the interviewer

interacts with the respondents face to face. Interview allows flexibility since it requires

interaction between the interviewer and the respondent. The researcher will use interview

method and conduct face to face interview with the SMEs owners, SMEs Managers, Managers of

financial institutions and Loan officers who have reliable information and decision-making roles.

The researcher will take note of other important views of the respondent in note book. Interview

method may greatly benefit the researcher in obtaining first hand and detailed information that

will supplement the findings from the questionnaire survey (Sekaran, 2003).

3.6.3 Document review

Graham and Whittaker (2014) explain that secondary source is someone’s analyzed data that

would form part of the literature review. Vartanian (2011) elaborates that secondary data

includes questions for answering the research question. It is less expensive and can be organized

in a short time. Some of the data the researcher can review are administrative records, letters,

diaries and newspapers (Scott, 1990). The researcher will review Forms of Credit

Facilities/Products, Loan Applications, Minutes of Credit Approval Committee meetings, Loan

Repayment Schedules and Reports, Audit Reports, Credit policy and Manual, Record of

Collateral securities/Requirements and Interest rates, the Nature and the legal status of the SMEs

30
(Certificate of Incorporation) so as to verify and compare data collected from interview and

questionnaire methods for accuracy.

3.7 Data collection instruments

3.7.1 Self-administered questionnaire

In this study a questionnaire will be the research instrument that consists of a series of questions

to gather mostly quantitative information from respondents. In particular, self-administered

questionnaires will be used to capture primary data whereby the respondents will read and

answer the questions by themselves. A questionnaire template with several question items will be

distributed to respondents to answer or respond to (Oso & Onen, 2005). The questionnaire is

close-ended questions and measured on a five point Likert scale where the respondents selected

an option reflecting extent of his/her agreement with the statement. The questionnaire will be

used because of its convenience and efficiency in collection of quantitative data from complex

populations in their natural settings without influence of the researcher (Sekaran, 2003)

3.7.2 Interview guide

Interview guide will have questions structured according to the dimensions of the independent

and dependent variables of the study. It will have open ended questions to allow probing. This is

in line with Uwe’s (2014) views that interviewers formulate an interview guide consisting of

questions designed to elicit the kinds of answers required. If interview guide is used consistently,

it helps in data comparison. Clarke (2013) argued that an interview guide is prepared in advance

and enables the researcher to build trust or rapport with participants. The researcher will use an

interview guide for all SMEs owners, SMEs managers, Managers of financial institutions and

Loan officers who have reliable information and decision-making roles. The researcher will

make appointments with the participants to carry the intended interview.

31
3.8 Data quality control

Data quality control means the information is accurate, complete, consistent, reliable, collected

within a specific time, unique and valid. For proper quality control, the database should agree

with the predefined standards using statistical measures (Becker, 2001). The researcher will

observe and maintain data quality control during data collection by using both validity and

reliability techniques.

3.8.1 Validity

In this study validity refers to the extent to which a data collection instrument will measure what

it claims to measure (Oso & Onen, 2008). Furr (2014) further submits that validity is the degree

of a test measurement; it is a property of the interpretations and use of test score. Amin (2005)

defines validity as the data analysis results representing actual phenomenon being studied. The

validity sample of respondents will be selected and the instruments will be applied on them.

Validity was established by some knowledgeable people in the field of research rating the

strength of the instruments based on the content as strongly relevant, relevant, fairly relevant and

irrelevant. White and McBurney (2010) observe that with content validity, a test should sample a

range of behavior presented by the theoretical concept under measurement. Content Validity

Index (CVI) test will be equally applied to check validity of the questionnaire content using the

formula with the overall item number in the instrument being 35.

Items rated strongly relevant /relevant

CVI = x 100
Total number of items∈the instrument

3.8.2 Reliability

Reliability refers to the degree of consistency that the instrument demonstrates (Gay, 1996).

Elizabeth (2006) states that use of reliable instrument repeatedly will produce the same result

32
with trials on the same basic information. The researcher will pretest the data collection

instruments on 10 individuals using Cornbrash’s alpha embedded in SPSS before data is

collected to make sure that the quality of the data to be collected is reliable and valid. Pedersen

(2011) explains that a popular method for measuring the internal consistency reliability of a

group of items is the Cornbrash’s alpha.

The formal for Cronbach’s alpha is α =

k
k−1
1−(
2
Σ ki=1 σ 2 Y 1
σ2x )
K=Number of elements. (K-1 items or test lets). σ x Represents the variance of the observed
2
total test score. σ Y 1 Stands for the variance of component I stand for the current population

samples. After corrections in the questionnaire have been done, the ideal scenario would be to

test the new version again (Gallhofer, 2014).

According to Boungarten (2010), validity and reliability are essential indication for quality in the

largely quantitative positivist research community. In this study, reliability will be ensured

through close guidance of the supervisor in the formulation of the tools. The researcher will

remain consistent and neutral in the course of collecting data.

3.9 Procedure of data collection

After defense the researcher will make appropriate corrections, he will re-test his work for

originality check plagiarism. The School of Business and Management of Uganda Management

Institute will eventually issue introduction letter to help the researcher obtain permission from

the management of the financial institutions and SMEs management. Once the permission to an

investigation is guaranteed, the researcher with the help of two researcher assistants will

administer the questionnaires. The exercise is not mandatory; it’s only the respondents who will

express interest in engaging in the study. On the side of interviews, the researcher will build

33
rapport with the respondents so as to avoid unnecessary challenges. The interviews will be

conducted during official working hours and the conversations will be recorded using a note

book. The exercise will take probably one month.

3.10 Data analysis

The researcher will use both quantitative and qualitative techniques for data analysis.

Quantitative techniques will be used in the interpretation of numerical data and qualitative

analysis will be used for interpreting non-numerical data.

3.10.1 Qualitative data analysis

Qualitative research refers to set of methods used for collection and analysis of interpretative or

explanatory data (Smith, 2014). Findings from well analyzed qualitative studies have a quality

of undesirability (Miles, 2014). The qualitative data gathered from interviews will be analyzed

using content and thematic analysis techniques. Content analysis involved reading through the

data set to get a general sense of what it’s all about before coding the data and later processing it.

Content analysis will include developing codes that represent what the data will all be about.

Thematic analysis on the other hand will involve organizing and merging codes into categories

or themes reflecting the bigger picture of the data (Sekaran, 2003)

3.10.2 Quantitative data analysis

Albers (2017) says in quantitative research, data is collected and conclusion is based on

numerical information. Questionnaire tool will be used to collect quantitative data. The data will

be studied, entered, coded, sorted and categorized and then analyzed and interpreted using

descriptive statistics to establish the distribution of the scores or measurements by frequency,

percentages, mean, standard deviation, pie charts, and graphs. The relationship between

variables will be showed using correlation analysis. Pearson’s coefficient will be used to test

34
the hypotheses. Moutinho and Hutcheson (2011) provide that Pearson correlation coefficient

measures the degree to which there is a linear association between two scaled variables. In

addition, the regression analysis will be computed to determine the variance that dimensions of

the independent variable (Cost of Credit, Collateral requirements/securities and the number of

financial institutions) will have on the Credit facilities. The model summary (r 2), analysis of

variance (ANOVA) and coefficients (BETA scores) will be used to explain the magnitude of the

variance.

3.11 Measurement of variables

Responses will be obtained using a scaled questionnaire using a 5-point-likert scale where

numerical figures are attached weights: 1=strongly disagree 2=disagree 3=not sure 4=agree and

5=strongly agree, and are used to gauge respondents’ perceptions. The questions will be adjusted

accordingly to match the targeted information by the researcher. Data generated from open ended

questions will be used in qualitative analysis. The information will be studied and categorized

according to contextualized themes. The Likert scale will be used because it is easier to use

compared to other methods (Amin, 2005).

3.12 Ethical considerations

The ethic issue for this study will include anonymity; informed consent; confidentiality and

protection; privacy; objectivity and plagiarism. Smith (2015) explains that ethical issues have to

be considered in case of research investigations that concern human person. The research will be

conducted after obtaining permission from Uganda Management Institute, management of

financial institutions and management of SMEs. The researcher will ensure that no respondents

identity including their name, designation and others is disclosed to any unauthorized or third

party persons. The informed consent of the respondents will be obtained first before collecting

35
data. The researcher will remain objective by taking the views of the respondents the way they

are given and avoid being bias. The researcher will explain to the respondents in advance the

purpose of the research, which is academic to limit momentary expectations. The research

contents will be subjected to “Turnitin” for plagiarism check and the works of other researchers

will also be acknowledged.

36
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