The Influence Of Firm And Owner Characteristics On Access To Microfinance And The Growth Of Retail Smmes In Mangaung Metropolitan Area

Abstract

The study examines the influence of business owner demographics (gender, age, educational level and experience) and firm characteristics (firm‟s age, size and location) on access to microfinance and SMMEs growth particularly retail businesses in the Mangaung Metropolitan area of the Free State in South Africa. The existence of several contradicting studies as to which entrepreneur demographics and business characteristics determine SMMEs‟ access to microfinance gave rise to this study. For instance, some studies only take cognisance of personal demographic variables such as gender, age and educational level as the most important determinants of access to microfinance. Other studies, however, put more emphasis on firm characteristics such as age, size and location as variables that positively influence a business‟ access to microfinance. Moreover, despite the contribution of small businesses to the South African economy, empirical evidence showed that majority of retail businesses fold up their operations after three years of existence. Consequently, researchers and scholars have identified access to affordable microfinance as a vehicle that can be used to aid the survival and growth of small businesses. However, several studies conducted to examine the impact of microfinance on the growth of SMMEs have produced mixed results. While some studies affirmed that access to funding positively affected the growth of small businesses, other researchers concluded that microfinance does not have any significant impact on the growth of SMMEs. This study, therefore, was conducted to determine the actual impact of microfinance on the growth retail businesses. The study drew on a quantitative approach and a survey was conducted on 200 retail businesses operating in Mangaung Metropolitan Area. A total of 143 respondents successfully completed the structured questionnaire, representing a response rate of 71.5%. Descriptive statistics such as frequency tables and inferential statistics such as correlation analysis were employed in the data analysis. The findings suggest that business owner demographics such as age and educational level of the business owner positively and significantly influence access to finance. The study also revealed that the age and size of a firm positively and significantly influences access to microfinance. In terms of firm growth, evidence from the study demonstrated that microfinance was positively related to business growth in sales, customer base, profit and the number of employees. The study recommended several interventions to improve SMMEs access to microfinance and growth, namely the formalisation of retail businesses, funding parity for start-ups, and creation of awareness of microfinance services by microfinance institutions (MFIs) and encouragement of young entrepreneurs to engage in retail business.