Financing of Small and Medium

The study assessed the extent to which Small and Medium Enterprises (SMEs)in Tanzania utilise debt financing to finance their operations and identified thefactors affecting the utilisation of debt financing.This study was conducted on 33 organisations from different industries acrossthe city of Dar es Salaam using a semi-structured questionnaire survey. Thefindings from this study indicated that a larger proportion of respondents madeuse of debt financing and 83% of respondent SMEs utilised debt financing frombanks during the financial year ended 2008. The results suggest that thefinancial market in Tanzania has improved significantly. The study also providesevidence to support previous research that a company’s level of debt at anytime will depend on the business owners’ characteristics; and internal andexternal characteristics of the firms.It is evident from this study that banks play a very important role in financingSMEs. All respondents pointed out banks as the organisations supportingSMEs. Therefore the promotion of credit guarantee schemes to commercialbanks would be the best way for the government to facilitate SMEs access todebt financing. Credit guarantee schemes can help banks to reduce theperceived risks and providing incentives to them to lend to SMEs.