Abstract
Economic diversification is a key policy goal for
the Government of South Africa. SMEs offer a feasible option
towards the actualization of this goal. The expansion of
construction SMEs in South Africa, however is constrained by
lack of access to bank credit. This constrained access to credit is
argued in the literature to be due to the credit rationing behavior
of banks emanating from asymmetric information in credit
markets. Constrained access to credit stifles the growth potential
of this vibrant sector which is increasingly generating
employment opportunities especially for young enterprises.
Department of Trade and Industry (DTI, 2007). This study
therefore investigated the factors that influence the credit
rationing behavior of banks towards SMEs. A deductive
methodological approach was used to examine this problem. The
structured survey questionnaire was administered to 179
construction small and medium organizations to elicit relevant
data about their credit rationing. Binary logistic regression was
applied to determine the influence of demographic variables on
credit rationing. The statistical package for social science version
22 was used.The study findings suggest that the experience of
SMEs reduces their probability of being credit rationed by
banks. From the bank perspective the experience of SMEs is
determined from their ability to keep proper financial
statements, the performance of their bank accounts with the
banks, and their ability to make profits. This calls for capacity
building of SMEs in areas of business management (including
financial record keeping) if they are to be rated as credit worthy
borrowers by the banks. From the SMEs perspective, there is
need for banks to improve their efficiency in terms of reduction
of loan processing time and cost of borrowing (i.e. interest rate).
This will improve access to bank credit by the construction SMEs
and promote their growth thereby stimulating economic
diversification, employment creation opportunities, and poverty
reduction in line with South African Vision 2020