An integrated approach to financing small contractors in developing countries: A conceptual model

Abstract

Lack of access to bank finance is one of the major constraints on the development of small contractors in developing countries. Efforts by governments and interested donor agencies to mitigate the problem have achieved little. Banks perceive that the risk and transaction costs involved in dealing with small businesses in general are high. They also lack information about small business owner-managers and their businesses to better evaluate their loan proposals. Furthermore, several factors make it difficult to acquire adequate collateral to compensate for the risk. Theoretical and empirical analysis has recognized the importance of developing a closer working relationship between the bank and the small business in addressing the problem and, hence, improving the latter's access to bank loans. Microcredit schemes, which dwell on the principles of small business-bank relationships, have been successful in this respect. This paper reviews the factors affecting bank financing of small businesses and examines their implications for small contractors in developing countries. Based on the concept of microcredit, a model for financing small contractors in developing countries has been developed.Developing countries, contractor development, small contractors, bank finance, microcredit,

Micro Small-sized Enterprises and Bank Credit

“…Many small business owners do not simply keep proper books of accounts nor do they have business plan required Market Finance, 12, 2 (2013): 129-150 by the banks to calculate risks and returns in order to make decisions whether to grant loan or not. This view is supported by Eyiah (2001), Morewagae et al (1995) and Sowa et al (1992) who found a positive correlation between an entrepreneur's level of education and access to credit. It is therefore expected that as entrepreneurs run their businesses for a number of years and gain more experience through dealing with financial institutions, they are likely to shift from internal sources to formal external source of funds.…”

“…Despite the vital role played by micro small-sized enterprises in socio-economic development of Ghana and Nigeria, several studies including Levy (1993), Keasey and Watson (1994), Aryeetey et al (1994) and Eyiah (2001) have pointed out that difficulty in obtaining finance is a single major constraint which impedes the growth of small enterprises. This conclusion is in line with the models of equilibrium credit rationing which suggests that small firms are more at risk due to the lack of information on their operations (Stiglitz and Weiss 1981).…”

Determinants of Financial Performance of Deposit-Taking Microfinance Institutions and Co-Operative Socities That Have Front Office Service Activities Registered With Sasra.

“…He goes on to argue that MFIs need to provide tailored lending services for the poor instead of rigid loan products. Supporting this latter assertion of Nourse ( 2001), Eyiah (2001) develops a model of small construction management contractors and MFIs in developing countries that provides a tailored lending structure for microenterprise contractors. Gomez and Santor (2001) provide empirical evidence of the importance of social collateral.…”

Analisis Faktor Daya Saing Kontraktor Kecil Di Indonesia

“…Davis dan Carr (1992) menyatakan bahwa dalam menata arus kas dibutuhkan manajemen finansial yang baik sebagai alat yang penting dalam melaksanakan manajemen arus kas. Eyiah (2001) menyatakan bahwa sulitnya memperoleh dana dari pinjaman bank merupakan salah satu faktor paling berpengaruh yang menghambat perkembangan perusahaan kecil di negara berkembang, termasuk kontraktor kecil. Hal ini menyebabkan kontraktor kecil tidak mampu memperkerjakan sumber daya manusia ahli dan profesional, juga tidak mampu untuk menyewa atau membeli peralatan yang dapat membantu jalannya proyek konstruksi karena harganya yang mahal.…”