The Role of Microcredit and Financial Capability in the Growth of Smes: a Case Study of Montserrado County, Liberia.

Abstract

SMEs overtime has been important in the Liberian economy in the aspect of employment, reduction in vulnerability and poverty alleviation. The growth of SMEs in the private sector increases employment which significantly reduces the burden of employment on government in low income countries and emerging economies like Liberia. Despite the importance of SMEs in Liberia, the sector faces a series of impediments that hamper their growth and development, access to credit, lack of finance and financial capability of SMEs owners has been prominent growth impasse in numerous studies that SMEs face. This paper therefore sought to examine the effect of microcredit and financial capability on the growth of SMEs in Montserrado County, Liberia by examining whether access to credit and financial capability influence enterprise growth among SMEs owners in Montserrado County. The study established the practical role of financial capability of SMEs owners, indicators of success of SMEs and indicators of access to credit as well as the relationship between access to credit and SMEs growth and the relationship between financial capability and SMEs growth. To achieve the study objective, a field survey consisting of a structured questionnaire was used and administered to SMEs owners in Montserrado County. Qualitative data was collected during the interview period, a total sample of 119 respondents who were SMEs owners and managers were interviewed from a population of 357 enterprises, 96 respondents were then analyzed due to the removal of 23 interviews that had interview duration of less than 10 minutes for data integrity purpose. The data was analyzed using SPSS and results were presented in tables, graphs and interpretation was made based on research objectives. The study found that access to credit by SMEs was very poor. This can be noted from the fact that even at the startup level; only 10.3% of the participants had access to loans from formal financial institutions as their startup capital. Moreover, the study established that a very small portion (26%) of the participants had accessed financial literacy training, despite a low percentage of financial literacy training, over 75% of the respondents were doing good in terms of financial capability, this is due to the fact that the study recorded over 70% respondents had university degree and diplomas which enhanced their financial knowledge for the business. This study recommends that financial institutions come up with target lending to SME in Liberia which provides an adequate source of financing and additionally develop products which suit the nature of their businesses.