Abstract

Access to credit schemes is a crucial determinant of the growth and sustainability of Small and Medium-Sized Enterprises (SMEs), particularly in developing economies like Cameroon. In the Mezam Division, located in the North West Region of Cameroon, SMEs face unique challenges in obtaining credit, which hinders their potential for expansion and innovation. This study investigates the key determinants that influence SME access to credit schemes in the Mezam Division. These determinants include factors such as financial literacy, collateral requirements, interest rates, credit history, and the role of financial institutions. The research aims to provide insights into the barriers faced by SMEs in securing credit and to recommend strategies for improving credit accessibility.

A mixed-methods research approach was adopted for this study, combining quantitative data from surveys and qualitative data from interviews. The quantitative aspect involved administering structured questionnaires to 150 SME owners and managers across different sectors in the Mezam Division. The questions focused on their experiences with applying for credit, their perceptions of financial institutions, and the specific obstacles they encountered. The qualitative aspect involved in-depth interviews with 20 key stakeholders, including bank officials, microfinance representatives, and government officials involved in SME development. These interviews provided a broader understanding of the systemic issues affecting credit access in the region.

The findings reveal that several determinants significantly impact SMEs’ ability to access credit schemes. First, financial literacy emerged as a critical factor. Many SME owners in Mezam lack the necessary financial knowledge to navigate the complex processes involved in applying for credit. This lack of financial literacy leads to poor financial planning, inadequate business documentation, and the inability to meet the stringent requirements set by financial institutions. Enhancing financial literacy through targeted training programs could improve SMEs’ chances of accessing credit.

Collateral requirements were identified as another major barrier. Most financial institutions in the Mezam Division demand substantial collateral as a prerequisite for granting loans. However, many SME owners do not possess sufficient assets to meet these requirements, which limits their ability to secure funding. The study suggests that financial institutions should consider adopting more flexible collateral policies, such as accepting movable assets or utilizing credit guarantee schemes, to accommodate the needs of SMEs.

Interest rates also play a significant role in determining access to credit. High-interest rates discourage many SMEs from applying for loans, as the cost of borrowing becomes prohibitive. The research indicates that the lack of competitive interest rates in the region is a major deterrent for SMEs seeking credit. To address this issue, the study recommends that financial institutions collaborate with the government to offer subsidized interest rates for SME loans, thereby making credit more affordable and accessible.

Credit history was another determinant that significantly affected access to credit. Financial institutions in Mezam place a strong emphasis on the creditworthiness of applicants. SMEs with a poor or non-existent credit history often find it difficult to obtain loans. The study highlights the need for financial institutions to develop more inclusive credit evaluation models that take into account the unique circumstances of SMEs, particularly those in rural areas. Additionally, establishing credit bureaus that track the credit histories of SMEs could help build trust between borrowers and lenders.

The role of financial institutions in facilitating credit access was also examined. The research reveals that while there are several banks and microfinance institutions operating in the Mezam Division, their lending practices are often not aligned with the needs of SMEs. Bureaucratic procedures, lengthy approval processes, and a general reluctance to lend to SMEs contribute to the credit constraints faced by businesses in the region. The study suggests that financial institutions should streamline their lending processes, reduce bureaucratic hurdles, and develop tailored credit products that cater to the specific needs of SMEs.

Government policies and support were also identified as important determinants. The research indicates that government-backed credit schemes, such as subsidized loans and credit guarantees, have a positive impact on SME access to credit. However, the study found that awareness of these schemes among SME owners is relatively low. Increasing awareness and simplifying the application process for government-backed credit schemes could enhance the participation of SMEs in these programs.

In conclusion, access to credit schemes for SMEs in the Mezam Division of Cameroon is influenced by a combination of factors, including financial literacy, collateral requirements, interest rates, credit history, and the role of financial institutions. Addressing these determinants through targeted interventions, such as financial education, flexible collateral policies, competitive interest rates, and streamlined lending processes, can significantly improve credit accessibility for SMEs. Furthermore, increasing awareness and participation in government-backed credit schemes could provide additional support for SMEs in the region. By enhancing access to credit, SMEs in the Mezam Division will be better positioned to contribute to economic growth and development.

Keywords: SMEs, access to credit, financial literacy, collateral, interest rates, financial institutions, government policies, Mezam Division, Cameroon