LOCAL GOVERNMENT TRAINING INSTITUTE (LGTI)-

DODOMA

DEPARTMENT OF LOCAL GOVERNMENT ACCOUNTING AND

FINANCE (DLGAF)

COURSE NAME: DIPLOMA IN LOCAL GOVERNMENT ACCOUNTING

AND FINANCE (DLF NTA LEVEL – 6)

RESEARCH PROPOSAL

TITLE: CHALLENGES FACING COMMERCIAL BANKS IN FINANCING

SMALL AND MEDIUM ENTERPRISES.

SUBMITTED BY SUPERVISOR’S NAME

BENJAMIN BONIPHACE WAMBURA RYAKITIMBO CRISPIN

APRIL, 2022
1.1 Background of the study

Small and medium enterprises play a great role to a nation as it contributes to

economic growth. The development of this business segment is paramount and needs

support of finance and other driving force to achieve its goals and objectives.

Commercial bank is established to stimulate small and medium enterprises through

provisions of finance. But apart from how commercial banks like DTB assist small

and medium enterprises in their business, they are also faced with many challenges

when they finance them, those challenges are like many small and medium enterprises

they fail to return banks loans to the banks which they landed through this situation it

leads them to become bad debt to the banks. This situation it leads to decrease of

bank profitability, also absence of adequate information on small and medium

enterprises it leads those commercials bank fail to finance them because they lack full

information from those who want to be financed.

Despite from that small and medium enterprises are the core or base for the future

development of both developing and developed countries. Thus, because small and

medium enterprises they create job to the people and lead to increase of living

standard of the people. Also, small and medium enterprises can be role in countries

development since it leads the economic to be more competitiveness. Apart from that

financial challenges seems to be a problem to all level of the business operations.

Accessibility of finance from commercial banks and non-financial institutional is

constantly decreasing due to different factors.

Commercial banks were established to provide loans to then people, financing foreign

trade, accept various types of deposits from public especially from its client, also be

as agency services. This is through collecting and paying cheques, bill of exchange

draft, dividend, insurance premium and water bills. But apart from that, commercial
banks they were encountered with many challenges when they finance small and

medium enterprises, those are likely Bank requisition of collateral to the finance loans

advanced. However most of the small and medium enterprises owners lack the facility

forcing bank either to rely on other facilities to advance the loans or reject the

application at all. Also, banks they encountered with weak savings mobilization and

lack of capital and weak credit skills and practices, means banks in developed and

developing country pursue large loans as their main target. Means most commercial

banks they set that they lend only for those having source of capital or who have put

assets as collateral if they fail to return back their asset can be sold to feed the loans

taken.

1.2 Statement of the problem

Small and medium enterprises are the key role in exhausting the economy growth to

the country, but small and medium enterprises cannot grow or develop without having

capital or support to attain the capital in organizing their activities, one of the sources

of capital to small and medium enterprises is to acquire or lend loans from

commercial bank, but apart from how commercial bank assist small and medium

enterprises in their business, they are faced by many challenges those are likely

occurrence of bad debts this happen when some small and medium enterprises borrow

money for business and fail to return it back for the time given or provided by the

banker. Also, small and medium enterprises they are not agree or aware with the

condition provided when they borrow loans, also commercial banks encountered with

lack of full information about the loan’s requestor. Through those challenges they

lead to decrease or corrupt of banks profitability and limit their ability to issue new

credit to small and medium enterprises. Therefore, the study intends to fills in the
gaps by examining the challenges facing commercial banks in financing of small and

medium enterprises.

1.3 Research objectives

The study is guided by general objective and specific objectives

General objective

The main objective of the problem is to asses the challenges facing commercial bank

in financing small and medium enterprises.

Specific objectives

To determine the factor that influence commercial to finance small and medium

enterprises

To identify the barriers facing commercial bank to finance small and medium

enterprises

To show the possible solutions on challenges facing commercial bank to finance small

and medium enterprises.

1.4 Literature review

This chapter enhances understanding of this research area by reviewing available

literatures materials about challenges facing commercial banks to finances small and

medium enterprises. In order to achieve the aim of this chapter, the concepts and

variables distilled from literatures are organised into two major parts: the first part is

the theoretical literature which comprises of definition of concepts, theoretical

framework. The second part is empirical literatures which reviews research papers

and reports in this research area. This chapter concludes by identifying knowledge

gap and research model of the proposed study.

According to SME development policy of Tanzania 2002, The SMEs nomenclature is

used to mean micro, small and medium enterprises. It is sometimes referred to as

micro, small and medium enterprises (MSMEs). The SMEs cover non-farm economic

activities mainly manufacturing, mining, commerce and services. There is no

universally accepted definition of SME. Different countries use various measures of

size depending on their level of development. The commonly used yardsticks are total

number of employees, total investment and sales turnover.

In the context of Tanzania, micro enterprises are those engaging up to 4 people, in

most cases family members or employing capital amounting up to Tshs.5.0 million.

The majority of micro

Enterprises fall under the informal sector. Small enterprises are mostly formalized

undertakings engaging between 5 and 49 employees or with capital investment from

Tshs.5 million to Tshs.200 million. Medium enterprises employ between 50 and 99

people or use capital investment from Tshs.200 million to Tshs.800 million. This is

illustrated in the table below:

METHODOLOGY

2.0 Chapter introduction

This chapter address has the whole study going to be done. It highlights the

scope,mode of operations as well as technique that were we'd in data analysis.it

describe the sampling technique and state the main methods that were used in data

collection from the field.

Research methodology is the way to systematically solve the research problem.This

chapter explain the design and methodology which is going to be used in the study it
present the research design, population, nature of sample and sampling procedures or

techniques, Area of study , Data service ,Data collection instruments and method of

Data analysis to be employed.

2.1 Study Area

This study is to be carried out at the Diamond Trust Bank (DTB) Dodoma Branch , in

Dodoma city council with objective of exploring the conceptualization of small and

medium enterprises concept among banks, identifying challenges facing commercial

Bank in finance SMEs.Dodoma City council is located south of the equator between

latitudes 6° 57' and 3° 82'. Longitudinally the Region is situated between 36° 26' and

35° 26' east of Greenwich. It boarders four Regions namely Manyara, Iringa, Singida

and Morogoro. It is accessible from Manyara through Babati and Kateshi in Manyara

Region; Dar es Salaam and Pwani through Morogoro and Tabora, Shinyanga and

Mwanza through Manyoni in Singida Region. All the Roads are accessible throughout

the year.

Dodoma city is mostly Semi-arid due to low and erratic rainfall.

Total rainfall ranges from 500mm to 800mm per anum with high geographical,

seasonal and annual variation.

The temperature in the Region vary according according to altitude but generally

range from about 15ºC in July to 30ºC during the month of October. Moreover,

temperature differences are observed between day and night and may be very high

with hot afternoons going up to 35ºC and chilly nights going down to 10ºC.

A research selected This specific area because. There are were a lot number of

commercial Bank that providing loans in the area. The researcher discovered it is easy

to small and medium enterprises to obtain the loans from the specified area.
2.2 Study population.

According to (kothari 2004), The population is all individuals of interest to the

researcher it is the full set of cases from which samples can be taken. The targeted

population of the study is DTB bank staff and its client or customer.

2.2.1 Sample size and sampling techniques

Sample size refer to the number of items to be selected from the universe to constitute

a sample. It should nether be too large nor too small. (Kothari,2008). A sample is a

portion of a population (Ndunguru 2007) A sample is representative and

generalization of whole population (Haralambos and Holborn,1990) for a sample to

be representative enough for statistical analysis it recommended that at least a total of

10% of the entire population to be taken for the study

2.2.2 Sampling techniques

Sampling techniques refer to the set of method used to select a portion of entire

population for representation during the data collection (Ndunguru). Using samples is

recommended in research for many reasons such as ensuring that the required data is

gathered from the few member of the whole population but who act as true

representative of characteristics and behaviour of the population (Isaga et al, 2015)

Also, sampling techniques is the process of selecting a small number of individuals

that can provide enough information for the researcher to understand the phenomenon

under the study (kothari, 2004). In this study simple random sampling and purposive

sampling techniques were going to be used.

Simple random sampling

Simple random sampling refers to the procedures of selecting subjects from a

population so that each individual has an equal chance to being selected

(kothari,2004). A simple random sampling eliminates biasness because of their own

opinion or desires (kothari, 2004)

Purposive sampling

Purposive sampling is a statistical procedure for selecting units from the population in

which it is not necessary to have an equal chance of selection but the researcher

choose a certain sample for a certain purpose (kothari and frankfort,2008). For

example, in collecting information about challenges facing commercial bank in

financing small and medium enterprises, the purposive sampling will be the Bank

manager, Bank staff member.

2.3 Data Source

The study will involve both primary data source and secondary data source Because,

it is important and allows for dissemination of accurate information and development

of meaningful findings.

2.3.1 Primary Data

According to (kothari, 2005) primary data refer to information that collected for the

first time. Grimsley (2015) say that primary data is the information that are collected

specially from the field using research tools such as experiments, survey,

questionnaire, interview and observation for the purpose of research project. This

study used primary data which were collected through interview and questionnaire

method. The purpose of researcher to collect primary data is to get original or

accurate information from the respondents in the study area.

2.3.2 Secondary data

These are already existing data that have been collected by others and found in other

sources such as books, reports, websites (Barley,1978).Secondary data were used in

this study because they are good in saving the time and make the comparison with the

primary data obtained in the study area(Kothari,2005)

2.3 Data collection instruments

There are varieties of data collection techniques or instruments (Brink,1999) the

techniques which we are used in this study include; questionnaire, interview,

documentary review, thus multiple methods or techniques were used in this study

because they enable The researcher to overcome limitations such as business

unreliable data confined ideas, which could reduce the necessary of data collected if

the single method is only used

Questionnaire

Questionnaire are common method used to collect primary data from the

representative population the question contained in the questionnaire can be asked in

either structured(closed),semi-structure and in structured format and may employ the

use of attitude scale (Henn et al,2015)As the study want to quality opinions,

perceptions and experience of the population on the challenges facing commercial

bank in facing Small and medium enterprises the Closed ended questions constructed

and respondent were required to choose the collect answer opinion by ticking in the

appropriate boxes. Questionnaire were also cheaper to administer than other means

and gave respondents adequate time to think through the questions/answers in

addition questionnaire are easy to administer, relatively quickly to collect information

and less method (kawamala,2013). Questionnaires can measure both qualitative and

quantitative data also. It is a good tool for the population of the privacy of the

participants.

Interview
Interview is all verbal presentation for collecting the Oral verbal responses (Kothari

2004).The use personal interview(face to face) and telephone interview including

phone calls, SMS is applied to collect information from key informants such as DTB

branch manager, DTB staff member and to collect information about the challenge

facing commercial bank in financing small and medium enterprises. This method is

applied for the purpose of making clarification of respondent's attitude towards the

problem as well as interview method enhance the collection of information which

could not be collected through survey method.

Documentary review

Documentary review ;is the use of outside services, government document, to support

the viewpoint or argument of an academic work (Creswell,2009).In this study both

published and unpublished document were used. Documentary review include reports,

journals. This were used because validating information collected in interview method

Elaborated data analysis

Data analysis is the process of evaluating data using analytical and logical reasoning

to examine each component of data provided (kothari,2004) also data analysis is the

process of cleaning, transforming, analyzing and modeling data gathered in research.

Data analysis model to be used in research include both quantitative abd qualitative

techniques (Yates, Moore, and dareen, 2008). Data is coded according to different

variables of the study for case of data entry and data interpretation.

Data will be presented through summary statistics (percentages, mean, charts) to

measure the interrelationship between variables. Also, Graphs will be used to display

the information to improve the presentation of the results of the interpretation.

REFERENCES

Brink, H.I (1999), Fundamentals of research methodology in education. 2 ndedition.

Kenwyn: juta

Kothari, C.R (2004), "Research methodology, method and techniques; (second

edition)" , New age international limited, publishers, New Delhi