Abstract:
The study examined the effectiveness of financial linkage on SMEs' access to
debt finance. The study was motivated by the importance of SMEs in economic
development and employment creation in the country; therefore, access to
debt finance from formal financial institutions is vital for SMEs to play their
roles effectively. Information asymmetry theory was used to guide the study.
Data for the study were collected from the SMEs served by Private Agriculture
Sector Support (PASS). The organization provided a list of 1000 SMEs and
obtained a sample size of 278 SMEs using the Sample determination formula
by Cochran (1963). Questionnaires were distributed to 278 SME managers, and
262 questionnaires were returned filled out. Data were coded into SPSS,
checked for outliers and model fit, and analysed using a linear regression
model. The correlation matrix indicated that financial linkage variables were
correlated with access to debt finance variables, and the regression results
showed that 2% of the change in access to debt finance was contributed by
financial linkage. It also implied that financial linkages play a pivotal role in
SME development through their connection to financial institutions. Therefore,
the study recommends that the BDS providers extend and enhance financial
linkage services to ease SMEs' access to debt finance.
