FINANCING SMALL AND MEDIUM SCALE BUSINESS IN AFRICAN COUNTRIES: PROBLEMS AND PROSPECTS

Access to finance has been noted as one of the major challenges impeding the survival and growth of the SME sector in most of African countries. This review paper provides a comprehensive discussion on access to finance by the Small and Medium Enterprises (SME) sector in African countries. The problems of access to finance, gaps and the reasons for the gaps in SME financing in African countries are discussed. Gaps in SME financing were discussed in relation to Stiglitz and Weiss (1981) credit rationing theory which advocates that agency problems and asymmetric information are the main reasons for the credit rationing behaviors of credit providers to SMEs. The paper reveals that access to finance by SMEs is still a major challenge impeding the realization of the full potential of SMEs as engines of poverty alleviation, employment creation and economic growth in Africa. Therefore it is recommended that policy efforts aimed at solving access to finance challenges must be monitored and empirically tested on a regular basis to enable informed policy thrusts that would enhance SMEs access to financing.