Overcoming Financial Barriers for Sustainable Development: A Focus on Tanzanian SMEs

Abstract

This thesis investigates the financial barriers faced by Small and Medium Enterprises (SMEs) in Tanzania and explores potential mitigation strategies to foster sustainable economic growth. Employing a multiple-case study approach with a grounded research methodology, the study provides an in-depth analysis of the complexities within the Tanzanian financial landscape. Data were collected through semi-structured interviews and surveys with various stakeholders, including SME owners, financial institutions, government officials, and non-governmental organizations.

The research identified four main categories of barriers affecting SME financing in Tanzania: financial access, cultural, knowledge, and regulatory barriers. Financial access barriers include limited visibility of companies and a mismatch between the investment needs of SMEs and the available funding amounts. Cultural challenges encompass trust issues and a preference for informal financing methods. Knowledge barriers highlight a significant gap in financial literacy and business acumen among SME owners. Regulatory barriers include bureaucratic procedures and unfriendly tax policies that hinder SME growth and formalization.

The study's grounded models illustrate the dynamic interplay between these barriers, creating a cyclical effect that perpetuates financial exclusion. To disrupt this cycle, the research proposes several mitigation strategies: establishing new funding mechanisms such as venture capital firms, corporate venture capital arms, crowdfunding platforms, and angel networks; enhancing financial literacy and business education through partnerships between universities and business professionals; implementing regulatory reforms, including the establishment of a National Board for Impact Investors and SME-friendly policies; and improving investor-investee connectivity through one-stop centers. By addressing these barriers and implementing the proposed strategies, stakeholders can create a more conducive environment for SME growth, ultimately contributing to sustainable economic development in Tanzania. This research offers valuable insights for policymakers, financial institutions, and entrepreneurs, providing a roadmap for overcoming the systemic barriers to SME financing and fostering a more inclusive and dynamic economic landscape.