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Why are small and medium-sized businesses in Africa turning away from the bank credit market?

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  • Désiré Avom

    (University of Yaoundé II)

  • Cherif Abdramane

    (University of Yaoundé II)

Abstract

This paper examines the effect of corruption on the discouragement of SMEs on the credit market in certain African countries. To do so, a sample of 13,635 firms from 26 countries observed over the period 2010–2022 was selected. The results obtained from the OLS, Probit and IV-Probit estimations show that corruption has a positive and significant effect on the discouragement of SMEs. These results are robust to the use of alternative measures of corruption and discouragement. The main economic policy recommendation arising from our study is the introduction and strengthening of anti-corruption measures. These include measures to increase the efficiency of the judicial system, reduce court delays and introduce clear credit-granting procedures to improve the transparency of the process. This will increase firms' confidence in the banking system and make them less reluctant to apply for credit when they need it. More specifically, public authorities can encourage banks to put in place a plan to detect and prevent corruption and influence peddling, based on a set of internal procedures. This involves mapping the risks of corruption, influence peddling and conflicts of interest, and drawing up rules of ethics and good conduct.

Suggested Citation

  • Désiré Avom & Cherif Abdramane, 2024. "Why are small and medium-sized businesses in Africa turning away from the bank credit market?," SN Business & Economics, Springer, vol. 4(7), pages 1-24, July.
    • Handle: RePEc:spr:snbeco:v:4:y:2024:i:7:d:10.1007_s43546-024-00668-9
    DOI: 10.1007/s43546-024-00668-9
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    More about this item

    Keywords

    Corruption; Discouraged borrowers; Self-rationing; Africa; IV-Probit regression;
    All these keywords.

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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