Analysing the Influence of Market Dynamics on SME Loan Terms: A Study of Key Determinants in Lusaka, Zambia

Abstract

The study intends to investigate the way money lenders in Lusaka provide credit terms to small and medium-sized enterprises (SMEs) based on market competition among lenders, product variety of finance and access to financial information. It will analyse how these factors affect interest rate levels, collateral required and repayment conditions by money lenders. This write-up also explores the ways through which fair competitive environment can be created via regulation and their impact on loan terms such as collateral requirements. This study adopted a quantitative approach; the data was collected by use of structured questionnaires from 320 SMEs registered with PACRA in Lusaka. The data was subjected to descriptive statistics, regression analysis and correlation using SPSS. The statistical tools helped to reveal relationships between independent variables relating to: number of money lenders, regulatory environment, financial product diversity and access to financial information; while dependent variables being those concerning terms governing SME financing. The results from the research have shown that loan duration is affected by financial knowledge and access to it, which allow better informed small businesses to secure better loan terms. Furthermore, the regulatory environment mediated the effects of both financial product diversification and number of moneylenders on loans’ terms. This finding indicates that more informed firms can use competition to enhance their credit situation. In conclusion, this paper puts forward two suggestions: improved financial access and stronger regulation through law enforcement will enable small firms take advantage of a competitive lending market. Keywords include SMEs, market competitiveness, loan conditions, product range, information availability about finances as well as regulatory environment.