Financing tools, firm life cycle and growth of small, medium and micro enterprises in selected sub-Sahara African economies

Finance is of paramount importance for small, medium and micro enterprises’ (SMMEs) growth, without which many firms fail to move along their growth continuum. Against this background, the study sought to examine the growth effects of financing tools across the different phases of SMMEs' life cycle in Sub Sahara Africa (SSA) economies for the period spanning from 2003 to 2019. Firstly, due to the inherent heterogeneity nature of the SMMEs' financing landscapes across the world, the study starts by identifying the commonly used financing tools in the context of Sub-Saharan Africa. These were found to be internal finance, bank debt, trade credit, non-bank finance and informal finance, with internal finance being the most prevalent financing tool. The second aspect of the study was to examine the growth effects of the identified financing tools on SMMEs' performance in Sub Sahara Africa. In achieving this objective, several panel estimation techniques were employed, which are the feasible generalised least squares (FGLS), cross-sectional dependence (SCC), random effects model (REM) and pooled ordinary least squares (POLS). The empirical results show that internal finance or savings, bank financing, trade credit, non-bank financing and informal financing are positive and statistically significant in explaining SMMEs growth in the region, with stronger evidence for a positive relationship between external finance (trade credit and bank finance) on SMMEs growth in Sub-Saharan African region. The third objective of the study was to investigate the growth effects of SMMEs’ financing tools across different phases of the firm life cycle. The same panel techniques as used in achieving the previous objective were utilized again. The empirical findings show that the growth effects of SMME financing tools evolve as SMMEs move along their growth continuum, and only bank finance proved to be a fundamental variable for SMMEs growth throughout the different phases of firm growth. Finally, motivated by SMMEs’ high dependence on internal finance or savings, the study explored the saving practices of SMMEs in Sub Saharan Africa using thematic analysis. The study findings show that SMMEs in Sub Sahara African economies systematically save through formal and informal financial systems. These findings are contrary to conventional wisdom, which suggests that SMMEs are a financial basket case. Basing on the study findings, policies aimed at reducing or lessening the burden of accessing finance are important to stimulate the growth of SMMEs. Most importantly, there is a need for lenders and sponsors to understand the firm life cycle-financing tool nexus to ensure SMMEs growth. Moreover, SMMEs in Sub Sahara African economies need to cultivate a spirit of thrift to minimize firm attrition rate, thereby promoting SMMEs' growth in the region.Thesis (PhD) -- Faculty of Management and Commerce, 202