MAKERERE UNIVERSITY
ACCESS TO FINANCE AND DEVELOPMENT OF ENTREPRENEURSHIP BEHAVIOURS
ACASE STUDY: SMALL AND MEDIUM ENTERPRISES (SMEs) IN RUBAGA DIVISION.
BY
BAGUMA CHARLES
07/U/7224/EXT
SUPERVISOR
Ms: MBATUDDE SHEILA
ARESEARCH REPORT SUBMITTED TO MAKERERE UNIVERSITY IN PARTIAL FULFILMENT FOR THE AWARD OF THE DEGREE IN BACHELOR OF COMMERCE.
MAKERERE UNIVERSITY
JULY 2011
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DECLARATION I Baguma Charles declare that this research report is my original work and has never been at any one time submitted for award of a degree in any University.
Signature…………………………………………
BAGUMA CHARLES.
Date………………………………………………
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APPROVAL This report has been submitted with my approval as the supervisor and is worth for the award of Bachelor of Commerce Degree of Makerere University.
Signature…………………………………………
Ms. MBATUDDE SHEILA
SUPERVISOR
Date……………………………………………..
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DEDICATION I dedicate this work to all those who have sacrificed resources and time towards my education. God bless you. To my mummy late Winfred Mbabazi. May her soul rest in eternal peace.
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ACKNOWLEDGEMENT I thank God for the knowledge, wisdom and understanding that have enabled me to complete this research project, without you I would not have made it.
I sincerely thank everyone who contributed in one way or another to the success of my education.
I am very grateful to my supervisor Ms. Mbatudde Sheila for her professional advise, guidance, patience and dedication to make sure I produce excellent work.
Special thanks goes to my Daddy Isingoma Anthony, Uncle Wandera, Uncle Ammon, My dear sisters Kimuli Juliet, Asiimwe Josephine, My brother Monday James, Cousins Ssejjemba Godfrey and Ssewagaba Yowasi for their financial, moral support, guidance, love and encouragement you have given . May God Bless you.
I also extend appreciation to my dear friends Swadik, Damba, Senfuma, Robert Asiimwe, Rogers, Okware, Monica, Duhaga, Loius, Leonard, sarah and my wife Marion not forgetting beloved Jotham for their encouragement I am glad that I met you .
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Table of Contents Declaration ...... i
Approval ...... ii
Dedication ...... iii
Acknowledgement ...... iv
CHAPTER ONE ...... 1 1.0 Introduction ...... 1
1.1Background of the study ...... 1
1.2 Statement of the problem ...... 3
1.3 Purpose of the study...... 3
1.4 Objectives of the study ...... 3
1.5 Research questions ...... 3
1.6 Scope of the study ...... 4
1.7 Significance of the study ...... 4
CHAPTER TWO ...... 5
Literature review ...... 5
2.0 Introduction ...... 5
2.1 Access to finance ...... 5
Sources of finance ...... 5
2.2.1 Short-term sources of financing ...... 6
Trade credit ...... 6
Overdraft facility ...... 6
2.2.1.3 Bank bills finance ...... 7
Long-term sources of financing ...... 8
Ordinary share capital ...... 8
2.2.4 Preference shares ...... 9
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Debentures ...... 10
Retained earning...... 10
Venture capital ...... 11
2.3 ENTREPRENURSHIP ...... 12
2.4 CHARACTERISTICS OF ENTREPRENUER BEHAVIOURS ...... 12
2.4.1Plan everything ...... 12
2.4.2Manage money wisely ...... 13
2.4.3 Project a positive business image ...... 13
2.4.4 Take advantage of new technology...... 14
2.4.5 Create a competitive advantage ...... 14
Innovation and Creativity ...... 15
2.4.7 Perseverance ...... 16
Self-confidence ...... 17
2.5 RELALTIONSHIP BETWEEN ACCESS TO FINANCE AND DEVELOPMENT OF ENTRENUERSHIP BAHAVIOUR AMONG SMEs...... 17
2.6 Conclusion ...... 19
CHAPTER THREE ...... 20
METHODOLOGY ...... 20
3.0 Introduction ...... 20
3.1 Research Study Design ...... 20
Target Population ...... 20
3.2 1 Sampling design/methods ...... 20
3.2.2 Sampling design ...... 20
3.3 Sources of data ...... 21
3.4Data collection instruments ...... 21
3.5 Reliability and Validity ...... 21
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3.6 Data Collection Procedure ...... 22
3.7 Data Presentation and Analysis ...... 22
Limitations to the study ...... 22
CHAPTER 4 ...... 23
PRESENTATION, ANALYSIS AND INTEPRETATION OF FINDINGS...... 23
4.0 Introduction ...... 23
4.1 Personal data ...... 23
4.2 Sources of Access to Finance ...... 25
4.3 Entrepreneur Behaviors ...... 28
4.4 Total access to finance and entrepreneur’s behaviors ...... 31
CHAPTER FIVE ...... 33
DISCUSSION & SUMMARY, CONCLUSION AND RECOMMENDATIONS ...... 33
5.1 Introduction ...... 33
5.2 Summaries of the findings of the study with respect to study objectives ...... 33
5.2.1 Sources of finance for SMEs ...... 33
5.2.2 Entrepreneur behaviors ...... 35
5.2.3 Relationship between access to finance and entrepreneur behaviors ...... 36
5.3 Conclusions ...... 37
5.4 Recommendations ...... 37
5.5 Area for further research ...... 37
REFERENCES...... 38
APPENDIX I: RESEARCH QUESTIONNAIRE ...... 44
APPENDIX II: INTRODUCTORY LETTER ...... 49
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List of tables
Table 4.1.1: Gender ...... 23 Table 4.1.2: Age of respondents...... 23 Table4.1.3: marital status ...... 24 Table 4.1.4: Academic qualification...... 24 Table 4.2.1: Descriptive Statistics showing bank Overdraft ...... 25 Table4.2.2: Descriptive statistics showing trade credit...... 25 Table 4.2.3: Descriptive statistics showing Bank Bills Finance ...... 26 Table 4.2.4: Descriptive statistics showing Equity ...... 27 Table 4.2.5: Descriptive statistics showing retained earnings...... 27 Table 4.3.1: Descriptive statistics showing innovations ...... 28 Table4.3.2: Descriptive statistics showing planning everything ...... 29 Table4.3.3: Descriptive statistics showing taking advantage of new technology ...... 29 Table 4.3.4: Descriptive statistics showing Perseverance...... 30 Table 4.3.5: Descriptive statistics showing Self Confidence ...... 31 Table 4.4 : Showing relationship between access to finance and entrepreneur behaviors ……………...31
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ABSTRACT
The purpose of this study was to establish the relationship between access to finance and development of entrepreneurship behavior. The objectives of this study were to identify the different sources of finance for SMEs, to find out the characteristics associated with entrepreneur behaviors of SMEs, to identify the relationship between access to finance and development of entrepreneurship behaviors among SMEs.
The research was descriptive in nature involving quantitative methods which was administered through questionnaires. The total sample comprised of 100 respondents in Rubaga division Kampala District. Simple random sampling was used in the study. Primary data was used whereby the researcher went to Rubaga division Kampala District and administered questionnaire to the sampled or selected strata and secondary data was obtained from Rubaga division Kampala District the library materials, textbooks, journals management reports and internet. Data analysis was carried out using SPSS and frequency distribution tables
According to the research findings, access to finance in Rubaga division is limited, high interest rates are charged on loans, lack of confidence in entrepreneurs by financial institutions and government reluctance to give attention to SMEs. Findings showed that equity contributors enjoy rewards and risks associated with ownership as well as it relates to companies set up as private or public limited companies. Nevertheless there is a strong positive relationship between access to finance and entrepreneur behaviors with a correlation coefficient r=0.658.
It was concluded that, bank overdraft depends on the amount owing to your business and value of work in progress, trade credit is short term source of finance and bank bills finance is issued at discount to its face value. Besides that equity represents the ownership of the business while retained earnings generate growth through the development and expansion of business
It was recommended that government should encourage investors to set up more micro-credit institutions in rural areas so as to bring financial services nearer to SMEs. The researcher encourages the entrepreneurs of SMEs to try and apply for loans from those few financial institutions available and entrepreneurs to save and also to avoid using business for non-core business activities.
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CHAPTER ONE
1.0 INTRODUCTION This chapter will cover elements like background of the study, statement of the problem, purpose of the study, objectives of the study, Research questions, and scope of the study and the significance of the study.
1.1BACKGROUND OF THE STUDY Uganda defines and classifies SMEs into micro businesses with less than 5 employees and small business as having less than 100,000pounds in turnover and capital (Hill, 2001).
In Uganda majority and strong SMEs tend to be located in urban and peri-urban centres and are usually registered. These SMEs suffer from constraints that lower their resilience to risk and prevent them from growing and attaining economies of scale. The challenges are not only in the areas of financing environment and working capital but also human resource development, market access and access to modern technology and information (Opondo, 2003).
SMEs contribute greatly to the economic development of Uganda for example in 2001 Uganda was estimated to have 1,069,848 enterprises classified as SMEs and forming 90% of Uganda’s private sector (Kasaami, 2008). SMEs employ approximately 1.5million people equivalent to 90% of total non-farm private sector workers. Therefore SMEs represent one of the most viable vehicles for sustainable entrepreneual behavior and grass root economic growth (Gleb, Ramachandran 2007).
Access to finance refers to the possibility that individuals or enterprises can access financial services including credit, deposit, payments, insurance, and other risk management services (Honohan 2008). Access to finance refers to whether or not a person has an account with agiven financial institution or has made use of it (Anjali,2005). Access to finance is indicated by access to savings, access to credit, access to financial markets, government involvement for example providing grants to developing enterprises, level of profits, company dividends decision (Anjali 2005). Access to finance is categorized voluntary and involuntary non-users of financial services (Porteous May 2005). Access to finance can influence the growth of entrepreneur behaviors
1 among small and medium enterprises. SME’s can acquire new technologies, compete in the global markets and also establish linkages with larger firms (Ricupero Dec. 2002).
On the other hand entrepreneur behavior is the ability to identify and exploit opportunities through creating and developing new ventures. The actual behaviors of entrepreneurs are critical to new venture creation taken by individuals that give rise to the new organization (Schjoedt 2009), Commitment to accomplish tasks, communicating frequently and timely with set up systems, confident of what they are doing, consistency in their work and customers centric since customers are a centre of their business (Glenn, 2010).
However SMEs face a number of challenges which include the difficulty in employing competent people with techniques in financial management because of the salaries such people would demand, financial problems arising from late payments by debtors ,inability to raise own finance, lack of collateral securities, poor linkage with large scale enterprises, poor and unaudited financial reports and majorly access to finance (Kasekende 2003).
Development of entrepreneurship can be seen through one being innovative, planning all that they do, promote their products, takes advantage of new technology, creates competitive advantage, confident, good at business negotiations, perseverance even in hard times, keeps good relations with their customers, managing money wisely, being accessible, determined and committed (Stephenson 2000).
In conclusion though there are constraints to access finance by SME’s, SME’s have been able to drive Uganda’s economic growth. While some developments in the financial sector are taking place slowly, there is need for joint efforts by the private sector, regulators and government in order to ensure that business is built on trust, build mutual trust between SME’s and other stake holders like banks and other financial institutions, continued capacity building must be provided to SME’s in order to develop entrepreneur behaviors (Byamukama, 2004).
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1.2 STATEMENT OF THE PROBLEM The development of entrepreneurship behaviours among SME’s in Rubaga division is at a low rate. There has been sensitization of the people on entrepreneurship skills by enterprise Uganda Limited (Ocici 2003).
Despite of all what has been done entrepreneurship behaviours are still low. This could be due to lack of collateral securities among the people and SME’s to acquire funds from the available financial institutions, low levels of education to manage businesses and general lack of guidance and support of local leaders like chairpersons of local council I, area member of Parliament.
Therefore, if this continues to happen development of entrepreneurship behaviours of the people and SME’s in Rubaga will remain very low. Thus it is upon this, research need to be carried out.
1.3 PURPOSE OF THE STUDY The purpose of this study is to establish the relationship between access to financial and development of entrepreneurship behaviors among SMEs in Rubaga division Kampala district.
1.4 OBJECTIVES OF THE STUDY To identify the different sources of finance for SMEs. To find out the characteristics associated with entrepreneur behaviors of SMEs. To identify the relationship between access to finance and development of entrepreneurship behaviors among SMEs.
1.5 RESEARCH QUESTIONS What are the different sources of finance for SMEs? What are the characteristics associated with entrepreneur behaviors of SMEs? What is the relationship between access to finance and development of entrepreneurship behaviors among SMEs?
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1.6 SCOPE OF THE STUDY Subject scope
The study will focus on access to finance as the independent variable and development of entrepreneurship behaviours as the dependent variable and will aim at establishing the relationship between the two variables.
Time scope
The study will cover a period of four months from February to June 2011 and will concentrate on the literature ranging from 2000 to 2010.
Geographical scope
The study will cover different SME’s in Rubaga division.
1.7 SIGNIFICANCE OF THE STUDY The significance of the study is;
To act as a reference to scholars who would wish to carryout further research on access to finance and development of entrepreneurship behaviours among SMEs. To acquire skills and knowledge of doing research. To assist the people and SMEs to find simpler ways to access finances. To enable different financial Institutions revise their policies and requirements for those in need of credit.
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CHAPTER TWO
LITERATURE REVIEW
2.0 INTRODUCTION This chapter presents a review of literature on study variables on access to finance and development of entrepreneurship behavior among SMEs. However the literature review is mainly from studied carried out by different scholars/authors.
2.1 ACCESS TO FINANCE Access to finance refers to the possibility that individuals and enterprises can access financial services including credit, deposit, payment, insurance, and other risk management services (Dermiguc-kunt, Beck and Honhan, 2008). Access to finance refers to whether or not a person has an account with a given financial institution or has made use of it (Anjali, 2005).
According to Hopkins (2006), access to finance is the possibility that individuals or enterprises can access financial services including credit, payment information, and advice. She adds that the lack of access to finance can affect the ability to make payments or accumulate cash surpluses for planned expenses or emergencies. Hopkins further explains that quality and cost that SMEs receive from banks are keys tro their profitability and prosperity.
According to Cressy and Olofsson (2000), access to finance refers to the right to use credit or finance in form of a loan, lease, asset management, ATM services, electronic fund transfer (ETF) in return for a promise to pay for the services and products rendered in form of less or interest. It’s a dynamic process of creating wealth in small and large organizations.
SOURCES OF FINANCE A firm is constantly in need of short-term and long-term capital. Long-term capital is normally required for investments in long-term assets such as buildings, machinery. Short term capital on the other hand, is required essentially for financing the daily operations of the business (Mehta, 2001).
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2.2.1 Short-term sources of financing In short-term financing, the funds required are for working capital purposes, for a short period usually less than a year. The sources of short-term financing include;
Trade credit This is realized whether the supplier does not require immediate payment of goods supplied to the business to the extent of the credit period given. This is seen as a short-term source of finance because it’s usually less than one year and because it gives the firm the time to invest in the money it would have otherwise used to pay the supplier and possibly pay more pressing expenses (Cherian, 2008).
Trade credit is a period of time given to a business to pay for goods that they have received. It is often 28 days but some businesses might not pay for 6 months and on some occasions even a year after they have received goods. For many small firms, this effectively means they are getting some funds for free. Assume that the bill for a delivery of goods comes to £8,000 for Mukwano group of companies. If they have 28 days before they have to pay they have effectively received a loan of £8,000 from their supplier for 28 days - interest free. This gives the business the time to be able to manage their finances and balance their cash flows more effectively ( Okello-Obura 2004).
Trade credit is a loan in the form of goods. Trade credit is given by one firm to another firm which buys goods. This credit range from 15 days to 3 months is granted on the basis of good will of the purchaser. Trade credit is given by the seller to the buyer of goods. It is extended by the whole seller to the retailer. Such credit facility may be called a trade credit ( Manishi, 2006).
Overdraft facility
It is the extent that a business is allowed to overdraw its account. For example, if a firm has 30m on its account, the bank may allow it to over a maximum of 10m such that at any one time, the firm can be able to tap a total of 40m from its account (Stevenson, 2001).
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Most businesses which have an account with a bank, the bank deals with all the deposits (money put into the account) and withdrawals (money taken out). Most banks know that businesses do not always receive money from sales straight away for example if your business sells electrical equipment to an electrical retailer then you may not get paid straight away when you deliver your goods yet you need the money to pay out on labour, machinery, equipment, distribution and so on (its costs) the firm can be allowed by its bank to overdraw its account (St-Onge, 2006).
The bank overdraft is the commonest form of business finance. It is used to provide working capital, funding the difference between the time when your business spends money and when it is paid by customers. The limit the bank is likely to allow you depend primarily on the amount owing to your business at the time and the value of work in progress. An overdraft facility is normally granted for a specific period after which it will be reviewed - although it can be withdrawn if your bank loses confidence in you. Often the least expensive form of finance, it is not suited to financing any project, which is risky or not fully secured (Damsphere 2005).
A bank overdraft is a short term arrangement with no formal capital repayment timetable because any inflow of cash will automatically reduce or eliminate it in full. Bank overdrafts are acquired to cover temporary short term shortage of cash resources. A bank overdraft may be acquired for example; to finance ongoing working capital requirements or to support a start up business when it is still trying to find its feel (Munya, 2010).
2.2.1.3 Bank bills finance Bank bills of exchange are drawn on acceptance - credit facilities granted by merchant banks to their customers, preferably against short term self liquidating transactions, which realize funds to meet the bills at maturity. They offer the business person a relatively cheap and reliable source of short term credit (Gove etal 2009).
Bank bill finance issued at a discount to its face value. For example, if a discounted bill has a face value of $1,000, it may be issued to the holder at $900. When it matures, the holder receives the full $1,000. A discounted bill, especially a short-term issue, often does not pay a coupon
7 rather, the difference between the discount and the face value takes the place of the coupon. (Krugman, 2003).
Commercial bill is a short term, negotiable, and self-liquidating instrument with low risk. It enhances the liability to make payment in a fixed date when goods are bought on credit, bill or exchange is a written instrument containing an unconditional order, signed by the maker, directing to pay a certain amount of money only to a particular person, or to the bearer of the instrument (Rama Rao 2008).
Long-term sources of financing These are sources of funds, which are employed to finance investment requirements for a period exceeding one year. Sources of long-term financing exist because the investments of a business in real assets exceed its savings, and the access is financed by borrowing or by selling securities. Long-term sources of finance include;
Ordinary share capital This involves the use of common shares in order to finance the firm through issue of ordinary shares to the existing shareholders or the public. These shares stand for ownership in the company and holders of these shares have specific rights and privileges. It is long-term in nature because it has no maturity date, and, as such when one wants to leave the company the only option is to sell the shares to another party (Heather, 2003).
Equity capital represents the ownership capital. The equity shareholders collectively own the company and enjoy all the rewards and the risks associated with the ownership. However, unlike the sole proprietor or the partner of the firm, the downside risk of the shareholders is limited to their capital contribution (Carley, 2002).
A share is a part ownership of a company. Shares relate to companies set up as private limited companies or public limited companies. There are many small firms who decide to set themselves up as private limited companies, if the business wants to expand, they can issue more shares but there are limitations on who they can sell shares to - any share issue has to have the full backing of the existing shareholders ( Kauffmann,2004).
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Equity in finance is an asset class consisting of equity securities in operating companies that are not publicly traded on a stock exchange. Equity investments are primarily made by private equity firms, venture capital firms, or angel investors, each with their own set of goals, preferences, and investment strategies, yet each providing working capital to a target company to nurture expansion, new product development, or restructuring of the company’s operations, management, or ownership. In a typical leveraged buyout transaction, a private equity firm buys majority control of an existing or mature firm (Gibson, 2003).
2.2.4 Preference shares
Preference shares are securities that have similar features as those of ordinary share and debentures. Like debentures, these shares have a fixed dividend, preference shareholders don’t share the residual earnings, they have claims on income and assets of the common shareholder, and they don’t have voting rights. Like ordinary shares, none payment of dividends to preference shareholders doesn’t force the company into insolvency, dividends are not deducted for tax purposes, and in some cases it has no maturity date (Loewen, 2008).
Preferred stock is a hybrid creation located between affixed creditor obligation and a common stock. Even though in the legal sense a preferred stock is considered as a part of the proprietary capital, management has generally come to consider it in the realm of creditor-type obligation. The sale of preferred stock as along term of financing is generally considered by management as an alternative to sale of debt issues and not to sale of common stock (Santow, 2001).
A company can also raise funds through issue of preferential shares. Preferential shares include characteristics of a debenture and an ordinary share. The holders of the preference capital have preference over equity shareholders to the earnings of the firm in the form of dividends and on assets in the event of liquidation, but only after the claims of debenture holders. So, preference shareholders will have less risk than equity shareholders and more risk than rate of dividend, and do not carry voting rights unless the preference dividend is in arrears for a specified period of time (Kiviat, 2007).
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Debentures
A debenture is a long-term promissory note for rising loan capital. The company promises to pay interest and principal as agreed an alternative is the bond, which, in most cases, is issued by public sector companies or government (Gompers, 2009).
Some firms might be eligible to get funds from the government. This could be the local authority, the national government, the European Union, World Bank and many others. These grants are often linked to incentives to firms to set up in areas that are in need of economic development ( Kasita 2010).
Another way of raising long-term funds is by issuing debenture, also called as bonds. A debenture is a marketable legal contract whereby the company promises to pay, whoever owns it, a specified rate of interest for a defined period of time and to repay the principal on the specific date of maturity. Debentures are usually secured by a charge on the immovable properties of the company. The interests of the debenture holders are protected by a trustee (generally bank or an insurance company or a firm of attorneys). The trustee is responsible for ensuring that the borrowing company fulfills the contractual obligations mentioned in the contract (Grabenwarter, 2005).
Retained earning
These are undistributed portions of the company that are regarded as a source of owned capital. The profits are converted into reserves and used for the financing requirements of the company. This process of re-investing a portion of the profits of the company is called pouching back of profits or internal financing (Jenkinson, 2007).
Retained earnings also called organic growth is where they generates growth through the development and expansion of the business, these are profits made by the company through increasing sales, lowering costs and used or re-invested into the business (Bartlett,2009).
This is a source of finance that would only be available to a business that was already in existence. Profits from a business can be used by the owners for their own personal use or can be
10 used to put back into the business. This is often called ploughing back the profits'. The owners of a business will have to decide what the best option for their particular business is. In the early stages of business growth, it may be necessary to put back a lot of the profits into the business. This finance can be used to buy new equipment and machinery as well as more stock or raw materials and hopefully make the business more efficient and profitable in the future ( Ikoja- Odongo,2008).
Venture capital This refers to investment of long-term equity, whereby professional investment firms seek high risk, high return investment ventures. Usually the venture capitalist and the entrepreneur become partners in the investments as a method of financing this method is suitable for high technology companies. Which do not mind availing themselves with risky capital (Gretchen, 2006).
Venture capital is becoming an increasingly important source of finance for growing companies. Venture capitalists are groups of (generally very wealthy) individuals or companies specifically set up to invest in developing companies. Venture capitalists are on the lookout for companies with potential. They are prepared to offer capital (money) to help the business grow. In return the venture capitalist gets some say in the running of the company as well as a share in the profits made. Venture capitalists are often prepared to take on projects that might be seen as high risk which some banks might not want to get involved in ( Linda Cloete,2007).
Venture capital funds now invested in companies which are in their early phases. Some of the funds also provide added value services similar to those offered by incubators. Nevertheless, it should be kept in mind that the investment process of venture capital funds is generally very long, and funds prefer to invest only after the business and technological models are clarified. Therefore, funds may prove a good source for seed financing, but not for pre-seed financing. Moreover, funders who declare themselves to be "seed investors" are not always capable of providing an infant company with the type of intimate support it requires (Robbins, 2005).
Joint venture also called issue share, two or more parties join together to start up a business hoping it will grow make profits and will be a going concern business. The joint parties share revenues, expenses and control of the business (Trehan, 2002).
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2.3 ENTREPRENURSHIP Entrepreneurship is a dynamic process that involves a blend of vision, change and creation. It involves opportunities and risks, and is a fluid process that requires adapting to the economic state and taking advantage of innovative opportunities that arise (Bililop, 2006).
Entrepreneurship is a practice involving traits and behaviors that can be cultivated and developed to better manage an entrepreneurial venture (Wilner, 2009). And entrepreneur is one who creates a venture from the raw materials of his own ideas and hard work (Siropolis, 2000).
An entrepreneur is a self-appointed power who recognizes and identifies recourses that is financial a physical and human, theirs and others, organize those resources in the most economic and profitable in order to improve their incomes and lives and for others (Apegu, 2005).
In another study by Zalenznik (2001) he views the entrepreneur as a person deeply influenced by a turbulent childhood. He was motivated by ―persistent feeling of dissatisfaction, rejection and powerlessness‖ stemming from conflicted relation with parents.
2.4 CHARACTERISTICS OF ENTREPRENUER BEHAVIOURS
2.4.1Plan everything Planning every aspect of your business is only a must but also builds that every business owner should develop, implement and maintain. The act of business planning is so important because it requires you to analyze each business situation, research and compile data, and make conclusions based mainly on the facts as revealed through the research. Business planning also senses a second function, which is having your goals and how you will achieve them, on paper. You can use the plan that you create both as map to take you from point A to Z and as a yardstick to measure the success of each individual plan or segment within the plan (Stephenson, 2000).
The business planning is assumed to be a central factor in entrepreneurial success. Entrepreneurial instruction focuses on developing a business plan for a real or fictitious business. The assumption that underlies this approach is that the business plan is critical to the success of a new venture. In fact, a study of leading entrepreneurship educators indicated a belief that
12 development of a business plan is the most important feature of entrepreneurship courses (Duening, 2006).
2.4.2Manage money wisely The lifeblood of any enterprise is cash flow. You need it to buy inventory, pay for services, promote and market your business, repair and replace tools and equipment, and pay yourself so that you can continue to work. Therefore, all business owners must become wise money managers to ensure that the cash flowing and the bills get paid. There are two aspects to wise money management (Balunywa, 2000). Hayward (2009), contends that as an entrepreneur, unless venture capital has magically dropped out of the sky, a small expense can be a killer.
Money is important, and everyone needs it. You can’t do much without it in a business firm. The problems start when you don’t have enough money or you don’t know how to manage it given the different activities need to be done in the business. Money is therefore needed in any business and used for what is meant for like paying workers, buying inventory (Sherrill, 2006).
Money should be managed wisely by all entrepreneurs but some entrepreneurs fail because they are remiss in realizing that they priced their products/services too low and their profit margin plunged and suffered. You should take into account what price the market will bear and can I make a healthy profit at these prices. A business that does not generate a sufficient profit level is more vulnerable to failure because it lacks the cushion that adequate profits provide for absorbing costly mistakes (Sahlman, 2002).
2.4.3 Project a positive business image You have but a passing moment to make a positive and memorable impression on people with whom you intend to do business. Business owners must go out of their way and make a conscious effort to always project the most professional business image possible. They must rely on imagination. Creativity and pay attention to the smallest detail when creating and maintaining a professional image of their business (Stephenson, 2000).
Projecting a positive image of modern business is a key element of its success. But that can be more challenging in smaller businesses where human and financial resources are fewer.
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Innovative approaches are called for to ensure maximum impact from what may be relatively modest input. This can be done by focusing sharply on core interests and using its strategic plans (Thomas, 2004).
People possessing high positive and appreciative ability are able to perceive the positive aspects of a situation, thing or person and work out how to realize potential, often in innovative and creative ways. They suggest that people possessing high appreciative ability take new or challenging circumstances and turn them into golden opportunities and enriching experiences for themselves and those around them (Thatchenkery and Metzker 2006).
2.4.4 Take advantage of new technology One of the most amazing aspects of the internet is that one or two person business operating from a basement can have a superior website to a $50 million company, and nobody knows the difference. Make sure you’re keeping up with the high-tech world as it suits your needs. The best technology is that which helps you not that which impresses your neighbours (Lutwama, 2010).
Currently globally firms are using European high-technology to transact business like the use of NASDAQ stock market. It provides a serious and liquid market for early –stage companies. So acute is the gap now that a high-technology entrepreneur starting a business has to think seriously about whether he or she will be able to raise substantial funding for the business to compete (Holtz-Eakin, 2002).
The world has been transformed by profound innovations and technological developments by different entrepreneurs. A century ago, there were no jet travel, no commercial television, and no computers. Thus entrepreneurs have to come with technology to succeed in business and the world today is a better place, offers to entrepreneurial leaders a future full of exciting opportunities for dream fulfillment (Wilkinson, 2003).
2.4.5 Create a competitive advantage A business must have a clearly defined unique selling proposition. This is nothing more than a fancy way of asking the vital question. ―Why will people choose to do business with you or
14 purchase your product or service instead of doing business with a competitor and buying his product or service?‖ In other words, what one aspect or combination of aspects is going to separate your business from your competition? Will it be better service, a longer warrant, better selection, longer business hours, more flexible payment options, lower price, personalized service, better customer service, better return and exchange policies or combination of several of these? (Mcgregory 2002).
McGuire (2003) adds that entrepreneurs seem to have internal radar that helps them to find a niche competitor but find an overlooked corner of the market, exploit an unnoticed service or high quality product. They can also develop and/or come out with a product quickly while the rest of the business people ponder whether the market exists.
A certain amount of employee or staff attrition is inevitable when you run a business in order to have a competitive advantage. A stable workforce is a cornerstone of healthy growth if you want your company to survive for the long-term. This is why getting it right, from the start, is a key human resources skill that all owner-managers need to develop. Customers particularly appreciate continuity with those they deal with, such as customer service staff (Steenkamp, 2001).
Innovation and Creativity According to Wilner (2009), the entrepreneur must be able to recognize and seize external opportunities that relate to innovation in a specific industry. Specifically, it is important to apply innovation when sources of opportunity are presented through the entrepreneurial environment. Schumpter (2002) adds that entrepreneurship essentially a creative activity. Entrepreneurs foresee potentially profitable opportunities and try to explore it. Innovations involve problem solving and the entrepreneur is the problem solver. An entrepreneur gets satisfaction from using his capability in attacking problems. Sandee (2000) investigated the process of innovations in roof tile clusters in rural areas. He found female producers had very little chance to do other constraints and lack of skills.
Carlson and Wilmot (2006) proclaim that innovation is defined as the successful creation and delivery of a new or improved product or service that provides value for the customer and
15 sustained profit for the organization. Hargadon (2003) adds that innovation doesn’t result from breaking free of the past instead it comes from harnessing the past in powerful new ways thus entrepreneurs need to be innovative in order to succeed in business.
2.4.7 Perseverance Thirdly, an entrepreneur must be able to persevere through barriers and setbacks. There will be much problem solving through starting up a small venture and it will be important to maintain a positive attitude and believe in the company through difficult circumstances. Maintaining a sense of humor and internal locus of control through setbacks can provide the means to grow and learn from mistakes. It is great to think big and act but it is also important to determine contingencies for dealing with potential problems. The hope is that through a comprehensive business plan one would avoid many setbacks, but in many cases, setbacks happen regardless, so an entrepreneur must have realism for business expectations and maintain belief in the vision of the company through difficult times (Sserwadda, 2009).
Perseverance is defined as the steadfast pursuit of an objective. It is synonymous to persistence, determination, resolution, firmness, staying power, endurance. A true entrepreneur knows that when he or she is just starting out, there will always be challenges and obstacles that will get in the way to making it big in the business. Thus, it is the persevering entrepreneur that carries on until the end that truly stays in and ahead of the game or business (Buam, 2005).
With regard to perseverance, Kakumba (2002) contends that Uganda’s entrepreneurs do not lack income but tend to pursue many enterprises about the same time. They tend to pursue a lien of business long enough to facilitate their growth. They spread their financial resources too a thin yard as consequence, meet failure.
Persistence is the single most important characteristic of entrepreneur. It is okay if you are not creative, optimistic, hey, skepticism will help you be more scrutinizing of your business, but without persistence, you are doomed to fail. Because any business has the likelihood of failing, especially the ones that entrepreneurs undertake. And if you fail once, or suffer a major setback, and you do not have persistence, then it is the end of the road for you and your business (Sagan, 2001).
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Self-confidence One must truly believe in themselves to be a leader and spearhead innovative ideas. This involves willingness to take risks in a calculated manner and being willing to fail at times. This relates to a low need for status and power as the entrepreneur must maintain confidence throughout the duration of a project even if a high level of status is not immediately obtained. It will take time to grow the venture to a prominent position. Self-confidence also means being comfortable enough with one’s self to accept feedback and having the confidence also means being comfortable enough with one’s self to accept feedback and having the confidence and flexibility to change course through unexpected circumstances. Also, being teachable and open to learning throughout the growth process of a business is important in developing the expert skills of any trade or discipline (Kigozi, 2000).
Hayward (2009), adds that to succeed in the highly competitive business world, confidence and trust in oneself is an indispensable trait. Self-confidence means trusting your own powers and capabilities. The world of entrepreneurship is not alien to failure and disappointments. To survive in such a cutthroat world, an entrepreneur must have the ability to look within himself and find the drive and persistence to pursue his enterprise. An entrepreneur must have the gumption to face any adversity and tackle any problems that may be encountered in the world of business.
2.5 RELALTIONSHIP BETWEEN ACCESS TO FINANCE AND DEVELOPMENT OF ENTRENUERSHIP BAHAVIOUR AMONG SMEs. Bank access to credit is rated among the obstacles to development of entrepreneurship behavior. It is a key concern of SMEs. This is found to be more problematic for SMEs in the outskirts areas of Kasubi, Namungona, and Mengo in Rubaga Division. This constraint is related to high interest rates and consequently, of the ability to offer the type of collateral normally required for access to bank loans (Kassekende 2004).
The underdeveloped financial markets in developing countries pause an obstacle for SMEs to access finance, develop entrepreneur behaviours. There are few exchange houses and most SMEs do not understand the concept of buying and selling of securities. This makes it difficult
17 for them to take on bigger ventures due to the fact that they do not have long term sources of finance (Yaron, Benjamin and Piprek, 2006).
In underdeveloped countries, some entrepreneurs of SMEs have average basic education and access to it. This has important consequences for SME’s ability to become self-sustainable, develop entrepreneur behaviours, access finances from financial institutions. This may excludes them almost totally from entrepreneurship as they lack confidence to present bank documents and follow formalities (Shein, 2008).
Since 1987, the developing countries in Africa and other parts of the world have implemented a number of policy measures under the Economic Recovery Programme to create an enabling environment, where the private sector is encouraged to participate in economic growth. The inflation rates have been brought down over the years from 250 per cent in 1986 to the current single-digit levels and economic activities have been deregulated to pave the way for the private sector to become the engine of growth and this increased access to finance, entrepreneur behaviours among SMEs. The balance of payments has improved and the real growth rate has averaged over 6 per cent a year over the last 20 years. Macroeconomic stability has been restored, and most African countries have moved from a period of rehabilitation to growth in real income levels (Ruchurero, 2002).
Considerable progress has also been made in structural reforms like liberalization of trade among countries on the globe, privatization of government enterprises. For example Uganda has opened the economy to private players where Uganda commercial bank was sold to Stanbic bank a South African based company. This increased the leading rate to SMEs, entrepreneur behaviours among SMES. Other reforms were put into effect through non-restrictive licensing, which has eliminated anti-production biases in the system (Nahamya 2002).
Governments around the globe have extended finance to SMEs for example in USA there is Small Business Administration, Export and Import Bank which help SMEs to offer open accounts to customers in international trade thus increased entrepreneur behaviours among SMEs. Furthermore, it has made sure that they have access to gain knowledge and skills to start a viable enterprise, be exposed to networks of other SMEs entrepreneurs to learn from their experiences, and gain moral support and encouragement (Ngonze, 2006).
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2.6 Conclusion In conclusion, despite the role played by SMEs entrepreneurs in the development of the country, literature reveals that they are constantly confronted by social and economic constrains that make it difficult for them to access finance necessary for carrying out investments or expansion plans. There appears to be no break through to these constrains which continue to cripple entrepreneurship behaviours of SMEs (Ocici, 2003).
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CHAPTER THREE
METHODOLOGY
3.0 Introduction This chapter was a presentation of the study’s methodology, comprising the research study design, target population, sampling procedure, data collection methods and procedure, and the data presentation, coding and analysis techniques.
3.1 Research Study Design The researcher used quantitative research design. This enabled the researcher to obtain precisely required information on access to finance and entrepreneur behaviours among SMEs. It also brought out the relationship between the two variables.
Target Population The target population comprised of management, Head of credit Department in Equity Bank Nakulabye Branch together with their various workers. This helped the researcher to obtain complete information for the study.
3.2 1 sampling design/methods To get the sample that was representative, the researcher used stratified random sampling method of data collection in selecting the Respondents from which opinions were sought during the research. In stratified random sampling, a sample to represent the entire financial institutions was selected. The selected financial institutions were divided into groups from different areas, these defined the composition of each strata in which the groups were divided and became the subject of the study. This was because stratified random sampling technique gave unbiased data covering the entire target population.
3.2.2 Sampling design Sample Size
The study employed 100 respondents which included management of financial institutions, head
20 of credit department, SMEs entrepreneurs and government officials.
3.3 Sources of data Data was collected from both primary and secondary sources.
Primary sources
The primary data was collected from management, credit managers, owners of SMEs and workers.
Secondary sources
Secondary data was got from the store records, SMEs ledgers, journals and internet. Also data from libraries especially from Makerere University was of great use
3.4Data collection instruments The study employed the following data collection methods;
Questionnaires
These were self administered questionnaires in the study and consisted of mainly closed ended questions as the study was more direct in nature. They were mainly used by managers, workers and a scale of data used was Likert scale of 1-5 that is strongly agree to strongly disagree. They were used since they helped the researcher gather data from the respondents considered to be rich in information.
Observation
This method was used in the field to collect data on certain non-physical aspects of the study, which do not necessarily need interaction with respondents, or were of too much contention to avoid asking respondents. This was used since it helped a researcher avoid clashes with respondents.
3.5 Reliability and Validity To ascertain validity and reliability, the questions were tested using sample to eliminate
21 questions that were vague. The research instrument was tested using the content validity index (CVI) and acronbach Alpha co-efficient.
A CVI of greater or equal to 0.5 confirmed that the questions taken were relevant to the study variable. For reliability, Alpha co-efficient with values equal or greater than 0.5 was considered relevant. This was done to build confidence that the instrument yielded good results.
3.6 Data Collection Procedure After acquiring a research letter from the university, the student visited the area of study. He presented the letter of introduction, where he was granted permission by the authorities to carry out the study with the various respondents. The student made appointments with the respondents so that he can interact with them at their free time.
3.7 Data Presentation and Analysis Data from the questionnaires along with information from other sources like secondary, primary data and internet was collected, edited, coded for accuracy and completeness. After which it was organized into paragraphs for further analysis.
It was then organized into tables, allocating the rightful percentages for final analysis.
Among others, the researcher also employed SPSS computer program, correlation coefficient method, descriptive tools of mean, mode, standard deviation to determine the relationship between the variables. Conclusions were made as per the objectives and later on recommendations as per the conclusion.
Limitations to the study In the course of undertaking the study, the researcher faced the following problems:-
(i) Due to the nature of the topic under study, some respondents were not willing to release vital information for confidentiality purposes for fear of prosecution. (ii) Time for undertaking the study was difficult to balance since the researcher had to choose between reading books for exams and doing research work. (iii) Limited finances to effect the study since the researcher was funding himself.
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CHAPTER 4
PRESENTATION, ANALYSIS AND INTEPRETATION OF FINDINGS
4.0 Introduction This chapter presents the entrepreneurship development behaviors, its determinants, frequencies distribution characteristics of the respondents, descriptive statistics and correlation between entrepreneurship development behaviors and sources to finance.
4.1 Personal data To appreciate the reliability and the accuracy of the research findings, the researcher identified the respondents’ bio data in respect of gender, age and level of education.
Table 4.1.1: Gender Respondents Frequency Percent (%) Female 47 47 Male 53 53 Total 100 100 Source; Primary source
The results show that male respondents had the highest percentage (53) this implied that there were more male respondents in the sample population. However 47% were their female counterparts.
Table 4.1.2: Age of respondents Age Frequency Percent (%) 18-25 25 25 26-33 47 47 34-41 16 16 Above42 12 12 Total 100 100 Source; Primary source
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The result shows that 47% of respondents were the majority with ages ranging between 26 and 33. Thus this implies that most of respondents are under the youth stage. However those above 40 were the least and those between 18 to 25 and 34 to 41 have 16%and 25% respectively.
Table4.1.3: marital status Marital status Frequency Percent (%) Single 36 36 Married 49 49 Divorced 15 15 Total 100 100 Source; Primary source
Result show that 49% of respondents were married and these were the majority. Those who were divorced had the least percentage (16%) and 36% were single.
Table 4.1.4: Academic qualification Qualification Frequency Percent (%) Certificate 21 21 Diploma 25 25 Degree 45 45 Masters 9 9 PhD 3 3 Total 100 100 Source; Primary source
Result shows that the highest percentage of respondents who answered that they had a degree were45% and those with a PhD had the least percentage (3%). 21%had a certificate,9% had a masters degree and 25% had a diploma.
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4.2 Sources of Access to Finance Table 4.2.1: Descriptive Statistics showing bank Overdraft ITEMS N MIN MAX MEAN S.D Bank overdraft is commonest form of business 100 1 5 3.55 1.403 finance Bank overdraft depends on amount owing to your 100 1 5 3.94 1.081 business and value of work in progress. Overdraft is the least expensive form of finance. 100 1 5 3.31 1.316 Overdraft doesn’t finance risky or not fully secured 100 1 5 3.37 1.244 projects. Overdraft is mostly used to provide working capital 100 1 5 3.63 1.390 Source; Primary source
Using the Likert scale of 1-5, it was found out that on bank overdraft, respondents agreed to some items. For example, respondents reported that bank overdraft depends on amount owing to your business and value of work in progress with (mean= 3.94) and mostly used to provide working capital (mean=3-62). In addition, bank overdraft is the commonest form of business finance with (mean=3.55) while it’s also the least expensive form of finance (mean=3.31). However, it does not finance risky or not fully secured projects with (mean=3.37).
Table4.2.2: Descriptive statistics showing trade credit. ITEM N MIN MAX MEAN S.D Trade credit is a short term source of finance. 100 1 5 4.28 0.933 Trade credit gives SME’s time to invest money. 100 1 5 3.94 1.052 Trade credit is used to pay suppliers and more 100 1 5 3.94 0.851 pressing expenses Trade credit helps SME’s to manage their finances 100 1 5 3.64 1.185 and balance their cash. Trade credit is a loan in form of goods 100 1 5 4.08 1.012 Valid N (likewise) 100 Source; Primary source
According to the findings, trade credit is short term source of finance (mean=4.28) and it is also a loan in form of goods since their mean value is (mean=4.08). However respondents disagreed that trade credit gives SME’s times to invest money (mean=3.94), pay suppliers and more
25 pressing expenses with (mean=3.94) and helps SME’s to manage their finances and balances their cash (mean=3.64).
Table 4.2.3: Descriptive statistics showing Bank Bills Finance ITEM N MIN MAX MEAN S.D Bank bills exchange are drawn on acceptance of 100 1 5 3.97 1.105 customers Bank bills finance is issued at discount to it’s face 100 2 5 4.04 816 value Bank bills are short term and negotiatable 100 1 5 3.77 1.053 It is written instrument containing an un 100 2 5 3.81 1.022 conditional order Bank bills enhance the liability to make payment on 100 1 5 3.80 1.128 a fixed date Valid N (likewise) 100 Source; Primary source
The findings in the table above indicates that bank bills finance is issued at discount to it’s face value (mean=4.04) and are drawn on acceptance of customers (mean=3.97). Also bank bills is a written instrument containing an unconditional order with (mean=3.81) and enhances the liability to make payment on fixed date (mean=3.80). More so it’s short term and negotiable with a (mean=3.77).
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Table 4.2.4: Descriptive statistics showing Equity ITEM N MIN MAX MEAN S.D Equity represents the ownership of business 100 1 5 4.27 1.024 Equity investments are primarily made by private 100 1 5 3.64 1.150 firm Equity contributors enjoy the rewards and risk 100 1 5 4.14 0.954 associated with ownership Share holders have specific rights to privileges 100 1 5 4.00 0.995 Equity shares relate to companies setup as private 100 1 5 4.00 0.921 or public limited Valid N (likewise) 100 Source; Primary source
From the table, results show that equity represents the ownership of business (mean=4.27) while equity contributors enjoy rewards and risks associated with ownership with (mean=4.14). Besides that, Share holders have specific rights to privileges (mean=4.00) that relates to companies setup as private or public limited (mean=4.00). However respondents were somehow in deferent on equity investments primarily made by private firms with (mean=3.64).
Table 4.2.5: Descriptive statistics showing retained earnings
ITEM N MIN MAX MEAN S.D Retained earnings generate growth through the 100 3 5 4.29 0.656 development and expansion of business Retained earnings can be needed to bring new 100 2 5 4.16 0.721 equipments to enhance production Retained earnings are generated through increasing 100 1 5 3.98 0.765 sales and lowering costs Profits are converted into reserves and used for 100 1 5 4.01 1.068 financing requirements Valid N (likewise) 100 Source; Primary source
Findings reveals that retained earning generate growth through development and expansion of the business (mean=4.29) and brings new equipments to enhance production (mean=4.16). They
27 are also generated through increasing sales and lowering costs with (mean=3.98) while profits are converted into reserves and used for financing requirements of the company (mean=4.01).
4.3 Entrepreneur Behaviors Findings on characteristics of entrepreneur behaviors were evaluated in terms of innovation, planning everything, taking advantage of new technology, perseverance and self confidence.
Table 4.3.1: Descriptive statistics showing innovations
ITEM N MIN MAX MEAN S.D Innovation is coming up with new ideas, improved 100 2 5 4.60 0.620 products and services by entrepreneurs It involves foreseeing potential profitable 100 2 5 4.22 0.733 opportunities and exploit them Entrepreneurs need to be innovative in order to 100 1 5 4.20 0.765 succeed in business Continuous innovations helps SME’s to grow 100 1 5 3.99 1.141 quickly Innovation involves problem solving by the 100 1 5 4.11 0.994 entrepreneur Source; Primary source
The result in table 4.3.1 shows that innovation is coming up with new ideas ,improved products and services by entrepreneurs with (mean=4.60), it involves foreseeing potential profitable opportunities and exploit them (mean=4.22) and entrepreneur need to be innovative in order succeed in business with (mean=4.20). In addition, innovation involves problem solving by the entrepreneur with (mean=4.11). However respondents disagreed that continuous innovation helps SME’s to grow quickly (mean=3.99).
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Table4.3.2: Descriptive statistics showing planning everything ITEM N MIN MAX MEAN S.D Planning everything is a characteristic of 100 1 5 4.06 1.081 entrepreneurial success It is a central factor in entrepreneurial success 100 2 5 4.22 0.860 The aspect of planning is critical to the success of a 100 1 5 4.22 0.836 new venture Planning is most important feature of 100 2 5 4.16 0.873 entrepreneurship It focuses on developing a business plan 100 1 5 4.17 0.877 Valid N (likewise) 100 Source; Primary source
From the table, results show that the aspect of planning is critical to the success of new venture with a (mean=4.22) and a central factor in entrepreneurial success (mean=4.22). Planning is the most important feature of entrepreneurship (mean=4.16) as it also focuses on developing a business plan (mean=4.17) and a characteristic of entrepreneurial success with (mean=4.06).
Table4.3.3: Descriptive statistics showing taking advantage of new technology ITEM N MIN MAX MEAN S.D The best technology is one which helps a firm to do 100 1 5 3.94 1.175 business Currently globally firms are using NASDAQ to 100 1 5 3.84 0.982 transact business Business has been transformed by technology 100 1 5 4.13 0.917 development by different entrepreneurs Entrepreneurs with technology can succeed in business 100 1 5 3.98 0.899 Technology offers entrepreneurs a future full of 100 1 5 4.18 0.903 exciting opportunities Valid N (likewise) 100 Source; Primary source
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Findings in the table above shows that technology offers entrepreneurs a future full of exciting opportunities with (mean=4.18) while businesses has been transformed by technology development by different entrepreneurs with (mean=4.13). In addition, entrepreneurs with technology can succeed in business (mean=3.98) and the best technology is one which helps a firm to do business with (mean=3.94). However, respondents disagreed that currently global firms are using NASDAQ to transact business with (mean =3.84).
Table 4.3.4: Descriptive statistics showing Perseverance
ITEM N MIN MAX MEAN S.D It makes maintaining a positive attitude and belief 100 1 5 4.12 0.935 through difficult conditions It provides means to growth and learn from mistakes 100 1 5 4.06 0.851 Perseverance is single most important characteristic 100 1 5 3.81 1.089 of entrepreneurs Without perseverance in business as an entrepreneur 100 1 5 3.84 1.076 means failure of business Confidence and trust in oneself is an indispensable 100 1 5 4.22 0.917 trait Valid N (likewise) 100 1 Source; Primary source
Results show that confidence and trust in oneself is an indispensable trait (mean=4.22) while perseverance maintains a positive attitude and belief through difficult conditions with (mean=4.12) and provides means to growth and learn from mistakes (mean=4.06). However respondents disagreed that perseverance is a single most important characteristic of entrepreneurs with (mean=3.81) and without it in business as an entrepreneur means failure of business with (mean=3.84).
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Table 4.3.5: Descriptive statistics showing Self Confidence ITEM N MIN MAX MEAN S.D Self confidence means trusting your own power and 100 1 5 4.25 0.833 capabilities An entrepreneur must have self confidence to counter 100 2 5 4.23 0.827 problems of the business world It involves having the confidence and flexibility to change 100 1 5 4.18 0.833 course through unexpected circumstances 100 5 Valid N (likewise) 100 Source; Primary source
In general respondents agreed that self confidence means trusting your own power and capability with (mean=4.25), an entrepreneur must have self confidence to counter problems of the business world (mean=4.23) while it involves having the confidence and flexibility to change course through unexpected circumstances with (mean=4.18).
4.4 Total access to finance and entrepreneur‟s behaviors
Table 4.4 showing relationship between access to finance and entrepreneur behaviors
ACCESS TO ENTREPRENEUR FINANCE BEHAVIOURS ACCESS TO Pearson 1 .658(**) FINANCE Correlation Sig. (2-tailed) . .000 N 100 100 ENTREPRENEUR Pearson .658(**) 1 BEHAVIOURS Correlation Sig. (2-tailed) .000 . N 100 100
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** Correlation is significant at the 0.01 level (2-tailed).
From the table above, findings show that there is a strong positive relationship between contribution of insurance and growth of SMEs at Pearson correlation coefficient r=0.658. This implies that access to finance affects the entrepreneur behavior by 65.8%.
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CHAPTER FIVE
DISCUSSION & SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Introduction The chapter presents the discussions, conclusions and recommendations arising out of research findings in chapter four and suggested areas for further research.
5.2 Summaries of the findings of the study with respect to study objectives
5.2.1 Sources of finance for SMEs Findings revealed that bank overdraft is the commonest form of business finance and depends on amount owing to your business and value of work in progress. This is in line with the findings of Damsphere (2005) who noted that the limit amount of overdraft the bank is likely to allow you depend primarily on the amount owing to your business at the time and the value of work in progress. Besides that overdraft is the least expensive form of finance, provide capital and doesn’t finance risky or not fully secured projects. This is in line with Stevenson (2001) findings that overdraft provides working capital, funding the difference between the time when your business spends money and when it is paid by customers.
Findings showed that trade credit are a short term source of finance and gives SMEs time to invest money. This relates with the findings of Cherian (2008) who stated that trade credit is seen as a short term source of finance because it’s usually less than one year and gives the firm time to invest the money it would have otherwise used to pay the supplier and more pressing expenses. In addition trade credit is a loan inform of goods. This supports the findings of Manishi (2006) who noted that trade credit is given by one firm to another firm which buys goods on credit, ranges from 15days to 3 months and is granted on the basis of goodwill of the purchaser.
Findings revealed that bank bills exchange are drawn on acceptance of customers and are issued at discount to its face value. This relates to the findings of Krugman (2003) who said that Bank bills of exchange are drawn on acceptance - credit facilities granted by merchant banks to their
33 customers, preferably against short term self liquidating transactions, which realize funds to meet the bills at maturity. Finding showed that bank bill are short term, negotiable and enhance the liability to make payments on a fixed date. This relates to the findings of Rama Rao (2008) who noted that Commercial bill is a short term, negotiable, and self-liquidating instrument with low risk. It enhances the liability to make payment in a fixed date when goods are bought on credit bill or exchange is a written instrument containing an unconditional order, signed by the maker, directing to pay a certain amount of money only to a particular person, or to the bearer of the instrument
Besides that findings revealed that shareholders have specific right to privileges. This is in line with the findings of Heather (2003) who justified that equity shares stand for ownership in the company and holders of these shares have specific rights and privileges. It is long-term in nature because it has no maturity date, and, as such when one wants to leave the company the only option is to sell the shares to another party. Findings also revealed that equity shares relate to companies set up as private or public limited. This relates to Kauffmann (2004) findings who noted that there are many small firms who decide to set themselves up as private limited companies, if the business wants to expand, they can issue more shares but there are limitations on who they can sell shares to - any share issue has to have the full backing of the existing shareholders.
Findings showed that retained earnings generate growth through development and expansion of business. This relates with the findings of Bartlett (2009) who noted that retained earnings also called organic growth is where they generates growth through the development and expansion of the business, these are profits made by the company through increasing sales, lowering costs and used or re-invested into the business. Besides that findings revealed that retained earning can be needed to bring new equipments to enhance production. This relates with the findings of Odongo (2008) who stated that retained earnings can be used to buy new equipment and machinery as well as more stock or raw materials and hopefully makes the business more efficient and profitable in the future.
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5.2.2 Entrepreneur behaviors Finding showed that innovation is coming up with new ideas, improved products and services by entrepreneurs. This is in line with the findings of Carlson and Wilmot (2006) who proclaimed that innovation is defined as the successful creation and delivery of a new or improved product or service that provides value for the customer and sustained profit for the organization. In addition, entrepreneurs need to be innovative in order to succeed in business. This relates with the findings of Hargadon (2003) who added that innovation doesn’t result from breaking free of the past instead it comes from harnessing the past in powerful new ways thus entrepreneurs need to be innovative in order to succeed in business.
Finding showed that the aspect of planning is critical to the success of a new venture and focuses on developing a business plan. This relates with the findings of Duening (2006) who noted that business planning is assumed to be a central factor in entrepreneurial success. Entrepreneurial instruction focuses on developing a business plan for a real or fictitious business. The assumption that underlies this approach is that the business plan is critical to the success of a new venture. In fact, a study of leading entrepreneurship educators indicated a belief that development of a business plan is the most important feature of entrepreneurship courses
Findings revealed that technology offers entrepreneurs a future full of exciting opportunities. This is in line with the findings of Wilkinson (2003) who stated that entrepreneurs have to come with technology to succeed in business and the world today is a better place, offers to entrepreneurial leaders a future full of exciting opportunities for dream fulfillment. However findings revealed that globally, firms are not using NASDAQ to transact business. This contradicts with the findings of Holtz-Eakin (2002) who said that currently globally firms are using European high-technology to transact business like the use of NASDAQ stock market. It provides a serious and liquid market for early –stage companies.
More so, findings revealed that perseverance is a single most important characteristic of entrepreneurs. This is in line with the findings of Sagan (2001) who noted that persistence is the single most important characteristic of entrepreneur. It is okay if you are not creative, optimistic, hey, skepticism will help you be more scrutinizing of your business, but without persistence, you are doomed to fail. Also perseverance makes maintaining a positive attitude and belief through
35 difficult conditions. This relates with the findings of Sserwadda (2009) who stated that an entrepreneur must be able to persevere through barriers and setbacks. There will be much problem solving through starting up a small venture and it will be important to maintain a positive attitude and believe in the company through difficult circumstances.
Besides that, results showed that self confidence means trusting your own power and capabilities. This is in line with the findings of Hayward (2009), who added that to succeed in the highly competitive business world, confidence and trust in oneself is an indispensable trait. Self-confidence means trusting your own powers and capabilities, that is, the world of entrepreneurship is not alien to failure and disappointments. In addition, self confidence involves having the confidence and flexibility to change course through unexpected circumstances. This relates with the findings of Kigozi (2000) who stated that self-confidence also means being comfortable enough with one’s self to accept feedback and having the confidence also means being comfortable enough with one’s self to accept feedback and having the confidence and flexibility to change course through unexpected circumstances.
5.2.3 Relationship between access to finance and entrepreneur behaviors Findings showed that there is a strong positive relationship between access to finance and entrepreneur behaviors at Pearson correlation coefficient r=0.658. This implies that access to finance affects the growth of entrepreneur behaviors by 65.8% and 34.2% by other factors. This is in line with the findings of Nahamya (2002) who noted that considerable progress has been made in structural reforms like liberalization of trade among countries on the globe, privatization of government enterprises. For example Uganda has opened the economy to private players where Uganda commercial bank was sold to Stanbic bank a South African based company. This increased the leading rate to SMEs, entrepreneur behaviors among SMES. Other reforms were put into effect through non-restrictive licensing, which has eliminated anti-production biases in the system.
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5.3 Conclusions It was concluded that, bank overdraft depends on the amount owing to your business and value of work in progress, trade credit is short term source of finance and bank bills finance is issued at discount to its face value. Besides that equity represents the ownership of the business while retained earnings generate growth through the development and expansion of business.
It was also concluded that innovation is coming up with new ideas, improved products and services by entrepreneurs and planning is a central factor in entrepreneur success while its aspect is critical to the success of new ventures. However, perseverance is not the single most important characteristics of entrepreneurs and firms are not using NASDAQ to transact business globally.
Nevertheless there is a strong positive relationship between access to finance and entrepreneur behaviors with a correlation coefficient r=0.658.
5.4 Recommendations The government should encourage investors to set up more micro-credit institutions in rural areas so as to bring financial services nearer to SMEs.
The researcher also encourages the entrepreneurs of SMEs to try and apply for loans from those few financial institutions available.
The researcher also encourages entrepreneurs to save and also to avoid using business for non- core business activities.
Entrepreneurs should follow up their customers and also should keep their contact to reduce the risk of losing them to other competitors.
5.5 Area for further research Further research should be carried out on the effects of competition on the growth of SMEs in Uganda. This study has brought out the need for research into the effectiveness of access to finance and business performance.
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APPENDIX I: RESEARCH QUESTIONNAIRE
LOCAL OFFICIALS‟ AND EMPLOYEES OF FINANCIAL INSTITUTIONS QUESTIONNAIRE
MAKERERE UNIVERSITY INSTITUTE OF ADULT AND CONTINUING EDUCATION P.O. Box 7062 KAMPALA (UGANDA) Dear Sir/Madam, You are kindly requested to answer the following questions providing information to the best of your knowledge and in its best true sense. The information is purely for academic purposes as a partial requirement for the award of a Bachelor of Commerce degree. The information provided in this questionnaire will be treated with utmost confidentiality. The research topic is “ACCESS TO FINANCE AND DEVELOPMENT OF ENTREPRENUERSHIP BEHAVIOR AMONG SMEs”
SECTION „A‟: BIO-DATA Tick as appropriate 1. Gender Female Male
2. Age 18-25 years 26-33 years 34-41 years above 42 years
3. Marital status Single Married Divorced
4. Highest Academic qualification attained Certificate Diploma Bachelor’s Degree
Masters Degree PhD
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SECTION B: For each of the following statements, please tick where it is applicable the extent to which you agree using alikert scale. SA – Strongly Agree A – Agree NS – Not Sure D- Disagree SD- Strongly Disagree S/No Source of finance SA A NS D SD A. Overdraft 1. Bank overdraft is the commonest form of business finance 2. Overdraft depends on amount owing to your business and value of work in progress 3. Overdraft is the least expensive form of finance 4. Overdraft does not finance risky or not fully secured projects 5. Overdraft is mostly used to provide working capital B. Trade Credit 1. Trade credit is a short term source of finance 2. Trade credit gives SME’s time to invest money 3. Trade credit is used to pay suppliers and more pressing expenses 4. Trade credit helps SME’s to manage their finances and balance their cash flows 5. Trade credit is a loan inform of goods C. Bank bills finance 1. Bank bills exchange are drawn on acceptance of customers 2. Bank bills finance is issued at a discount to it’s face value 3. Bank bills are short term and negotiable 4. It is a written instrument containing an unconditional order 5. Bank bills enhance the liability to make payment on a fixed date D. Equity 1. Equity capital represents the ownership of the business 2. Equity investments are primarily made by private firm 3. Equity contributors enjoy the rewards and risk associated with ownership 4. Shareholders have specific rights to privileges
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5. Equity shares relate to Companies set up as private or public Ltd. E. Retained Earnings 1. Retained earnings is a long term source of finance 2. They generate growth through the development and expansion of the business 3. Retained earnings can be needed to bring new equipment enhance production and making more sales 4. Retained earnings are generated through increasing sales, lowering costs. 5. Profits are converted into reserves and used for financing requirements of the Company Characteristics associated with entrepreneur behaviors of SME‟s A. Innovation 1. Innovation is coming up with a new ideas improved products and services by entrepreneurs. 2. It involves foreseeing potential profitable opportunities and exploit them. 3. Entrepreneurs need to be innovative in order to succeed in business. 4. Continuous innovation helps SME’s to grow quickly 5. Innovation involves problem solving by the entrepreneur B. Plan everything 1. Planning everything is a characteristic of entrepreneurs. 2. It is a central factor in entrepreneurial success. 3. The aspect of planning is critical to the success of a new venture. 4. Planning is the most important feature of entrepreneurship 5. It focuses on developing a business plan. C. Take advantage of new technology 1. The best technology is one which helps a firm to do business 2. Currently globally firms are using NASDAQ to transact
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business. 3. Business has been transformed by technology development by different entrepreneurs. 4. Entrepreneurs have to come with technology to succeed in business. 5. Technology offers entrepreneurs a future full of exciting opportunities D. Perseverance 1. It is a stead fast pursuit of an objective 2. It involves maintaining a positive attitude and belief through difficult circumstances 3. It provides the means to growth and learn from mistakes. 4. Perseverance is the single most important characteristic of entrepreneurs. 5. Without persistence in business as an entrepreneur means failure of your business. E. Self confidence 1. Confidence and trust in oneself is an indispensable trait. 2. Self confidence means trusting your own power and capabilities. 3. An entrepreneur must have self-confidence to counter problems of the business world. 4. It involves having the confidence and flexibility to change course through unexpected circumstances Relationship between Access to finance and development of entrepreneurship behavior among SME‟s 1. Access to bank credit is the highest rated obstacle to development of entrepreneurship behavior. 2. Bank credit is related to high interest rates 3. Under developed financial invests have an obstacle for SME’s to develop 4. Absence of long term source of finance makes it difficult for SME’s to take on bigger ventures.
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5. High levels of education are associated with access to finance and entrepreneur behaviours. 6. Privatization of government enterprises has increased the lending rate of SME’s. 7. Non-restrictive licensing of SME’s increases SME’s innovation and access to finance. 8. Governments have made SMEs aware of entrepreneurship option by extending credit facilities. 9. Access to gain credit, knowledge and skills to start viable enterprises has been done by governments. 10. Firms with high profits retain apportion for re-investment.
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APPENDIX II: INTRODUCTORY LETTER
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