Enayatullah Habibi

Abstract

 

Small and medium enterprises (SMEs) play a substantial role in economic development in a country. This role materializes in various perspectives, including employment, production, and many other economic indicators. As the findings in our study in Nangarhar Province show that the majority of the SMEs are in financial trouble and this remains a staggering constraint against the sustainability and growth of the SMEs in the province. The primary data was collected from the owner/manager of the 50 SMEs and 10 financial institutions through direct interviews in the field. While the secondary data was obtained from literature review, published books, manuals, related articles, previous studies, annual reports, journals, websites and relevant institutions. However, for data analysis both qualitative and quantitative approaches were applied based on each part of the study. The main purpose of the study is to determine the major factors, which affect external finance and indicate the relationship between the bank loans and SMEs growth in the province. The result of this study indicates that the major constraints to SMEs access to finance are the high collateral requirements, short loan duration, high interest rate, inadequacy in maintaining reliable financial statements and bookkeeping, high frequency of loan repayment, and loan disbursement amount. Furthermore, the bank loan has a significant impact on SMEs growth in the province, considering all identified explanatory variables such as, loan disbursement amount, loan duration, collateral requirement, and frequency of loan repayment. However, the impact of interest rate is statistically insignificant in the sample data.

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