Year

2023

Degree Name

Doctor of Business Administration

Department

Faculty of Business

Abstract

Small and medium-sized enterprises (SMEs) play a crucial part in the economic development of any nation. SMEs comprise 90% of enterprises in the United Arab Emirates (UAE), employing approximately 43% of the entire workforce; small firms are more flexible towards innovation and creating new business models. The UAE government is particular in developing SME outcomes and their innovative capacities since SMEs have marked phenomenal growth since 2008, contributing 9% of the compounded annual growth rate. However, SMEs rely primarily on intangible assets for financing; hence, they seek external financing. Consequently, they face challenges in raising external funds because they lack established financial structures; they fail to achieve expected performance, resulting in business closures, declined cash flow, increased SME liquidations and lay-offs on receivables. Furthermore, only 20% of SMEs belonging to Arab countries access loans due to the perceived higher transaction costs and a higher risk level.

Thus, constraints in accessing loans limit SMEs’ knowledge expansion capabilities and pose incentive issues. These indicate the necessity of financing SMEs since they play a prominent role in a nation’s development both in economic domains and in offering employment opportunities. Although SMEs in developing countries contribute 33% of national income, almost 37% of SMEs suffer significant obstacles in accessing finance. Since finance is the primary driver of SME growth, enabling easy access to capital would warrant their survival and sustainable growth. Therefore, this study proposes to identify the factors enabling SMEs to seek investment from different financial institutions. The study also examines the effect of the firm, institution and owner characteristics on SME access to finance in the UAE. Additionally, the study aims to develop a conceptual framework indicating the factors that aid SMEs in accessing external finance.

SMEs must be aware of the factors instrumental in establishing an ideal relationship with corporate entities; they must also know the significant potential of those characteristics that can draw funding from investing stakeholders. Following this, SMEs can either leverage or build up their capacity upon such criteria to ease their external financing capacity. At the same time, financing institutions must understand critical measures that can be encapsulated in the eligibility assessment process while examining credit requests from borrowers. From the literature review, the research has identified three major characteristics that deeply affect SME access to finance: firm characteristics, financial institution characteristics and SME owner characteristics. The influence of each characteristic is investigated upon multiple dimensions. The firm’s characteristic dimensions include business growth, business size and awareness of funding opportunities; the financial institution’s characteristic dimensions are Islamic finance, the requirement of collaterals and small business support services. The owner’s characteristic dimensions comprise the owner’s age, education, gender, and experience and skills. These 10 individual dimensions formed the independent variables for the research, and access to finance was the only dependent variable.

Previous literature revealed that characteristics of SME owners, particularly age, educational level, experience and gender, dominantly affected the owner’s ability to access external funds. Since these factors were constant throughout the study, they were kept as control variables. Ten individual hypotheses were developed, corresponding to 10 independent variables, to test the relationships between the independent and dependent variables. The research was purely quantitative and adopted a positivist philosophy with a deductive approach. A survey strategy was chosen, and a fully structured online questionnaire was employed to collect responses. The respondents were 370 SME owners in the UAE. The obtained data were analysed using the structural equation modelling statistical method using SPSS AMOS-24 software to generate descriptive and inferential statistics. An EFA was conducted to determine whether the correlation confirmed the absence of multicollinearity among the variables. Moreover, a confirmatory factor analysis was conducted to confirm the model fit. Later, multivariate regression results of the latent model were inferred to validate the 10 hypotheses.

The study outlines significant characteristics that influence SME access to finance. The research has several practical insights: (a) financial advisers could use the findings to suggest developmental areas for SMEs, (b) governments should provide small business support services, increase bank concentration, and formulate harmonised credit policies, (c) financial institutions must take necessary steps to increase their visibility, and they could utilise the owner and firm characteristics while assessing credit requests and (d) SME owners can focus on improving their characteristics to influence investments.

The research has increased the knowledge about SME entrepreneurship from a financial perspective; however, the results can be generalised only to the UAE setting. The research also established causal links between multiple variables; however, the causes for such associations must be explored in depth. Future studies can include interviews to record respondents voices; they can also extend the study across various countries and industries to gain exciting insights. In addition, the research can be enhanced by obtaining responses from financing institutions so that the barriers to lending money and the factors that influence financing to SMEs can be gathered from their viewpoints.

FoR codes (2008)

1503 BUSINESS AND MANAGEMENT

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Unless otherwise indicated, the views expressed in this thesis are those of the author and do not necessarily represent the views of the University of Wollongong.