Determinants of Flow of Formal Credit to Small and Medium Enterprises
: A Case of Social Capital and Savings Mobilisation for Malawi

  • Sellah Rose Jaranthowa Gondwe

Student thesis: Doctoral ThesisDoctor of Philosophy


This thesis explores the role of social capital and domestic savings mobilisation, as demand and supply determinants of access to formal credit for small and medium enterprises (SMEs), in developing countries. The thesis provides evidence on how the domestic banking sector in developing countries can address information asymmetry between lenders and borrowers, and supply of loanable funds for SMEs, by considering other non-conventional determinants. The research focuses on Malawi, a developing economy in Sub Saharan Africa, to conduct micro-level and macro-level analyses. Analysis of cross sectional data uses probit models to reveal evidence of the effect of social capital on access to formal credit. Analysis of time series data uses vector autoregressive model to document evidence of the effect of domestic savings mobilisation on credit extended to the private sector by banks. The findings indicate that social capital is a determinant of access to formal credit and should be considered in credit risk assessments, for a more comprehensive process. The Findings also suggest that bank deposits influence credit provided to the private sector, providing evidence that domestic savings mobilisation also matters for economic growth in less developed countries. Evidence further suggests that although banks lend to the Government, the effect of the lending on mobilised deposits is not significant. The research recommends acknowledgement of, and more use of social capital, especially for first-time borrowers, to complement other quantitative risk assessment approaches. Initiatives to improve the flow of information between lenders and borrowers would not only improve access to credit but also increase savings mobilised domestically, to provide a readily available pool of funding for banks, and hence the supply of credit to entreprises, ceteris paribus.
Date of Award06 Jan 2016
Original languageEnglish
Awarding Institution
  • Aberystwyth University
SupervisorPeter Midmore (Supervisor) & Michael Christie (Supervisor)

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