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The impact of borrowing concentration on innovation: When is one not just enough?

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  • Machokoto, Michael
  • Omotilewa, Oluwatoba James

Abstract

Using a survey dataset of small and medium-sized enterprises (SMEs) in Tanzania and Kenya, we find that nearly half of these SMEs concentrate their borrowings exclusively with a single bank. These SMEs rely heavily on internal financing, have limited access to external finance, and are less likely to introduce new or improved products, processes, or services in both local and international markets. Our findings provide valuable insights into the financing decisions of SMEs in developing markets and their impact on critical outcomes such as innovation. They also highlight the need for policy interventions to improve access to finance and diversify financing options to promote sustainable and inclusive economic growth.

Suggested Citation

  • Machokoto, Michael & Omotilewa, Oluwatoba James, 2024. "The impact of borrowing concentration on innovation: When is one not just enough?," Economics Letters, Elsevier, vol. 236(C).
    • Handle: RePEc:eee:ecolet:v:236:y:2024:i:c:s016517652400096x
    DOI: 10.1016/j.econlet.2024.111613
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    More about this item

    Keywords

    Innovation; Borrowings; Concentration; Exports; Access to finance; Developing countries;
    All these keywords.

    JEL classification:

    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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