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Cost of external financing of SMEs: A study of a developing country

Author

Listed:
  • Md. Rostam Ali

    (Department of Business Administration, Mawlana Bhashani Science and Technology University, Tangail 1902, Bangladesh)

  • Rustom Ali Ahmed

    (Department of Finance, University of Rajshahi, Rajshahi 6205, Bangladesh)

  • Md. Ashikul Islam

    (Department of Finance, University of Rajshahi, Rajshahi 6205, Bangladesh)

Abstract

This study has attempted to calculate the actual cost of the fund of SMEs by considering the fund from institutional and non-institutional sources. For this study, some financial tools, techniques, two samples mean comparison test and ANOVA test have been used to analyze the cross-sectional primary data. The study has found that the average actual cost of the fund from institutional sources, non-institutional sources (without trade credit) and trade credit are 15.52%, 32.11% and 40%, respectively. The cost of the external financing of small enterprises is higher than the medium enterprises and this cost in manufacturing sectors is higher than the service/trade sectors. Again, this cost in rural region is higher than the urban region but it is not statistically significant. The average cost of external financing of SMEs is about 29% which is really high to conduct a business properly.

Suggested Citation

  • Md. Rostam Ali & Rustom Ali Ahmed & Md. Ashikul Islam, 2019. "Cost of external financing of SMEs: A study of a developing country," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 6(03), pages 1-22, September.
    • Handle: RePEc:wsi:ijfexx:v:06:y:2019:i:03:n:s2424786319500294
    DOI: 10.1142/S2424786319500294
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    References listed on IDEAS

    as
    1. Chowdhury, Md. Shahnur Azad & Azam, Md Kazi Golam & Islam, Serajul, 2013. "Problems and Prospects of SME Financing in Bangladesh," Asian Business Review, Asian Business Consortium, vol. 2(2), pages 109-116.
    2. Asian Development Bank (ADB) & Asian Development Bank (ADB) & Asian Development Bank (ADB) & Asian Development Bank (ADB), 2015. "Asia SME Finance Monitor 2014," ADB Reports RPT157575-2, Asian Development Bank (ADB).
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    Cited by:

    1. Li, Chengming & Wang, Yilin & Zhou, Zhihan & Wang, Zeyu & Mardani, Abbas, 2023. "Digital finance and enterprise financing constraints: Structural characteristics and mechanism identification," Journal of Business Research, Elsevier, vol. 165(C).

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