BANK LOANS AND GROWTH OF SMALL AND MEDIUM ENTERPRISES IN RWANDA AS CASE STUDY EQUITY BANK, PERIOD:2019-2022

Abstract

This study investigates the relationship between bank loans and the growth of Small and Medium Enterprises (SMEs) based on survey responses from a sample of Equity Bank customers. The objective of this research is twofold: firstly, to assess the effectiveness of loans offered by Equity Bank in Rwanda, and secondly, to investigate the impact of these bank loans on the growth of Small and Medium Enterprises (SMEs). The research employs a mixed- method approach, utilizing questionnaires and interview as the primary data collection tool distributed to both Equity Bank employees and customers to capture a comprehensive range of perspectives. Additionally, the research was conducted in order to gather in-depth insights into loan conditions, effectiveness of the loan, interest rates, and loan repayment term. This study aims to provide a holistic understanding of the relationship between Equity Bank's loan offerings and the growth of SMEs in Rwanda, shedding light on the bank's effectiveness in supporting this vital sector of the economy. The results revealed a diverse group of respondents, with a significant proportion of females (55%) and individuals aged 30-50 years (50%). Educational backgrounds varied, with 32% having no formal education and 25% holding a bachelor's degree. The majority of respondents had been working with Equity Bank for 2-5 years (80%). Regarding loan utilization, "Business expansion loans" were the most common facility (40%), and a substantial portion of respondents expressed satisfaction with loan approval times (65%). Furthermore, a majority of respondents (53%) agreed that the loan conditions, including interest rates and repayment terms, were reasonable and manageable for their SMEs, and 53% were comfortable with these terms. Respondents overwhelmingly (63%) attributed business improvement to the loans, with 60% ranking the use of loans as "Excellent" in terms of importance. While respondents acknowledged the benefits of bank loans, they also identified disadvantages such as prioritizing repayment (30%) and collateral requirements (20%).In summary, the survey results suggest that Equity Bank plays a significant role in supporting SMEs through its loan facilities. The research offers several recommendations to Equity Bank Rwanda, advising them to maintain their inclusive customer approach, prioritize product innovation and flexibility... These steps will further solidify the bank's support for SMEs in Rwanda. To future researchers, the study suggests conducting longitudinal research to assess the long-term impact of bank loans on SMEs' sustainability. These avenues of research would contribute to a deeper understanding of SME financing and credit assessment, ultimately benefiting both financial institutions and small businesses in the region.