Creditworthiness and access to finance: a study of SMEs in the Malaysian manufacturing industry

Abstract

Purpose The purpose of this study is to empirically assess the relationship between the dimensions of creditworthiness and access to finance of small and medium-sized enterprises (SMEs) in Malaysia, with creditworthiness as the mediating variable. The lack of empirical research on the relationship between creditworthiness and access to finance forms the motivation of this study. Design/methodology/approach Questionnaires covering various characteristics of the firms, their access to finance and creditworthiness were distributed to a total of 456 SMEs in the Kuala Lumpur and Selangor region for this purpose. A total of 158 responses were returned, of which 145 were usable responses and the relationships are tested using SEM-PLS. Findings This study finds that an SME and its owner’s character have significant influences on access to finance. An SME’s condition and its ability to provide high quality collateral are found to be highly significant in influencing its access to finance. Capacity is significant but its significance is low, while capital is insignificant. Creditworthiness has a significant positive influence on access to finance. Originality/value This study contributes to the important yet under-researched issue of access to finance for SMEs. It highlights the issue of character of applicant as an important dimension of creditworthiness that can significantly influence access to finance for SMEs.

Mediating Role of Utilization of Financial Products and Services on the Relationship between Financial Access and MSMEs Growth in India

“…We found that firms' financial accessibility was crucial to their intellectual capital. According to our research, which obtained the same result as that of Wasiuzzaman et al (2020), concluded that the use of financial goods and services was good for the development of micro-enterprises. Additionally, financial access encourages MSMEs to expand because it alleviates unexpected economic shocks and market fluctuations in their operations (Bakhadirov et al, 2020).…”

“…Leveraging increased financial market competition offers the opportunity for people to put their risk management skills and expertise to use. Financial access has also been shown to be helpful for entrepreneurs when dealing with banks and providing micro businesses with the ability to navigate the challenges presented by changing financial markets, leading to growth (Wasiuzzaman, 2019;Wasiuzzaman et al, 2020). Having financial access leads to both direct and indirect companies.…”

“…The financial access of key elements in the MSME sector would be improved if relevant authorities provided more extensive and more specialised training courses. This research also contributes to studying a particular geographical region, namely India, and the findings should help grow Indian MSMEs to make greater use of financial access (El-Said et al, 2015;Wasiuzzaman et al, 2020). Relevant research material has been reviewed in the following part, leading to the development of hypothesis and conceptual framework as depicted in Figure 1.…”

Prior credit assessment of long-term SME projects with non-standard cash flows

“…Banks, to meet market requirements, have to adopt standard processes and procedures of corporate lending to the real needs of SMEs taking a cue from the special features of such businesses (Cusmano & Koreen, 2015). In the vast majority of cases, lenders face the problem of the preliminary assessment of the borrower's creditworthiness, based on the analysis of the borrower's projected financial reports (Wasiuzzaman et al, 2019;Caner & Karan, 2012;Polishchuk et al, 2020;Khovrak & Petchenko, 2015;Dubyna et al, 2021) and try to find cash-flows eligible for loan servicing. One of the problems is that in some cases, an SME, as a potential borrower, does not have the indiscrete series of positive cash flows dedicated to loan servicing.…”

Credit Evaluation by the Small-Medium Sized Enterprises: Maqasid Shariah Approach

“…Mismatched funding could affect SMEs' business performance as a study conducted by Mustafa, Sam and Ismail (2019) revealed a positive relationship between facility structure and SMEs' performance. There are many reasons why SMEs are facing difficulties in securing fundings, one of which is lack of collateral, as suggested by Wasiuzzaman, Nurdin, Abdullah and Vinayan (2020), Haron, Said, Jayaraman and Ismail (2013) and Zairani and Zaimah (2013).…”