The determinants of credit demand for micro enterprises a case study of southern highlands of Tanzania

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Sokoine University of Agriculture


Existing literature suggests that determinants of demand for credit have not been well understood and measured. This study was conducted to assess influence of micro enterprises owners’ characteristics on credit demand. The study was also designed to identify lending conditions of semiformal and formal sources of credit in the study area. The study assessed whether the availability of credit sources has influence on micro entrepreneurs’ choice for credit. Data were collected from a sample of 183 micro entrepreneurs in Iringa, Mbeya and Sumbawanga districts. Multistage and simple random sampling techniques were used to select respondents. Data analysis employed both descriptive and quantitative methods, where as regression analysis entailed the use of Probit and Tobit models. The study revealed that micro entrepreneur’s characteristics substantially influenced the decision to apply for credit and hence the actual amount demanded. The credit demand was found to be high in all the three districts. The most important reason for demanding credit was to expand enterprises. Regression results indicate that marital status and micro entrepreneurs’ business experience had significant positive influence on the demand for credit at P<0.01. With respect to the actual demand for credit both marital status and business experience had positive effect at P<0.01 and P<0.05, respectively. While age of the micro entrepreneur had significantly negative influence on the demand for credit at P<0.01. In terms of the actual demand for credit, age had positive sign and significant effect at P<0.01. Furthermore, education of the micro entrepreneur had positive influence on the decision to apply for credit although not significant at P<0.05. However, education level had significant and positive effect on the actual demand for credit. Assets owned by the micro entrepreneurs had significant positive effect on the actual demand for credit at P<0.01 but no significant effect on the decision to apply for credit at P<0.05. Since a majority of the micro entrepreneurs have no assets or are poor clients operating small businesses, there is a need to streamline lending procedures in various sources of credit to enable the majority of micro entrepreneurs to acquire credit. This includes lengthening of the repayment periods and substituting the use of physical collateral with social collateral. Also micro entrepreneurs should be educated on how to manage their enterprises and on the importance of being credit – worthy. The study further recommends simplification of the registration and licensing procedures to make businesses eligible for formal credit.



Credit Demand, Micro Enterprises, Southern Highlands


Kasambala,M (2007)The Determinants Of Credit Demand For Micro Enterprises A Case Study Of Southern Highlands Of Tanzania .Morogoro;Sokoine University of Agriculture.