ANSWER
Tittle: Impact of Bank Loan on Small and Medium Enterprises (SMEs) Development. The
Case of NMB Bank in Zanzibar
I.
Research Problem
Small and medium enterprises are mostly managed by owners and relations. The financing in
most cases in normally provided by the owners. The owners fail to access to finance due to strictly
conditions on banker’s loan, higher interest rate by the micro and financial institutions and
financing short term loans caters for working capital. Several countries including Tanzania have
long-standing problems providing finance to newer SMEs, even when established SMEs have
sufficient access to finance. This weakness may become more serious in periods of structural
change when higher than average rates of firm formation are likely (OCED, 2010). Also affect
expansion in the business; in most cases, is done by the owner, members of the family and
relatives. The Government has designing and implementing a number of policies and
programmes to support the development of these small and medium enterprises like Small and
Medium Enterprises Development Policy (2002), Tanzania vision 2025, Sustainable Industrial
Development policy (1996-2020), institution like Small Industrial Development Organization
(SIDO) but at Unguja about 65% of SMEs have access to loan from NMB. Therefore, this
research assessed the effectiveness of loans provided by NMB to the development of small and
medium enterprises at Unguja.
II.
Study Variables

Access to NMB loan

Loan amount
Independent Variables

SMEs development.
Dependent Variable
III.

Variables Limitation
Access to Loan: For SMEs, there are two external financing that are mostly important
form for financing the businesses. The first is the equity financing which is provided in
form of venture capital and available for new small businesses (Deakin, 2008). However,
due to lack of equity financing, the small businesses go after debt financing that is mostly
provided by the banks and non-banking institutions. Indeed, access of debt financing is
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very limited especially for SMEs due to the requirement for the provision of debt (Deakin,
2008).

Loan amount: According to Kagan (2021) A maximum loan amount, or loan limit,
describes the total amount of money that an applicant’s is authorized to borrow.
Maximum loan amount is used for standard loans, credit cards, and line of credit accounts

SMEs development: SMEs all over the world are known to play a major role in social
and economy development. This is apparently the case of Tanzania where SMEs
contribute significantly to employment creation, income generation and stimulation of
growth in both urban and rural areas.
Two variables to calculate a Spearman’s correlation coefficient.
IV.

Loan amount and Access to Loan
V.
Variable Measurement
Loan amount is measured by; Expansion of business and increase working capital
Access to Loan measured by: loan conditions and loan sufficient
Spearman correlation is used when researcher want to explore the strength of the relationship
between two continuous variables. This gives a researcher an indication of both the direction
(positive or negative) and the strength of the relationship. A positive correlation indicates that as
one variable increases, so does the other. A negative correlation indicates that as one variable
increases, the other decreases. A perfect correlation of 1 or –1 indicates that the value of one
variable can be determined exactly by knowing the value on the other variable. On the other hand,
a correlation of 0 indicates no relationship between the two variables.
Specifically, in this study a researcher was interested to know the strength of the relationship
between
Loan amount and access to loan (as independent variables) and SMEs Development
(as dependent variable)
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Thus, to determine/ interpret the value of correlation different authors suggest different
interpretations; however, Cohen (1988, pp. 79–81) suggests the following guidelines
Interpretation of Spearman’s correlation coefficient (r)
Values of Pearson’s correlation
coefficient
r = 0.10 to 0.29
r = 0.30 to 0.49
r = 0.50 to 1.0
Source: Cohen (1988, pg 79 – 82)
Interpretation
Small correlation
Medium correlation
Large correlation
The results of the Spearman correlation coefficient (r) as seen in the table below show that Loan
amount and access to loan correlate positively with the dependant variable SMEs Development
Correlations
Loan amount
Spearman's rho Loan amount
Correlation
Coefficient
Sig. (2-tailed)
N
Access to loan Correlation
Coefficient
Sig. (2-tailed)
N
SMEs
Correlation
Development
Coefficient
Sig. (2-tailed)
N
**. Correlation is significant at the 0.01 level (2-tailed).
Access to
loan
SMEs
Development
1.000
.637**
.584**
.
395
.000
395
.000
395
.637**
1.000
.585**
.000
395
.
395
.000
395
.584**
.585**
1.000
.000
395
.000
395
.
395
In looking at the strength of the relationship, it is clearly seen that ALL independent variables
(loan amount and access to loan) have greater correlation with dependent variable (SMEs
Development) because their correlation coefficients are above 0.50
VI.
Conclusion and Recommendation
Analyzed data was about impact of bank loan on the development of small and medium
enterprises (SMEs) case study NMB. From the study revealed that, access to loan and loans
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amount provided by NMB to SMEs is sufficient to SMEs fulfill all need of their business
operation and lead high performance of their business.
The study recommended that The NMB PLC should develop effective small business training
programs and give proper consultation to their clients so that can be much existed on the rules of
doing business like recording keeping, separate business from owner, good business
management, tolerance and persistence to any business changes.
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