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Rural banking system in Gujrat

Some evidence from Gujarat

SMMEs have been cited as major players in economic development in South Africa and in other developing countries. In South Africa SMMEs contribute more than 52 percent towards the GDP. Subsequently, the South African government has taken various steps to encourage their growth and to improve access to finance for SMMEs. Despite this, securing finance remains a challenge in this group of enterprises. Since SMMEs have unique financial needs, commercial banks and other funders are faced with difficulties in catering for them. Banks in particular have been reluctant in financing these high-risk ventures. SMME owners as a result still prefer informal sources of finance such as personal savings, retained earnings or friends or family rather than bank loans. The study purpose was to examine the barriers that are faced by SMMEs in accessing finance. To do this a survey was conducted on 40 SMMEs operating in the manufacturing sector in Tshwane Metropolitan Municipality. The research findings indicated various barriers that are faced by SMMEs in accessing finance. Dominating among the barriers are those that are related to perceived risks of SMMEs by funders, including lack of collateral or business assets, lack of financial statements, excessive red tape by funders, administrative burden associated with applications as well as unfair evaluation of risks and profitability of SMMEs by funders. Other factors that were identified as barriers were those that are associated with poor business plan development, poor business training and development and source of funding. The majority of the respondents recommended that there must be better risk and profitability evaluation, easy loan repayment methods, more government support for SMMEs, flexible eligibility criteria for SMME loans and proper loan amount allocations.

The study examines the relationships between the financial sector and small businesses, and the small business policy framework in South Africa. The study also measures the perception of the Business Chambers and Commercial Banks on the effectiveness of financial sector support to small businesses in the Gauteng area through a questionnaire. The Small Business Development Policy of 1996 outlines the functions of various small business support institutions such as Ntsika Enterprise Promotion Agency, Khula Finance Ltd, the DTI institutions and the Provincial SMME Desks. Ntsika was established in 1996 to implement the national small business strategy. It provides non-financial support to small businesses through a number of programmes including Local Business Service Centres (LBSC), Tender Advice Centres (TAC), and Manufacturing Advice Centres (MAC). These non-financial support services are essential for creating access and utilisation of financial resources. Khula was also established in 1996 to provide loan guarantees to small businesses in order to increase their access to finance through commercial banks. Khula manages a number of programmes namely business loan schemes, guarantee schemes, Khula start funds and equity funds. Khula guarantees 80 percent while commercial banks bear 20 percent of the risk. This has enabled small business without collateral to have access to financial resources. The DTI provides a number of incentive schemes for registered small businesses, namely, Standard Leased Factory Building Scheme (SLFBS), Small and Medium Manufacturing Development Programme (SMEDP), Economic Empowerment Scheme (EES), Venture Capital Scheme (VCS), Normal Finance Scheme (NFS), Import Finance Scheme (IFS), Short-term Export Finance Guarantee Facility (STEFGF), and Export Marketing and Investment Assistance Scheme (EMIA). The Provincial SMME desks are established to represent the interests of small businesses and to contribute to the implementation of the national small business strategy. The DTI incentive schemes provide the necessary infrastructure and contribute towards increasing the performance in the small businesses sector. The small business support programmes are evaluated using a number of criteria, namely, the small entrepreneurs’ awareness of the programmes, if small businesses ever approached these schemes, if small businesses received assistance, what quality of assistance was offered, the cost of assistance, employment creation, poverty alleviation and economic empowerment. Small businesses face a number of challenges such as the lack of competent human resources, low profit margins, inadequate financing, stiff competition from large monopolistic and well established businesses, inadequate marketing strategies, unfavourable policy and legal environment, lack of information about government support initiatives, cyclical sensitivity of their products, and high inflation rates. The selection criteria of commercial banks is based on factors such as whether or not the borrower is organised and knowledgeable, his competence in terms of understanding accounting, management, and financial and marketing aspects of the business, the borrower’s character, his capability, capital contribution, credit rating, insurance coverage, and collateral pledged, the purpose of the loan, local economic conditions, and the length of lending relationship. However, in South Africa lending criteria is more inclined towards the ability to pledge collateral instead of the viability of the project being financed. Commercial banks face a number of risks when lending to small businesses. The most common risk is the credit risk which results from the inability of the small businesses to honour their financial obligations. High failure rate in the small business sector also contribute towards high credit risk to commercial banks. The study concludes that there is a need for mentorship programmes in the small business sector in order to increase the success rate. The government should also assist commercial banks to reduce their stringent requirements in order to accommodate small businesses. Viability based lending is recommended. The government should facilitate provision of non-financial services in order to address internal incapacities of small businesses. More research is required in the small business sector to create awareness about potential benefits accruing to the financial sector and the economy as a whole. More players are required in the commercial banking sector in order to enhance competition. The government should reduce barriers to entry into the banking sector. The government should educate the population on the importance of personal savings in order to reduce over-dependence on financing from commercial banking sector. Women are still marginalised in terms of accessing funds from commercial banks. However, they have low rate of default and pose lower credit risk to commercial banks. The government should level the playing field to facilitate access of women to financial resources. / Prof. R.R. Mears Mrs. J.M.M. Viljoen.

The aim of this research is to investigate corporate behavior, including investment and financing decisions, when corporations face uncertainty and flexibility/inflexibility, and to explore the effects of this behavior on real option valuation. It expands the real options analysis framework into two paths: the first is to add institutional details, portfolio aspects and financial structure into the classical real option model; the other is to extend the real option model into a firm valuation model with corporate investment and financing decisions. Two types of theoretical models are developed. The first set of theoretical models follows the framework of binomial option pricing. Three binomial option pricing models are constructed to represent real estate development in Hong Kong, in which developable land has different flexibility in accordance with covenants in typical land lease contracts. First, the firm may have contractually limited time to complete the development following conversion of urban fringe/agricultural land into commercial/residential land after paying a negotiable “land premium”; second, it may buy land from the market without development time constraints; or thirdly it may buy land at public auction also with contractual development time constraints. The three binomial models deal with the flexibility/inflexibility in these land development circumstances imposed by institutional arrangements. Interaction effects from cost-saving through co-development and potential price increases through agglomeration effects from co-location of multiple options are included in the binomial models. The financial structure of the firm is also seen to influence real option values, because capital structure could imply different capital costs in the exercise of the real options, which is ignored in traditional real option theory. In addition to the traditional factors in financial option pricing models, numerical examples show that interaction effects and capital structure influence real option values and their investment thresholds. The second set of theoretical models aims to value both real flexibility and financial flexibility dynamically and simultaneously. Financial flexibility in the firm, which is seen as an important factor in the capital structure decision, is itself seen as analogous to a real option in project valuation, as the firm can use some debt capacity to invest in the opportunity but still preserve unused capacity for future opportunities. The thesis argues that the firm owns the financial flexibility to adjust its debt through sale of its existing assets or to use these as loan collateral. The firm with more collateralizable assets would have larger debt capacity, use more debt and invest more through the flexible utilization of debt capacity. Two empirical tests are conducted to confirm the findings of the theoretical models, structured into three principal hypotheses: firstly, real option value is not only determined by embedded flexibility, but also by the existing corporate asset structure through interactions and the firm’s ability to trade or collateralize its existing assets (properties); second, real option value and real option execution/investment is directly influenced by external financing decisions due to financial frictions and constraints; and thirdly, financial flexibility is expected to increase corporate investment through the collateral channel and lower cost of capital. The first empirical study uses project level land auction price data in Hong Kong to investigate the relationships between real options and firm fundamentals including interactions, constraints and financial structure. Three sub-hypotheses associated with principal hypotheses one and two about real option valuation are derived from the theoretical binomial option models. Sub-hypothesis one states that real option value is expected to increase if the firm has more properties that may interact with the property underlying a real option; two states that real option value is expected to decrease if the firm faces capital budgeting constraints when allocating resources among competing projects and high financing costs caused by financial frictions; and three, real option value is expected to increase if the firm has sufficient internal funds and financial flexibility to finance the opportunity. The empirical results support the sub-hypotheses. It is shown that the option premium embedded in the land price is not only related to real flexibility such as waiting to invest (as identified in traditional real option theory), but it also increases or decreases with the direct interactions with other properties, their competition for firm resources and the firm’s financial status. This links for the first time project level predictions of real option theory to firm fundamentals. The second empirical test investigates investment decisions and the influence of the firm’s financial flexibility. It tests principal hypotheses two and three about the effects of financial constraints, frictions and flexibility. Through the firm valuation model, sub-hypotheses four to six are derived. Sub-hypothesis four states that utilization of external funds relaxes financial constraints and induces investment in profitable opportunities; while the higher opportunity cost of external funds raises the investment threshold which reduces investment and lowers real option value. Sub-hypothesis five states that the firm with more collateralizable assets has lower investment thresholds in comparison with the firm relying on external capital with higher financing cost, and is divided into two: 5.1 states that the firm with more collateralizable assets would use more debt financing (because the collateralizable assets create low-risk debt capacity); and 5.2 states that the firm with more collateralizable assets would have access to debt at lower interest rates. Sub-hypothesis six states that existing debt reduces internal funds and debt capacity of the firm, leading to less investment and a higher investment threshold due to potentially high capital cost of external financing. Hong Kong real estate company data is employed to test the implications from the firm valuation model. The results can be summarized as follows: (1) debt level influences investment decisions, in which debt firstly relaxes the financial constraint for investment and then imposes financial frictions; (2) collateralizable assets increase investment by creating debt capacity if the firm faces financial constraints; (3) the firm has the ability to use more long term debt if it owns more collateralizable assets; (4) interest rates charged for long term debt reduces in the firm with more collateralizable assets; (5) financially constrained firms have to depend on substantial collateralizable assets to issue debt and invest. In sum, there is support for the functioning of a “collateral channel” at the firm level. / published_or_final_version / Real Estate and Construction / Doctoral / Doctor of Philosophy

<p> This research was an attempt to replicate, yet expand previous empirically supported, qualitative gray literature research conducted by NEXA (2010). The primary difference between this study and the NEXA study is adding significance testing in a quantitative study, to substantiate previously reported positive organizational financial performance associated with business aircraft investment. The outcome contradicted the previous study by providing evidence there were no significant differences in financial performance between those companies that own business aircraft and those companies that do not. The sampling populations were collected from publicly available data through a Federal Aviation Administration (FAA) aircraft registry and Securities and Exchange Commission (SEC) / Edgar database for the Standard and Poor&rsquo;s (S&amp;P) 600 Small Capitalization (SmallCap) Index funds. </p><p> The research utilized the Andersen (2001) Utilization strategies, Benefits, and shareholder Value (UBV) conceptual framework. The dependent variables of Earnings Before Income Tax, Depreciation and Ammoritization (EBITDA), Revenue Growth, Return on Equity (ROE), and Return on Assets (ROA) financial indicators and ratios were applied to test the significant differences between the independent variables of companies that own business aircraft versus companies that do not own business aircraft. The breadth of associated costs when contemplating investment in business aircraft goes well beynd the initial cost of the aircraft itself and was not covered in this study. Depending on the strategic objective and intended use of a business aircraft, ownership involves an additional and significant investment in infrastructure and back office support, segregated by direct and indirect costs. </p><p> In order to help define the future roles of business aircraft, the industry as a whole must create a synchronous and performance based public face that emphasizes the broad collection of the multi-dimensional and positive, technological, economic, and regulatory, political, and social dynamic contributions. Moreover, with financial indicators demonstrating positive value, productivity, and performance separation between business aircraft ownership from non-ownership, coupled with the internal as well as external drivers influencing financial results, the public face of business aviation and its aircraft should be one of the top investment decisions for future sustainability and competitive advantage.</p>

Small businesses constitute the bulk of enterprises in all economies in the world. Storey (2000:7) states that 95% of all firms in the European Community can be classified as small and that they provide more than half the jobs in this community. Such firms make a major contribution to employment and wealth creation, which appears to be increasing over time. It is thus not surprising to find that numerous studies have been conducted globally regarding entrepreneurship, and the value that small businesses add to the economies of countries. South Africa is no exception and most universities have added entrepreneurship programmes to their curricula. The study of small business however proved not be such a simple procedure mainly due to the following reasons: Firstly, there is no single definition of a small firm, secondly there are numerous small firms and it is difficult to estimate how many exist at any point in time as many don't register their existence. This leads to problems for researchers when estimating the size and contribution of the small business sector in any one country not even to mention the difficulties in trying to conduct comparative studies between countries or regions. Despite these problems it is believed that some good has come from the research and it can be argued that research with limitations are better than no research. The lack of loan funding has been given as one of the major constraints faced by small business owners who either wanted to start-up a business or who wanted to expand an existing business. It was the objective of this dissertation to investigate various issues regarding small business funding. The relationship between entrepreneurs and funding institutions was investigated, the utilization and source of funds, as well as other factors that influence the funding process if any, were also examined. In order to achieve the objectives of this study a group of entrepreneurs in die Kwazulu-Natal Midlands were interviewed with the help of a questionnaire. The study focussed on businesses in the Howick and Pietermaritzburg area. Questionnaires were initially posted to firms but the overall response rate was low and this necessitated the use of personal interviews. Once the quantitative data was collected it was captured using SPSS and analysed using Chi-Square tests, correlation and regression analysis. The findings of the study mostly correspond and confirm the findings of previous research done on the topic of financing small business and the various constraints affecting its performance. Most of the respondents did find the lack of finance as a major constraint during the start up phase of the business and used their own or family money to start their own businesses. The study also focussed on the relationship between the entrepreneur and his financier and it was found that most of the respondents had a good relationship with their financiers. The threat of competitors was listed as the major nonfinancial constraint affecting businesses surveyed in the sample. The supply of a loan to a firm was found to be related to the ability of the firm demonstrating the ability to generate high sales, rather than to the ability to produce a business plan. / Thesis (MBA)-University of KwaZulu-Natal, Pietermaritzburg, 2004.

In March 1995, the South African government formulated the White Paper for the development and promotion of small business in South Africa to foster an environment in which small and medium enterprises could operate. SMMEs play an important role in job creation in South Africa. The survival of SMMEs is reliant on the abilities of the entrepreneur to succeed. An entrepreneur’s abilities and knowledge plays a very important role in the assessing process when applying for finance. There are various financial institutions in South Africa that have different criteria and turnover requirements to assess such applications. Financial institutions include banks, funds and privately owned institutions. The purpose of this study was to identify the financial success factors for SMMEs in the Eastern Cape. During the study, 32 success factors were identified. The most important factors amongst these include financials, knowledge of management, competition / market, past conduct of banking account, source of repayment, purpose, business ability / product, collateral, capital and industry risk / knowledge. These findings resulted in the various recommendations, as well as suggestions for further research opportunities.

There are a number of audited companies in Libya which have gone into bankruptcy between 1995 and 2005. Therefore, there is a significant question about the audit quality situation in Libya. There is not itself much research about audit quality in Libya. In particular, there is not much research that has tried to measure audit quality in Libya. This study is an attempt to pursue further some of the issues around financial audit quality in Libya. Secondary data analysis presents observations of Libyan companies from 2006 to 2009 to measure discretionary accruals. It applies an appropriate type of statistical method, to identify accruals and then examine the type of audit opinion related to these statements. Findings indicate that there is earnings management in almost all financial statements. The findings divided all companies into 113 positive andl40 negative discretionary accruals. In addition, Findings indicate that auditors of the agency and auditors working for him/her self issued in general 85.7% unqualified (clean) audit opinion for financial statements that have earnings management, and 11% modified audit opinion. The results answer the first question in this study about the level of audit quality in Libya: audit quality level in Libya is low. The semi-structured interviews support finding of the secondary data analysis, that is the level of audit quality in Libya is low. Also findings indicate that in Libya there are some fundamental elements which themselves are insufficient to deal to develop audit quality. Furthermore, the Libyan audit context suffers from some obstacles and problems that prevent the development of audit quality.