Kesseven Padachi C
Working Capital Financing Preferences: The Case of Mauritian Manufacturing SMEs
Kesseven Padachi*; C. Howorth1 and M. S. Narasimhan2
*School of Business, Management and Finance
University of Technology, Mauritius
La Tour Koenig, Pointe – aux – Sables, Mauritius kpadachi@utm.intnet.mu ABSTRACT
This paper investigates the approach to working capital finance among the small to medium sized Mauritian manufacturing firms, using a survey based approach and case studies. Finance has been cited as the most common problems faced by SMEs and is often viewed as a main barrier to growth. Using parametric and non-parametric techniques, the important variables affecting the demand for finance were examined. Interestingly, it is observed that the sample firms adopted more informal sources of finance and networking to meet their financing requirements. The financing preferences of the firms were predominantly short-term and there was conclusive evidence of a reluctance to move down the pecking order for fear of losing control of their businesses. The findings confirmed that internal resources, non-bank sources and short-term debt represent the main sources of financing. The research findings provided some new evidence in support of the different approach to financing of working capital. They used the more informal sources, such as shareholders loan and bootstrap finance. It indirectly suggests that the firms experience significant information costs which prevent them from getting access to traditional sources of finance. The findings of the study will be useful to financial institutions funding SME and policy makers.
Keywords: Working Capital Finance, Mauritian SMEs, Financing Preferences, Informal Sources.
INTRODUCTION
This paper investigates into the working capital finance (WCF) of the small to medium sized Mauritian manufacturing firms. Finance has been cited as one of the main barriers to SMEs growth and many governments have attempted to bring partial solution by the
Kesseven Padachi*; C. Howorth1 and M. S. Narasimhan2
*School of Business, Management and Finance
University of Technology, Mauritius
La Tour Koenig, Pointe – aux – Sables, Mauritius kpadachi@utm.intnet.mu ABSTRACT
This paper investigates the approach to working capital finance among the small to medium sized Mauritian manufacturing firms, using a survey based approach and case studies. Finance has been cited as the most common problems faced by SMEs and is often viewed as a main barrier to growth. Using parametric and non-parametric techniques, the important variables affecting the demand for finance were examined. Interestingly, it is observed that the sample firms adopted more informal sources of finance and networking to meet their financing requirements. The financing preferences of the firms were predominantly short-term and there was conclusive evidence of a reluctance to move down the pecking order for fear of losing control of their businesses. The findings confirmed that internal resources, non-bank sources and short-term debt represent the main sources of financing. The research findings provided some new evidence in support of the different approach to financing of working capital. They used the more informal sources, such as shareholders loan and bootstrap finance. It indirectly suggests that the firms experience significant information costs which prevent them from getting access to traditional sources of finance. The findings of the study will be useful to financial institutions funding SME and policy makers.
Keywords: Working Capital Finance, Mauritian SMEs, Financing Preferences, Informal Sources.
INTRODUCTION
This paper investigates into the working capital finance (WCF) of the small to medium sized Mauritian manufacturing firms. Finance has been cited as one of the main barriers to SMEs growth and many governments have attempted to bring partial solution by the
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