Influence of Social Capital on Incubated MSMEs’ Access to Non-Formal Finance. A Case of Tanzanian Incubated MSMEs

The purpose of this study was to investigate whether social capital of incubatees and incubator managers contribute to the incubatees’ access to non-formal finance in Tanzania. Also, to understand the types of social networks that have significant influence on incubatees’ access to non-formal finance. Design/methodology/approach:Quantitative research approach was adopted in this study where data collection was conducted through the self-administered questionnaire. A stratified sampling technique was used because of the diversity of the business incubation programs and a sample of 141 incubated MSMEs was selected out of 593 incubated MSMEs in Tanzania. PLS regressions analysis method was employed to test the impact of bonding, bridging and linking social capital of both incubatees and incubator managers on incubatees’ access to non-formal finance. Findings: The results indicate that incubatee’s bonding and bridging social capital and incubator manager’s linkingsocial capital have positive impact on incubatee’s access to non-formal finance. But incubatee’s linking social capital and incubator manager’s bonding and bridging social capital have insignificant impact on incubatee’s access to non-formal finance. These results suggest that incubatees’ family members, neighbours, close and distant friends and secondary groups play a significant role in helping incubatees access finance from non-formal financiers. Similarly, incubator managers’ connections to influential people in private sector, civil society organisations, and governmentand public representatives have significant influence on incubatees’ access to non-formal finance. Research/practical implications: This paper creates awareness to incubatees to utilize their bonding and bridging network links, to increase their non-formal financial accessibility. The incubatees are also motivated to utilize the incubator managers’ connections in the civil society organizations, private sector, government agenciesand public representatives. Based on these results, policy makers should adopt group guarantee strategy which is being applied among secondary groups to facilitate financial accessibility. Also, policy makers can focus on how to maximize utilization of incubator manager’s connections to key people in civil society organizations, private sector, government agencies and public representatives. Originality/value:The paper begins with an overview of previous researches in area of MSMEs’ access to finance and then moves on to show the role of social capital in incubated MSMEs’ access to non-formal finance. The paper then suggests the type of social capital/social networks that have a significant impact on incubated MSMEs’ access to non-formal finance