Does Sustainability Reporting Improve SME Access to Finance? Evidence From NBS Bank and PolyMed Sacco, Blantyre, Malawi

The external financing of small and medium enterprises (SMEs) in emerging economies is a persistent challenge, in part due to a lack of information for lenders regarding the operations, governance and long-term risks of the SMEs. This study investigates the hypothesis of the impact of sustainability reporting on SMEs access to finance in Blantyre, Malawi based on the evidence given by NBS Bank and PolyMed SACCO. A convergent parallel mixed-methods design was used, which involved surveying 156 SMEs, and also using qualitative interviews with financial-institution managers and loan officers. A version of an ESG Disclosure Index derived from existing disclosures was used to measure sustainability disclosure. Data were analyzed using descriptive statistics and Pearson correlation analysis for quantitative data and thematic analysis for qualitative data. The quantitative results indicated that the ESG related report has no statistically significant relationship with access to finance. Qualitative evidence indicates, however, that sustainability information may help to improve transparency and lenders' understanding of business practices and management quality. The results indicate that formalization of sustainability reporting is still not very developed and, therefore, limited in usefulness for SME lending. There is a need for simplified reporting guidance on ESG, building capacity and proportional integration of sustainability information into SME finance, the study recommends.

Sustainability reporting, SME financing, ESG disclosure, Access to finance, Malawi, Emerging economies

1. [1] T. &. D.-K. A. Beck, "Small and medium-size enterprises: Access to finance as a growth constraint.," Journal of Banking & Finance, pp. 30(11), 2931–2943., 2006. [Google Scholar] [Crossref]

2. [2] A. Q. &. O. I. Aboagye, "Sustainability reporting and access to finance: Evidence from African SMEs.," Journal of Sustainable Finance & Investment,, pp. 12(3), 215–233, 2022. [Google Scholar] [Crossref]

3. [3] O. f. E. C.-o. a. Development., "Financing SMEs for sustainability: Drivers, constraints and policies (OECD SME and Entrepreneurship Papers, No. 35).," OECD Publishing., pp. https://doi.org/10.1787/a5e94d92-en , 2022. [Google Scholar] [Crossref]

4. [4] G. Standards, "Global Reporting Initiative (GRI)," GRI Standards, pp. 1-5, 2021. [Google Scholar] [Crossref]

5. [5] W. B. report, "Malawi economic monitor: Addressing macroeconomic fragility and financial intermediation.," World Bank, Washington, DC, 2023. [Google Scholar] [Crossref]

6. [6] EFRAG, " EFRAG sustainability reporting standards for SMEs. Brussels:," European Financial Reporting Advisory Group (EFRAG), pp. 1-6, 2022. [Google Scholar] [Crossref]

7. [7] nternational Finance Corporation (IFC), " Annual Report 2023: Sustainability," World Bank Group, Washington, DC, 2023. [Google Scholar] [Crossref]

8. [8] G. A. Akerlof, " The market for “lemons”: Quality uncertainty and the market mechanism.," Quarterly Journal of Economics, pp. 84(3), 488–500., 1970. [Google Scholar] [Crossref]

9. [9] J. E. &. W. A. Stiglitz, "Credit rationing in markets with imperfect information.," American Economic Review, pp. 71(3), 393–410, 1981. [Google Scholar] [Crossref]

10. [10] Spence.M, "Job market signaling," Quarterly Journal of Economics, pp. 87(3), 355–374, 1973. [Google Scholar] [Crossref]

11. [11] J. W. Creswell, Designing and conducting mixed methods research ,3rd ed, California: sage Publications, 2014. [Google Scholar] [Crossref]

12. [12] OECD, Financing SMEs and Entrepreneurs: An OECD Scoreboard, Paris, France: Organisation for Economic Co-operation and Development Publishing, 2023. [Google Scholar] [Crossref]

13. [13] V. &. C. V. Braun, "Using thematic analysis in psychology," Qualitative Research in Psychology, , pp. 3(2), 77–101., 2006. [Google Scholar] [Crossref]

14. [14] OECD, "Enhancing the Contributions of SMES in a Global and Digitalised Economy. In Meeting of the OECD Council at Ministerial Level," paris OECD Publishing, pp. 1-24, 2017. [Google Scholar] [Crossref]

• A Study on Customer Awareness on Green Banking Intiatives
• International Financial Reporting Standards and Earnings Management: A Global Research Landscape Analysis
• Analysis of Financial Performance and Operational Efficiency of State Bank of India Using the CAMEL Framework
• Roles and Performance of India Post Payment Bank (IPPB) With Special References to Shivamogga District
• Enhancing Transactional Security in U.S. Banking Systems by Implementing OTP-Based Two-Factor Authentication to Mitigate Debit and Credit Card Fraud