Determinants of private sector financing in sub saharan Africa: case study of Burkina Faso project

Conclusion and policy implications

The objective of this thesis was to identify the determinants of firm access to finance in Burkina Faso.For this purpose, we employ an ordered logit model to analyze data on the activities of non-agricultural formal firms in the country. By using an objective measure of access to finance proposed by Kuntchev et al. (2013), our findings suggest that firm's access to finance is determined by factors like firm's size, firm's legal status, firm's export status and firm's performance measure by the labor productivity. Indeed, firm's size and performance have positive effect on the likelihood of having access to finance. Also, being a firm which exports its production compared to firms that produce only for the local market increases the likelihood of having access to finance.Sole proprietors meet also difficulties in accessing finance compared to firms belonging to several owners.

Besides, robustness analysis that uses a subjective measure of firm's access to finance (based on their perception) confirms partially our findings in a sense that the positive and significant effect of firm's size and legal status on the likelihood of having access to finance are robust. However, firm's performance and export statusbecome not significant in explaining firm's access to finance while foreign ownership of the firm becomes significant with a positive effect on firm's likelihood of having access to finance.

Our findings have some implications for policy. First, given that firm's size is important in accessing to finance, SMEs should join Business Associations and seek credit schemes. This association should promote credit information among potential borrowers as a way of reducing information asymmetry in the credit market. Second, sole proprietor firms need to look for partnership in order to change their legal status and create for instance, partnership companies or shareholding companies, so that they could have a better access to financing. Third, low performing firms (in terms of labor productivity) need to increase their performance if they want to be less credit constraint. Fourth, as exportstatus matters in terms of accessing to finance, non-exportingfirms need to learn from exporting firms so that they will know how to position themselves for institutional borrowing.

Finally, one limitation of this thesis is that findings cannot be extrapolated to the whole economy since it concerns only the non-agricultural formal and private firms. Moreover, the thesis analyzed only the demand-side factors that could affect firm's access to financing. Future studies should work on a better representative sample of firms which will include all types of firms in the country (formal, informal, agricultural, non-agricultural, small, medium and large firms).Besides, in order to analyze the effects of supply-side factors on the likelihood of having access to finance, future studies should also use data from more than one country so that it will be possible to analyze the effects of variables capturing for instance the effects offinancial deepening and business environment.

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Appendix

Appendix 1: Formal no-agricultural private firms' size in Burkina Faso (in percentage)

Source: Author based on World Bank enterprise survey 2009