Original Research

Guidelines and criteria used by formal financial institutions to assess credit applications from small and medium enterprises in South Africa

Francis T. Asah, Lynette Louw
The Southern African Journal of Entrepreneurship and Small Business Management | Vol 13, No 1 | a373 | DOI: https://doi.org/10.4102/sajesbm.v13i1.373 | © 2021 Francis T. Asah, Lynette Louw | This work is licensed under CC Attribution 4.0
Submitted: 14 September 2020 | Published: 26 April 2021

About the author(s)

Francis T. Asah, Department of Management, Faculty of Commerce, Rhodes University, Grahamstown, South Africa
Lynette Louw, Department of Management, Faculty of Commerce, Rhodes University, Grahamstown, South Africa

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Background: The involvement of formal financial institutions (FFIs) in financing small and medium enterprises (SMEs) is and always has been a fundamental issue of concern amongst policymakers and practitioners in developing countries such as South Africa, which experience very low or no economic growth.

Aim: This study analysed the guidelines and criteria used by FFIs to assess credit applications from SMEs.

Setting: This study investigated the guidelines and criteria instituted by the head office of FFIs when assessing and evaluating credit applications from SMEs in Johannesburg, South Africa.

Methods: This study used an interpretivistic research paradigm to achieve the research objectives. Semi-structured in-depth interviews were used to collect data from participants and analysed using the Terre Blanche, Durrheim and Kelly five-step process of content analysis.

Results: The findings revealed that assessing the amount of risk, scrutinising financial records, performing thorough background checks and requesting all relevant documentation constitute ways used by FFIs to measure the amount of risk associated with a particular credit application. Additionally, collateral, audited financial statements, annual business turnover, relationship with the bank and credit profile of the owners and/or business are the most important criteria used by FFIs when assessing credit applications.

Conclusion: This study provides insights into the guidelines used by FFIs in assessing credit applications and the criteria used by FFIs when assessing and granting credit. This study revealed that some FFIs do not finance foreign-owned businesses as part of their institutional policy.


credit assessment; supply-side perspective; formal financial institutions; developing economies; access to credit; SMEs.


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