Abstract: Small and Medium Enterprises (SMEs) are pivotal in driving global economic development, accounting for approximately 90% of businesses and over 50% of employment worldwide. However, they face challenges in accessing finance from formal institutions, constraining their financial and non-financial operations. This study sought to assess the effect of loan financing on the financial performance of hardware SMEs. It was guided by three specific objectives based on client appraisal process, access to microcredit and credit rationing on the financial performance of the selected Small and Medium Enterprises. The research was anchored information asymmetry theory, the 5Cs credit model and credit rationing theory. The study used descriptive and correlation research designs. The sample size was 94 selected from 122 respondents using stratified random sampling method. Data was collected using structured questionnaires while the data was analyzed and presented using SPSS version 26. Findings on regression analysis revealed the model was significant (F=120.368, p < 0.05) and explained 81.1% of the variation in financial performance (R²=0.811). Coefficient estimates showed that client appraisal had a significant negative effect (β1=–0.449, p < 0.05), access to microcredit had a significant positive effect (β2=0.476, p < 0.05), and credit rationing had a significant negative effect (β3=–0.264, p<0.05). The study concludes that while increased access to microcredit enhances SME performance, rigid appraisal procedures and credit rationing impede growth. The researcher recommends improved SME financial literacy, more flexible lending models and supportive government policies, including credit guarantee schemes, to boost SME access to finance and long-term sustainability.
Keywords: SMEs, Access to Finance, Client Appraisal Process, Microcredit, Credit Rationing, Rwanda.
Title: Loan Financing and Financial Performance of Small Medium Enterprises in Gasabo District, Rwanda
Author: Wihogora Pacifique, Athanas Osiemo Kengere
International Journal of Management and Commerce Innovations
ISSN 2348-7585 (Online)
Vol. 13, Issue 2, October 2025 - March 2026
Page No: 554-565
Research Publish Journals
Website: www.researchpublish.com
Published Date: 27-February-2026
