CREDIT RISK MANAGEMENT PRACTICES OF DEVELOPMENT FINANCE INSTITUTIONS (DFIS) AND ENHANCING THE EFFECTIVENESS OF SME FUNDING IN BOTSWANA

Abstract

The study examines how Development Finance Institutions (DFIs) in Botswana handle credit risk, with an emphasis on the importance of industry diversity, corporate governance, collateral, and regulatory compliance while funding SMEs.  Six people participated in the study, and qualitative research methodology and questionnaires was used to collect data on the credit risk management practices of the Citizen Entrepreneurial Development Agency (CEDA). The use of qualitative methodologies is further justified by the complexity of credit risk management measures in the setting of DFIs and SMEs in Botswana. It is important to emphasize that qualitative research helps with strategy planning and decision-making by providing insights into human and organizational dynamics. Sampling approaches was used to connect research findings to broader applications, enabling the justifiable extrapolation of findings to comparable organizations and industries. Techniques for thorough sampling are emphasized for their capacity to connect research findings to broader applicability, enabling the justifiable extrapolation of conclusions to comparable organizations and enterprises. The theoretical framework offers an in-depth comprehension of stakeholder interactions and the function of financial intermediaries in credit risk management by integrating financial intermediation theory with stakeholder theory.

Moreover, the thesis looks on credit risk mitigation, and demonstrates how CEDA's credit portfolio diversification across different industries promotes wider economic goals in addition to citizen empowerment. Furthermore, emphasis is placed on how crucial it is for DFIs to handle credit risk effectively, particularly in the setting of funding SMEs. The task for DFIs is to find a balance between helping SMEs with a tolerance for risk, while also adjusting credit risk management techniques that set them apart from typical companies. The researcher will have to make sense of the qualitative findings in relation to the research questions to interpret and report the data. The objective is to provide an easily understood and clear synopsis of the findings, highlighting significant trends and connections discovered during the thematic examination. This method guarantees a strong interpretation of the qualitative data, which advances our knowledge of credit risk management procedures and how they affect SMEs in Botswana's development finance institutions.

The results highlight the critical role that collateral plays in offering DFIs security and highlight the adjustments that DFIs have made to the collateral criteria to accommodate SMEs who are unable to offer collateral. To mitigate to mitigate risk to decrease defaults and promote financial maturity, regulatory compliance becomes increasingly important. To achieve CEDA's goals, the study emphasizes how important corporate governance is in promoting long-term connections and coordinating with sustainability goals. For improving credit risk management, an efficient approval procedure is identified, with a focus on staff training, comprehensive appraisal tools, and continuous monitoring. The research offers a thorough grasp of DFIs' credit risk management procedures and offers useful recommendations for CEDA, policymakers, SMEs, and academics. In the end, this serves to promote the long-term growth of SMEs in Botswana.