The moderating effect of size on the relationship between commercial banks financing and the performance of micro, small, and medium enterprises (MSMEs)

Abstract

Although commercial banks’ engagement to micro, small, and medium enterprises (MSMEs) is showing improvement, banks are still blamed for discriminating enterprises due to their size. The soundness of this blame should be investigated, and we have collected data from 411 owner-managers in Ethiopia and analyze it through a multi-group effect analysis of Structural Equation Modeling. The result revealed that size does not moderate the relationship between commercial bank financing and the performance of MSMEs. Commercial bank financial services have a significant effect on the performance of MSMEs that the provision of financial service should be invigorated. Moreover, the effect of bank finance on the performance of MSMEs does not vary on the basis of the size that owners should not desist requesting the service. Since MSMEs size does not play a moderating role, policymakers, commercial banks, and owner-managers should not formulate a size-specific policy and strategy as long as enterprises fall under the MSME category.