Exploiting a non-mainstream financial scheme to innovate: SMEs in the developing world

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Tajeddin, M, Simba, A ORCID: https://orcid.org/0000-0002-0276-8211, Liguori, EW, Edeh, J and Nuhu, N, 2024. Exploiting a non-mainstream financial scheme to innovate: SMEs in the developing world. International Journal of Entrepreneurial Behavior and Research. ISSN 1355-2554

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Official URL: https://doi.org/10.1108/IJEBR-07-2024-0745

Abstract

Purpose: The study aims to explore the role of non–mainstream financial schemes in supporting innovation within SMEs in developing countries, particularly in sub–Saharan Africa. It investigates how informal credit, business group affiliation, and foreign and state ownership arrangements influence SMEs' innovative activities in environments with limited access to formal financial resources.

Design/methodology/approach: The research utilizes data from the World Bank's Enterprise Surveys, focusing on 8,466 firms across 11 sub-Saharan African countries from 2011 to 2020. A logistic regression analysis was conducted to assess the impact of various financial sources on SMEs' innovation outputs, particularly incremental innovations, due to data constraints on radical innovations.

Findings: The findings reveal that informal credit significantly supports SME innovation, while business group resources can hinder innovative activities by restricting firms to routine tasks. State ownership positively influences innovation, whereas the impact of foreign ownership is inconclusive. These results highlight the critical role of alternative financial mechanisms in the innovation activities of SMEs in resource-limited settings.

Originality: This study contributes to the literature by providing empirical evidence on the effects of non-mainstream financial schemes on SME innovation in developing countries. It offers new theoretical insights into how SMEs navigate financial constraints to foster innovation and suggests policy implications for improving financial support systems for SMEs in such contexts. The research underscores the importance of contextualizing entrepreneurship studies to better understand the unique challenges and opportunities faced by SMEs in developing regions.

Plain Language Summary: This study examines how small businesses in developing countries use alternative financial resources, such as informal credit and state support, to drive innovation. The findings emphasize the significance of these non–mainstream financial schemes in assisting SMEs to overcome financial barriers and succeed in their innovative activities.

Item Type:	Journal article
Publication Title:	International Journal of Entrepreneurial Behavior and Research
Creators:	Tajeddin, M., Simba, A., Liguori, E.W., Edeh, J. and Nuhu, N.
Publisher:	Emerald
Date:	15 November 2024
ISSN:	1355-2554
Identifiers:	Number Type 10.1108/IJEBR-07-2024-0745 DOI 2289349 Other
Rights:	© 2024, Emerald Publishing Limited. This AAM is provided for your own personal use only. It may not be used for resale, reprinting, systematic distribution, emailing, or for any other commercial purpose without the permission of the publisher.
Divisions:	Schools > Nottingham Business School
Record created by:	Laura Ward
Date Added:	19 Nov 2024 14:46
Last Modified:	19 Nov 2024 14:46
URI:	https://irep.ntu.ac.uk/id/eprint/52613