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

Mahdi Tajeddin, Amon Simba, Eric W. Liguori, Jude Edeh, Nuraddeen Nuhu

International Journal of Entrepreneurial Behavior & Research

ISSN: 1355-2554

Article publication date: 15 November 2024

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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/value

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.

Keywords

Acknowledgements

We acknowledge the support of the Social Sciences and Humanities Research Council Canada (File number: 430-2023-01183).

Citation

Tajeddin, M., Simba, A., Liguori, E.W., Edeh, J. and Nuhu, N. (2024), "Exploiting a non-mainstream financial scheme to innovate: SMEs in the developing world", International Journal of Entrepreneurial Behavior & Research, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJEBR-07-2024-0745

Publisher

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Emerald Publishing Limited

Copyright © 2024, Emerald Publishing Limited

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