Informality and Financing of Small and Medium‐Scale Enterprises in Eswatini

Abstract

ABSTRACT Informality of small and medium‐scale firms imposes some restrictions on developing nations' institutional, legal, and financial frameworks for their growth. This study investigates how the informality of small and medium‐scale firms in Eswatini affects their access to finance using firm‐level data from the World Bank Enterprise (WBE) database. The study employs probit regression analysis to examine the relationship. To address endogeneity issues, the study controls for unobserved characteristics that could be potentially correlated with both credit access and informality. The results show that informal firms are more likely to face severe financing constraints than low demand for bank credit, particularly among female‐owned firms.