Relational capital, access to finance and business growth of women-owned bakeries in Kampala-Uganda

Abstract

Empirical evidence has shown that relational capital and access to finance are major determinants of business growth. However, little is known about the effect of such variables on business growth of women owned enterprises in Uganda. This study attempts to fill this gap. Using primary data collected from a sample of 108 selected licensed women owned bakeries situated in Kampala, Uganda, the relationship between relational capital and business growth of women owned bakeries was studied. In addition, the effect of access to finance on business growth of the women owned bakeries was also investigated. Furthermore, the study also explored the mediating effect of access to finance in the relationship between relational capital and business growth of women owned bakeries. The study used the ordinary least squares model estimation technique to achieve the research objectives. The findings indicated that relational capital through its measures of customer capital, supplier capital, and employee capital positively and significantly affect business growth. Specifically, and increase in customer relational capital increases business growth by 31 percent while an increase in supplier and employee relational capital increases business growth by 30 percent and 24 percent respectively. Regarding access to finance, the results revealed a negative and statistically significant relationship between cost of financing and business growth. The results indicate that an increase in the cost of finance reduces business growth by 27 percent. On the contrary, results indicated a positive and statistically significant relationship between the source of capital and business growth. An increase in the sources of capital by one unit increases business growth by 18 percent. Similarly, there is a positive and statistically significant relationship between possession of collateral requirement and business growth. An increase in collateral requirement owned by women in business increases business growth by 24 percent. The findings show no mediating role of access to finance in the relationship between relational capital and business growth. Overall, the findings suggest that women in business ought to implement strategies or measures geared towards improving relational capital while emphasizing the role of customer, supplier and employee relational capital. This implies that business relational capital in comparison to social relational capital is what matters most for women owned business growth. In reference to access to finance, the results imply that the cost of financing, collateral requirement and source of capital are key to growth of women owned businesses. These findings imply women should consider soliciting funds from cheaper sources if their businesses are to grow. Future studies may consider examining how relational capital and access to finance affects the survival of women owned businesses in Uganda.