The Role of Financial Institutions in Promoting Innovation of SMEs in Rwanda: An Empirical Review

The government of Rwanda has set up an empowering environment to support SMEs and has attracted players with good local, regional, and international experience in using innovation and technology to expand business activities and increase economic growth. The majority of SMEs struggle to increase productivity, organizational effectiveness, sustained competitive advantage and satisfactory rate of return on investment. It is not an easy task to achieve such kind of objective in an economy where traditional and informal practices of business management are still applied. It is evident from research that innovative technology strategies are key resource for gaining competitive advantage, but it is challenging because some enterprises lack entrepreneurship and innovative skills. Consequently, many small businesses fail and close few days after their start up. One way in which SMEs should operate to remain economically viable and contribute to a sustainable economic growth is though innovation. The financial institutions play a role of intermediating people, business companies or enterprises in need of funds (borrowers) with lenders. This paper reviews empirical evidence on the contribution of SMEs to innovation, examining the role financial institutions and SMEs in promoting innovation, the role of SMEs in economic growth and challenges facing SMES.