Effect of micro finance lending on the growth of small and medium size enterprises. A case study of Kalerwe Market Vendors
Abstract
The objective of the study was to examine the effect of Microfinance lending on the growth of SMEs. It consisted of SME traders of Kalerwe Market. The study was based on objectives which included (i) examining the effect of credit amounts from MFIs on the growth of SMEs, (ii) assessing the effect of collateral requirement by MFIs on SME’s growth, (iii) assessing the effect of credit repayment period on SME’s growth and (iv) assessing the effect of interest rate charged by MFIs on SME’s growth.
A cross sectional research design was used to obtain information at that particular point in time. Primary data was collected using a questionnaire which was pretested on five traders to ensure validity and Cronbach’s alpha was used to estimate reliability. Cronbach’s alpha of 0.72 was deduced, which showed that the data was reliable. The data collected was analysed using Stata statistical package at three levels, that is to say, univariate, bivariate and multivariate analysis.
The study findings revealed that the credit amounts, interest rate and the credit repayment period allowed by MFIs, significantly explain the growth of SMEs. It was also revealed that collateral requirements do not significantly explain the growth of SMEs.
Therefore, it is recommended that sensitization of SME traders in detail about microcredit factors and their influence on the growth of SMEs by both the government and MFIs is required. The government should increase microfinance credit access points to ensure easy and quick access to credit by SMEs to escalate their growth. The microfinance providers should increase the credit amounts provided to SMEs, as more microfinance credit would mean further growth of SMEs. The population should increase their borrowing relationship with MFIs if they are to attain a quick business growth. The interest rate should be lowered further if SMEs are to derive a significant meaning from microcredit. This can be handled through proper policing by both the government and MFIs. The credit repayment period should be lengthened, so as to allow SMEs accumulate the required amount of cash for both credit repayment and enhancement of the business.