Credit facilities and the financial performance of Small and Micro Enterprises (SMEs) in Uganda; A case study of Kibuye trading market

Abstract

This study was carried out in order to examine the effect of credit facilities on the financial performance of small and medium enterprises. It was a conducted at Kibuye market in Kampala district. The study objectives were to; assess the effect of bank loans on financial performance of SMEs in Kibuye market, examine the effect of trade credit on financial performance of SMEs in Kibuye market and investigate the effect of bank overdraft on financial performance of SMEs in Kibuye market. A cross-sectional survey design and descriptive design will be used for this study. Qualitative and quantitative methods of data collection were used and a total of 52 respondents participated. These were selected using purposive, stratified and simple random sampling. Questionnaires and interview guides were used to collect data while data analysis was done by use of descriptive and inferential statistics. The findings established that there is a significant positive relationship between bank loans and financial performance (p=.003<0.01 at r=.402) implying that SMEs that receive bank loans have high levels of financial performance and vice versa. It was further observed that there is also a significant positive relationship between trade credit and financial performance (p=.008<0.01 at r=.365) implying that SMEs that receive trade credit have high financial performance and vice versa. The results also showed that there is no significant relationship between bank overdrafts and financial performance (p=.887>0.01 at r=.020) implying that SMEs financial performance is not necessarily influenced by bank overdrafts. The study concluded that credit facilities especially bank loans and trade credit improved financial performance of SMEs. It was recommended that SMEs should improve their credit facilities so as to avoid the fall in their financial performance and banks are expected to be socially responsible, support local communities and ensure adequate supply of credit.