Microfinance services and financial performance of small and medium enterprises (SMEs) in urban markets: case study Nakawa market

Abstract

The study was to examine the effect of Microfinance Services on the Financial Performance of SMEs in urban markets: a case of Nakawa market, the objectives of the study were; to examine the effect of microfinance trade credit on the Financial Performance of SMEs in Nakawa Market, to examine the effect of microfinance financial literacy on the Financial Performance of SMEs in Nakawa Market and to establish the effect of asset financing on the Financial Performance of SMEs in Nakawa Market. The study was guided by the trade-off theory by Kraus & Litzenberger (1984). The research population was 596 with a sample size of 225. The study employed a cross-sectional survey design in collecting data from the field by employing both qualitative and quantitative approaches. Findings of the study revealed that that asset financing is the greatest contributor to financial performance with beta value = 0.388 at 0.000 level of significance. This means that asset financing has positive and significant effect on financial performance. Also, findings show that microfinance trade credit is the second contributor to financial performance with beta value = 0.356 at 0.000 level of significance. This means that microfinance trade credit has positive and significant effect on financial performance. Equally, findings show that financial literacy is the third contributor to financial performance with beta value = 0.245 at 0.000 level of significance. This means that financial literacy has positive and significant effect on financial performance. The study concluded that all three objectives have positive and significant effect of financial performance. The study recommendations were; The management of MFIs should improve access to trade credit by removing certain barriers like having formal registrations as a key requirement for SMEs due to the modest educational backgrounds of some business owners. In addition, the MFIs should also explore the use of digital channel to limit the time SMEs owners spend away from their business to transact at the MFI premises. Also, MFIs management should train SMEs owners and support them to implement the lessons obtained from the training such as improved financial recordkeeping for better financial decision making. Furthermore, MFIs management should improve on the availability of assets financing to enable many SMES to access them.