The effects of microfinance services on the growth of micro, small and medium enterprises in Uganda.

Abstract

The purpose of the study was to examine the effect of microfinance services on the growth of micro, small and medium enterprises in Rubaga Parish. The study examined the detailed profile of MSMEs and MFIs. The objectives of the study were to find out microfinance services offered to the business community; examine the effect of micro credit on the growth if SMEs; establish the effect of business development on the growth of MSMEs and identify the effect of savings mobilization on the growth of MSMEs. The study was carried out using a case study and cross sectional research design for qualitative and quantitative analysis on a sample of 73 respondents. Data was collected by use of questionnaire, interview guide and documentary review. Data was analyzed qualitatively and quantitatively using the Statistical Package for Social Scientists 16.0 (SPSS). Descriptive statistics, frequency percentages, tables, and figures were on the basis of analysis for quantitative data. Qualitative data was interpreted by composing explanations and substantiating them using the respondents open resources. Investigations of the study found out that microfinance services provided to business community include; micro credit, savings, business development, micro insurance, money transfer through western union, and EasyPay. Micro credit affects the growth of MSMEs in that lack of collateral, short lending periods and high interest rates on loans hinder the growth of MSMEs. However, micro credit made MSMEs meet short term financial needs leading to expansion of enterprises. Business development enables MSMEs acquire managerial skills that help to sustain enterprises and savings enabled MSMEs increase their inventories, expansion, meet emergency expenses hence leading to their growth. The conclusions of the study are; micro credit, business development and savings enhance the growth of MSMEs. It is thus recommended that managers of MFIs should establish mechanisms that can enable the MSMEs to obtain sufficient credit to invest in the enterprises.