The Contribution of Microfinance Institutions to the Growth of Smes in Uganda a Case Study of Kabuusu Market

Abstract

The study focused on examining “The Contribution of Microfinance Institutions to the Growth of SMEs in Uganda, taking a case study of Kabuusu Market”. The study objectives were to; identify the effect of business training towards the growth of SMEs, evaluate the role of savings towards the growth of SMEs and examine the contribution of micro-credit towards the growth of SMEs.

Data was collected using both primary and secondary methods. Self- administered questionnaires and interview guide were used to collect both qualitative and quantitative data respectively. The study adopted a cross-sectional survey design. Both random and purposive sampling techniques were used to select a sample of 40 respondents who were employees and owners of SMEs in Market. Frequencies and percentages were used to analyze the data collected.

The findings indicated that cash management affects the performance of small scale businesses. The study indicated other problems which affect the performance of business include poor entrepreneurship skills, market inaccessibility, inadequate capital, inadequate technology as well as high transport cost. Regression analysis also revealed that, failure to implement cash management policies leads to negative consequences. Poor cash management practices constrains business operations and some customers who are not satisfied with the services run away signifying poor performance and hence retardation in the business growth.

The study results indicated that demonstrate that MFIs offer services to SMEs had contributed lower growth over the years. Majority of businesses in Kabuusu Market (56.8 percent) were owned by married people. Default rate was high while MFI loan was second main source of capital (38.6percent) contrary to Oketch (1995). The main reason for their saving was for expansion of and growth of business the same sentiments echoed by Jagongo (2009). Finally, 76.9 percent business was initiated with capital less than fifty thousand shillings. This low business capital explains why SMEs have stagnant growth. Finally the study deduced that MFI services reported growth in sale, revenue and number of employees employed. The study recommended that government should set policy regarded essential in improving loan repayment period and loan amount. The study suggests that further research should be conducted to examine how cash management affects the growth and development of SMEs and ascertain the effect of cash management techniques on performance of SMEs.

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