Micro Finance Institutions Credit Terms and Performance of Small Medium Enterprises Case Study of Nateete Market - Lubaga Division Along Kampala-Masaka Road

Abstract

The potential of small and medium enterprises (SMEs) in promoting economic growth in both developed and developing countries is widely accepted and documented by both scholars and policy makers. Lack of access to sufficient financing for these SMEs, especially in developing countries has been identified as a major bottleneck in realizing this potential. MFIs credit is the one of the major ways of addressing the challenge of inadequate findings that exists in the SMEs sector and this is done basing on the MFIs credit terms.

The purpose of the study was to examine the relationship between micro finance credit terms and performance of Small and medium enterprises, a case study of Natete market, located along Kampala-Masaka road in the heart of Natete trading center. The study had three objectives; to examine the effect of MFIs credit policies on performance of SMEs, to find out the effect of interest rate on performance of SMEs and to establish a relationship between collateral security and performance of SMEs in Natete market.

A case study design was used in the study that involved a sample of 63 respondents drawn from a study population of 75 respondents among the SMEs in Nateete. SPPS was used to analyze the quantitative data to develop tables and a figure. The study was also descriptive in nature and collected both primary and secondary data which was later used to establish the correlation between the two variables.

The findings from the study revealed that Micro finance institutions credit terms affect the performance of their businesses and the employees believed that MFIs should largely rely on standardized credit scoring techniques coupled with the terms and conditions that are perceived to protect their loans since at times they appear as burden to the borrowers. The study showed a highly positive relationship between MFIs credit terms and performance of SMEs which was evidenced by the Pearson correlation of 0.981* and significance level =0.003.

The recommendations include, MFIs should improve on their credit terms so as to enable them get more clients hence improving on their performance as well as performance of SMEs since they get both long and short term loans to increase on their working capital, the interest rates offered on each kind of a loan should be favorable so as to encourage the owners of SMEs to borrow more and collateral security on the loan amount should be affordable and appropriate to the loan amount so that people are not discouraged from borrowing.

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