CHAPTER THREE

METHODOLOGY

3.0 Introduction

This chapter outlines the methods adopted in order to answer the research questions detailed in chapter one. It looks at the research design, research population, sampling techniques, data collection instruments and procedure of data collection, mode of data analysis and presentation as well as ethical consideration and limitations of the study.

3.1 Research design.

The research was a descriptive cross sectional survey design where data was collected from a cross the population at one point in time. This design is cheap, less time consuming and easy data collection and analysis (Amin 2005). Both qualitative and quantitative data collection approaches was used in this study.

3.2 Research Population.

The target population of this study consisted of respondents having small and medium enterprises and those working in the microfinance enterprises in Nakawa Division.

3.3 Sample size

Slovene’s formula was used to compute the sample size. This formula was employed so as to sample fairly a large size as representation of the total population such that the research findings obtained can be considered valid. The details on the determination of sample size using Slovene’s formula are shown below;

n =

n = Sample size

N = Population size

e = level of significance (0.05)

n =

n = 55

Table 3.1: Sample size

3.4 Sampling procedures

This study used a technic of stratified random sampling. The respondents of this study was divided into two categories 35 work in Small and medium enterprises and 20 work in microfinance institutions

3.5 Research Instruments

This study used questionnaires. This was because of the nature of data to be collected, the time available, as well as by the objectives of the study. The overall aim of this study was to evaluate the effect of microfinance services on growth of small enterprises in Nakawa Division. The researcher was concerned with views, option, perception and feelings from the environment. Such information was collected through the questionnaires, interviews because the study was conversed with variable that cannot be directly observed. The sample size was also quite large, and given the time constraints and target population is literate and unlikely to have difficulties in responding to questionnaire items, questionnaire is ideal tool for collecting data.

3.5.1 Questionnaires

A self-administered and closed ended questionnaire was used so as to save time and enable respondents to give relevant choice since different options was given. This method of data collection was preferred for this study because it gave freedom to respondents to give their truthful opinions since there was no one to challenge their answers as it is in the case of interviews. This gave complete confidence to respondents to effectively answer questions asked without feeling shy or being scared.

3.6 Validity and Reliability of the instruments

Instruments are supposed to measure accurately what they are supposed to measure. Therefore, before the instrument was administered, the questionnaire was first examined by the researcher. This was scrutinized by the supervisor as this ensured that the terms used in the questionnaire and interview guides was precisely defined and properly understood.

In this study, the pretest method was used to establish reliability. The tools of data collection were pilot tested twice on different occasions to the same population by different data collectors and they produced similar results.

3.7 Data Analysis

After collecting and cleaning the data it was entered in a computer using Ms-excel. The quantitative data was analyzed using descriptive statistics, which includes frequencies and percentages. The qualitative data was analyzed in the content analysis and the analyzed data was presented using tables and figures in form a report.

3.8 Ethical considerations

The researcher will first get an official introductory letter from Department of Economics and statistics which will help her to collect data upon seeking respondents’ consent and assure them of confidentiality and private treatment of their information; and report the true findings of the study without any bias.

3.9 Limitations of the study.

The researcher was affected by the following challenges during the study.

The study was faced with the problem of not finding all respondents in the study area especially the employees who went to the field as a group. The researcher however arranged with them to fix for him an appropriate time in order to collect reliability and valid information from them for the study.

The study was also expensive in terms of stationary. However the researcher mobilized funds from his friends and family members for the study to be completed successfully in time with the help of the supervisor.

The researcher further was faced with a problem of some respondents not providing information for the study as information relating to the study variables, however to this, researcher explained to them that the information would only be for the academic purpose while making them to understand the study variables.

CHAPTER FOUR

DATA PRESENTATION, ANALYSIS AND INTERPRETATION OF FINDINGS

4.0 Introduction

This chapter presents the results collected from the respondents in the field. The results are classified into different sections basing on the research objectives.

4.1 Demographic characteristics of respondents

The chapter begins by presenting the biographic characteristics of respondents in terms of gender; age and education levels. The study there after discusses findings as per the formulated objectives of the study.

4.1.1. Sex of respondents

The study sought to identify the sex of respondents. Results obtained are presented below;

Table 4.1: Sex of respondents

Source: Primary Data

Table 4.1 above shows that more male respondents 28(51%) (including 16 staff members from microfinance institutions and 12 staff members from small and medium enterprises) were sampled than their female counterparts 27(49%) (including 9 staff members from microfinance institutions and 18 staff members from small and medium enterprises). However, this was not purposively done, but was due to the convenience sampling procedure that was adopted in this study. Though for different reasons, female respondents were more accessible and willing to give information as compared to the male who always seemed to be busy doing their own work.

Figure 4.1: Age of respondents

Source: Primary Data

The figure 4.1 above also shows that majority of the respondents 28(51%) (including 12 staff members from microfinance institutions and 16 staff members from small and medium enterprises) were in the age bracket of 30 – 45 years which is basically because that is the age of people in established families, (18)32.7% were in the age bracket of 18- 29 (including 7 staff members from microfinance institutions and 11 staff members from small and medium enterprises) and (9)16.3% were in the age bracket of above 45years (including 4 staff members from microfinance institutions and 5 staff members from small and medium enterprises). This has got no much bigger effect on small and medium enterprises but most of the younger people are mostly engaged in SMEs since most of this work requires a lot of energy which becomes difficult for old people.

Table 4.2: Education level of respondents

Source: Primary Data

From the table 4.2 majority 39(71%) of respondents had reached higher institutions (including 25 staff members from microfinance institutions and 14 staff members from small and medium enterprises), 11(20%) had reached secondary level (including 11 staff members from small and medium enterprises), 5(9%) of them had completed primary level of education (5 staff members from small and medium enterprises). This implies that the respondents were capable of providing the researcher with relevant information since most of them had attained some level of education where they could understand English.

4.2 Services offered by Microfinance institutions

The respondents were asked if they understood what microfinance institutions means and what services are offered to small and medium enterprises and it was noted that majority of the respondents 50(90%) had knowledge about microfinance and its services towards small and medium enterprises and some of the services offered are presented in the table below (table 4.3)

Table 4.3: Microfinance products and services

Source: Primary data

Table 4.3 above shows that 15(27.3%) of the respondents noted that loans are among the services that are offered by microfinance institutions to SMEs (including 10 staff members from microfinance institutions and 5 staff members from small and medium enterprises). This was because most of the SMEs in Nakawa acquire loans from microfinance institutions to support their businesses and reduce on the financial constraints in the business. Also, (11)20% of the respondents including 3 staff members from microfinance institutions and 8 staff members from small and medium enterprises also noted that microfinance institutions provide financial advice to SMEs especially when they go to acquire loans, they are always given advice on how to use such loans and be able to develop their businesses and even be able to pay back the loan. Microfinance institutions also provide savings services to SMEs as it was presented by (9)16.4% of the respondents including 5 staff members from microfinance institutions and 4 staff members from small and medium enterprises. Here microfinance institutions encourage SMEs to have savings accounts in order to have some of the earnings from the business saved for business expansion or be able to recover in case of a risk.

Table 4.3 also shows that microfinance institutions provide services of financial transactions as presented by (8)14.5% of the respondents (including 1 staff members from microfinance institutions and 7 staff members from small and medium enterprises). These services include withdraws, deposits, money transfers, money exchange and many others which all allow easy business transactions of SMEs. In figure above, (7)12.7% of the respondents also noted that microfinance institutions provide business training to SMEs including 4 staff members from microfinance institutions and 3 staff members from small and medium enterprises whereby SME owners are always organized for business workshops and given trainings regarding business world. They are trained on how to manage, plan and run small and medium enterprises. Through Mortgage services, SME owners can be able to own assets through such services from microfinance institutions. This is where microfinance institutions help SME owners to acquire assets like houses, machinery and other heavy assets on loans and then pay on installment basis.

The findings agree with Biswas (2010) who noted that services like creation of new business ideas and financial advice are not provided to daily and to everybody apart from those who can afford to attend workshops and trainings organized by the microfinance institutions. Microfinance insurance is the service that is not commonly available in most microfinance institutions and most SMEs are not involved in that service which puts most businesses at risk of collapsing in case of any disaster. Also, Perpin Strup (1960) noted that there are also special loans to finance the purchase of agricultural machinery such as tractors, harvesters at microfinance institutions. Lwakatare (2004) has also stated that at microfinance institutions construction of biogas plants and irrigation systems as well as the purchase of agricultural land may also be financed through special types of agricultural finance. There is need to find out how rural agricultural farmers in Uganda use the loans they borrow which is another reason for the proposed research.

4.3 Effects of microfinance services on the growth and development of SMEs

It was discovered that majority of respondents agreed that microfinance services have a great and positive effect on the development of SMEs. The effects of microfinance services on the development of SMEs identified during the study are presented below in table 4.4;

Table 4.4 shows the effects of microfinance services on SMEs development.

Source: Primary data

From table 4.4 above, 13(23.7%) of the respondents noted that microfinance services have an effect on SMEs because it brings new business ideas and strategies to SME owners during workshops and training which makes the entrepreneurs to become innovative and inspired. From the table 4.5 above, (12)21.8% of the respondents noted that microfinance services affect SMEs in a way that it provides access to financial advice. This is concerned with the way how finances should be controlled and handled in any business. Microfinance institutions train SMEs on how to manage finances like through auditing, accountability, risk management, savings and other services that are help SMEs have good control of the finances. The same Percentage of respondents 12(21.8%) noted that microfinance institutions also provide loans services to SMEs which in turn help them to grow the business. These loans help in purchasing of machinery, payment of rent, employees and others. Microfinance institutions help in the motivation of the business owners as this was presented by (8)14.5% of the respondents. This is done especially during workshops and training where entrepreneurs are motivated and encouraged to keep high their dreams of becoming great entrepreneurs.

It was also noted that microfinance institutions help SMEs to access capital which can be either liquid cash, machinery, houses and manpower. This capital helps businesses to start, be maintained, expand and grow because businesses mainly run on the capital factor. Table 4.5 above also shows that microfinance institutions affect SMEs in a way that they help SMEs acquire assets like machinery, houses and others through mortgage services which are provided by MFIs. This enables the business to grow big and expand through payment by installments. This was supported by (4)7.3% of the respondents.

Study findings are in agreement with Chowdhury (2004) who observed that microfinance provides finance services to low income clients including consumers and the self-employed that traditionally lack access to banks and related services. While, Churchill (2002) who established that microfinance institutions enable small and medium enterprises to have continued operations which have enabled them to be able to register increased growth and development. The findings also confirms the study of World Bank, (2009) who noted that microfinance services have been a critical source of support to the struggling SMEs that formerly depended on the owners. Furthermore, Muma, (2002) also earlier argued that microfinance institutions contribute to self-sustained growth and development of SMEs.

4.4 Other factors that affect growth and development of SMEs

Respondents were asked if there were other factors that affect the growth and development of SMEs and it was discovered that all the respondents agreed that there are other factors that affect the growth and development of SMES and the other factors are presented in the table below (4.2);

Figure 4.2: Other factors that affect growth and development of SMEs

Source: Primary data

From figure 4.2 above, it can be shown that among the other factors that affect SMEs, is human capital as presented by 17(31%) of the respondents. Businesses cannot only run by machines or monetary capital but also with human capital because its human beings that control all the machines and the works carried out in the business therefore human capital should be considered first because it affects the development and development of SMEs. It is also showed in figure 4.5 above that experience is another factor that affects the growth and development of SMEs as it is presented by 11(20%) of the respondents. Doing what one is good at makes it better therefore experience in business plays a big part on the growth and development of the SMEs because experienced personnel can run the business very well but un-experienced personnel can result in failure.

The business assets as presented by (9)16.4% of the respondents is another factor that affects growth and development because the business assets are the equipments that help in production and the better the business assets, the bigger the production and the higher the growth and development of the business. The location of the business also affects the growth and development of SMEs in that when the business is located in a place where there is market for the products and services provided by the SMEs, the business grows and expands but the business which is located in a remote area with poor transport system and lack of other utilities like electricity, there is always under development of the business because of the hindrances in production and to the market. This was presented by (8)14.5% of the respondents in figure above.

Figure 4.2 above also shows that taxes also affect the growth and development of SMEs because when higher taxes are imposed to the business, there is likelihood that the business will collapse but if fair taxes are imposed, the business can really be favoured and grow. Therefore taxes imposed on small and medium enterprises should be fair. This was presented by 10.8% of the respondents. The markets where business products are sold also determine the growth and development of SMEs as this was presented by (4)7.3% of the respondents. This is because high markets for products results in higher sales which in turn result into high profits which lead to growth and development of SMEs.

The study findings are in line with Georgina (2001) who established that businesses cannot only run by machines or monetary capital but also with human capital because its human beings that control all the machines and the works carried out in the business therefore human capital should be considered first because it affects the development and development of SMEs. Also, Ibuhani (2002) noted that doing what one is good at makes it better therefore experience in business plays a big part on the growth and development of the SMEs because experienced personnel can run the business very well but un-experienced personnel can result in failure.

The study findings are in line Ronge (2002) who noted that the location of the business also affects the growth and development of SMEs in that when the business is located in a place where there is market for the products and services provided by the SMEs, the business grows and expands but the business which is located in a remote area with poor transport system and lack of other utilities like electricity, there is always under development of the business because of the hindrances in production and to the market.

CHAPTER FIVE

SUMMARY OF RESULTS, CONCLUSION AND RECOMMENDATIONS

5.0 Introduction

This chapter presents the summary of the results based on the study objectives, conclusion and recommendations drawn from the findings.

5.1 Summary of the results

5.1.1. Microfinance services offered to SMEs

Basing on the results, it was discovered that microfinance institutions offer a variety of services to SMEs which help in the growth and development of SMEs and these services include financial loans, savings services, financial advice, financial transactions, mortgage services and new business ideas though other services like insurance are not commonly used by SMEs. It was further discovered that the most leading services that are commonly offered are loans. These are commonly availed to SMEs inform of capital, assets or machinery to be used for the start, maintain or expand the business. This service is mainly offered to SMEs which have the capacity to offer security or collateral which is valued three times more than the request loan. Therefore SMEs which do not have that capacity cannot get access to such loans and some loans have high interest rates.

5.1.2. Effects of microfinance services on the growth and development of SMEs

Study findings revealed that microfinance services have enabled the growth and development of SMEs by enabling them to have access to financial advice, loans, new business ideas, capital, mortgages and business motivation. All these effects lead to broad effects which include expansion of operations which are brought about by factors like access to capital, new business ideas and access to loans. A combination of many services from microfinance institution can bring a great change in the business. Easy decision making is also one of the effects of microfinance services on the growth and development of SMEs. All these effects when combined together like expansion of operations and easy decision making can bring about a bigger effect which is the major effect of microfinance services towards SME development which is increased productivity.

5.1.3. Other factors that affect growth and development of SMEs

Findings revealed that the other that affect the growth and development of SMEs included human capital, experience, business assets, location of the business, taxes, markets where business products are sold.

5.2 Conclusion

The study concluded that;

Microfinance institutions offer a variety of services to SMEs which help in the growth and development of SMEs and these services include financial loans, savings services, financial advice, financial transactions, mortgage services and new business ideas though other services like insurance are not commonly used by SMEs. Therefore SMEs which do not have that capacity cannot get access to such loans and some loans have high interest rates.

Microfinance services have enabled the growth and development of SMEs by enabling them to have access to financial advice, loans, new business ideas, capital, mortgages and business motivation. All these effects lead to broad effects which include expansion of operations which are brought about by factors like access to capital, new business ideas and access to loans. A combination of many services from microfinance institution can bring a great change in the business.

SMEs are affected by other factors of which include markets, experience, human capital and others though it was also discovered that most of SMEs do not have any micro finance institutions insurance. However, most SMEs in Nakawa division do not utilize the microfinance institutions insurance services and hence are easily exposed to disasters which might hinder their development.

5.3 Recommendations

In view of the findings made and conclusions drawn from the study; the following recommendations are provided to help enhance an accelerated and sustained growth in the SME sector and also provide recommendations to help in the improvement of the services of micro finance institutions.

There is need for the government and other partners to facilitate the accessibility of credit in Small enterprises to the Microfinance Institutions and minimize the collateral and guarantor conditions.

There needs to be a policy that all people engaged in SMEs must undergo some attended micro finance institution training before they are issued with a business license. This will assist the SME to possess a little of technical/ entrepreneurial knowledge on enterprise initiation and growth.

Finally, the researcher recommended that in order to reduce the rate of default, microfinance institutions can research into very profitable business lines and offer credit to clients who have the capacity to exploit such business lines. SMEs should embrace savings on daily basis especially a Percentage of the daily profit.

5.4 Areas for Further Research

There is a need for further research to be undertaken the role of microfinance institutions to the economy of the country and also how they can contribute to the poverty reduction of the low income people.

An assessment of the effectiveness of MFI sponsored credit programmes for SMEs towards promotion of low income people in the country.

In addition, it will be interesting to explore ways the government can promote the accessibility of SMEs on credit of Microfinance Institutions

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APPENDICES

APPENDIX I: QUESTIONNAIRES

Dear respondent,

I am Asiimwe Shevan, a student of Kyambogo University who is currently doing research on “The effect of microfinance services to the performance of small and medium enterprises in Uganda: a case study of Nakawa division”. You are chosen to participate in this study by answering some of the questions in this questionnaire about the research topic. This research study is strictly academic, your details will not be exposed, and the information provided will be treated with utmost confidentiality.

Thank you.

Section A.

INSTRUCTIONS: tick where necessary.

1. Sex

1. Female                       b) Male
2. Age (optional)
3. a) 18-29 b) 30-45 c) 46 and above
4. Educational level:
5. None b) Primary                       c) Secondary
6. d) Higher institutions

Section B: Microfinance products and services offered.

4. Do u access services from microfinance institutions?
5. Yes
6. No
7. If yes, kindly list below some of the services that you access.

……………………………………………………………………………………………………………………………………………………………………………………………………

6. Below is the list of the other products and services that microfinance institutions provide. Kindly tick where necessary.
7. Loans
8. Financial literacy
9. Savings
10. Financial transactions

7. Outline the other services offered by this MFI to SMEs?

………………………………………………………………………………..……………………………………………………………………………………………………………………

8. Is there any development observed in small and medium businesses in this area?

(i) Yes                                                 (ii) No                         (iii) Not sure

9. If yes above, what are the common indicators of development in small and medium businesses in this area?

……………………………………………………………………………………………………………………………………………………………………….…………………………..

Section C: Effects of microfinance services on the performance of SMEs.

10. Are microfinance services relevant to the development in small and medium businesses in this area? (i) Yes (ii) No                         (iii) Not sure

11. From the services you have acquired, do you think they have changed or improved your business?

If yes, kindly give ways on how they have changed your business.

…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

12. Below is the list of some other ways through which microfinance products and services bring about the performance of SMEs.

Kindly tick where necessary.

1. Business ideas through workshops.
2. Access to mortgages
3. Business motivation
4. Access to capital
5. Others (specify) ………………………..

Section D: Other factors that affect the performance of SMEs.

13. What could be the other factors that affect the performance of SMEs? Kindly list them below.

……………………………………………………………………………………………………………………………………………………………………………………………………

14. Below is the list of some other factors that affect the performance of SMEs. Kindly tick where necessary.