THE IMPACT OF MICRO FINANCE SERVICES ON THE GROWTH OF SMALL SCALE ENTERPRISES IN UGANDA.

A CASE STUDY OF KIREKA MARKET

CHARPTER ONE

INTRODUCTION

This chapter summarizes the background of the study, problem statement, purpose of the study, objectives of the study, research questions, significance of the study and the area and scope of the research.

1.1 Background of the study

Microfinance institutions is the provision of financial services to low- income clients or solidarity groups including consumers and the self -employed, who traditionally lack access to financing and related services.

According to Leone, P., & Porretta, P. (2014), micro financing programs targeting small scale enterprises have been promoted to address poverty reduction, small scale enterprises growth and women empowerment.

Access to financial services can smooth erratic periods of income consumption, provide safeguards and returns on excess cash.

Financial intermediation facilitates the use of money for example a large number of small individuals can be transformed into a line of different businesses. Such intermediation also pools risks, increases liquidity and provides variable information on services.

More broadly, it is a movement whose object is “a world in which as many poor and near-poor households as possible have permanent access to an appropriate range of high quality financial services, including not just credit but also savings, insurance, and fund transfers.” Those who promote microfinance generally believe that such access will help poor people out of poverty.

The estimates depending on definitions of  recent work by the World Bank suggests that almost 30 per cent of employment in developing countries and Uganda alike is generated by the informal economy, while an additional 18 per cent is provided by (formal) small and medium enterprises. Together these two groups contribute 63 per cent of the GDP Ayyagari et al. (2003).

Despite of SMEs large contribution in countries’ development and economic growth, their growth and development in developing countries were mainly inhibited by access of finance, poor managerial skills, and lack of training opportunities and high cost of inputs, Cook and Nixson (2000).

Further studies conducted suggest that finance is the most important constraint for the SME sector, Green et al.; (2002). The SMEs have very limited access to financial services from formal financial institutions to meet their working and investment needs, Kessy and Temu, (2009).

However, the generation of self-employment in the SMEs requires investment in working capital, at low levels of income, the accumulation of such capital may be difficult. Under such circumstances, loans can help the poor to accumulate capital and investment in employment generating activities, Hossain; (1988).

The introduction of MFI’s in Uganda is seen as the best alternative source of financial services for low income earners and their Small Enterprises as a means to raise their income, hence reducing their poverty level and contributing in country’s economy.

Makoba, J (2015) says  along this line, the service of microfinance institution to majority of Ugandans who are low income earners have given them a number of possibilities including managing scarce household and enterprise resources more efficiently, protection against financial risks by taking advantages of investment opportunities and gaining economic returns. Micro finance enables clients to protect, diversify and increase their incomes, as well as to accumulate assets, reducing their vulnerability to income and consumption shocks.

In Uganda, micro finance institutions have got a strong support of the government which is promoting the programs of ‘prosperity for all’ to ensure that the state of living and the economic standards of the rural poor improve and because of this, recently has been put in place by the ministry of state in charge of micro financeMakoba, J (2015).

Several Organizations including business associations, voluntary organizations and other non-governmental organizations have set up programs to enhance the factors that influence development of SSE especially as it relates to enterprise growth and development. Despite the large number of assistance programs, the growth and development of SSE has not been satisfactory. Ventures have collapsed as soon as assisting organizations pull out of the project and remaining ones have remained small. Memba, et. al (2012)

1.2 Problem statement.

The concept of business growth is still a grey area as there is yet to be a conclusive approach and definite indicators of business growth despite the fact that it is every entrepreneur’s wish to have their businesses grow. Thus the subject of business growth is a fertile area for a study in the Ugandan context. Kemei (2011). Given the significant role played by micro finance services in the growth of small scale enterprises in Uganda, the growth of small and medium enterprises has also continued to decline due to several factors like economic crisis, low level of managerial skills among other factors.

According to Charles Tushabomwe-Kazooba(African Studies Quarterly : volume 8,issue4, 2006) a study on causes of small business failure in Uganda, its pointed out that more than fifty percent of businesses started, fight an uphill battle from the start and fail in the next five years. It is also believed that about 70% of the small scale business enterprises collapse in the way before reaching 5 years and only 30% have been successful. This is in spite of microfinance institutions activities (loan offers) that have been provided to small business enterprises. This study seeks to investigate the impact of micro finance services  on the growth of small scale enterprises.

1.3Purpose of the study.

The main purpose of this study is to examine the impact of micro finance institutions’ activities on the growth of small scale enterprises in Kireka Market.

1.4 Objectives of the study

The specific research objectives include;

1. To establish the micro finance services.
2. To establish the growth (performance) of SMEs in Kireka
3. To establish the relationship between Micro Finance services and the growth of Small and Medium Enterprises in Kireka.

1.5 Research questions.

The research will be set to answer the following key research questions;

1. What are the services rendered by Micro finance
2. To what extent have SSEs in Kireka Grown?
3. What is the relationship between MFIs activities and the growth of SSEs in Kireka Market

1.6 Scope of the study

The study will be carried out a Kireka market

1.7 Significance of the study.

To the researcher, the study will form a part in the partial fulfillment of the requirement for the award of bachelor’s degree of science in accounting and finance of the researcher.

It will intend to shed light on the relationship between microfinance services and growth of small enterprises particularly with the focus on their livelihoods for both planners and policy makers in government, agencies.

It will offer empirical evidence on the impact of microfinance services on the growth of small enterprises for use in short term and long term interventions especially in the fighting against poverty.

It will contribute to the body of knowledge on the impact of microfinance on the growth of  small enterprises taking into consideration the true costs incurred by small sectors apart from interest cost.

The findings will be helpful and source of information to the future researchers, readers, business owners, business improvement, client making, act as a guide in designing loan packages and academicians for further research.

1.8 Definition of operation terms

Clients:This is used to mean the customers of the bank. These people go to the bank to borrow money to invest in businesses.

Small Enterprises: This is any type of business that operates on small scale. It requires small investment. Small scale would generally mean enterprises with less than 50 workers. In this research we regard to small enterprises like household, medical supplies, retail shops among others.

Medium Enterprises: These are businesses enterprises that have grown slightly than the small scale enterprise. They operate at an average scale with an average investment. In this research this was taken to define medium business like hardware shops, growing bakeries among others.

Micro finance: A type of banking service that is provided to unemployed or low income individuals or groups who would otherwise have no other means of gaining financial services. Ultimately the goal of micro finance is to give low income people an opportunity to become self-sufficient by providing a means of saving money, borrowing money and insurance.

CHAPTER TWO

LITERATURE REVIEW

2.1 Introduction.

This chapter will review on the research variables conducted by different scholars on the related research topic under the study, conceptual frame work

2.1.1 Overview

According to Bakhtiari, S. (2011), Micro finance has been defined as a development tool that grants or provides financial services and products such as small loans, savings opportunities, micro leasing, micro insurance and money transfer to assist the very or exceptionally poor in expanding or establishing their businesses. Micro finance is popular in developing economies where majority of the population does not have access to affordable sources of financial assistance. Hassan, M. K. (2010) indicates that other than financial intermediation, some microfinance organizations provide social intermediation services such as the formation of groups, development of self-confidence and training of members in that group on financial literacy and management. He further argues that there are different providers of microfinance services and some of them are nongovernmental organizations, (NGOs), savings and loan cooperatives, credit unions, government banks, commercial banks or non-bank financial institutions. The target group of microfinance are self-employed low income entrepreneurs who are traders, seamstresses, street vendors, small farmers, hair dressers, rickshaw drivers, artisans, blacksmiths, etc.

2.2 Microfinance services

According Ferguson, N. (2008) the concept of microfinance dates back in the 19th Century when money lenders were in formerly performing the role currently performed by financial institutions. He further states that the informal financial institutions constitute; village bank, co-operate credit unions, state owned banks, and social venture capital funds to help the poor. These institutions are those that provide savings and credit services for small and medium size enterprises. They mobilize rural savings and have simple and straight forward procedures that originate from local cultures and are easily understood by the ‘population. Germidis et..al (2010). These funds are to finance the informal sector (Small and medium size businesses) in developing countries and it is known that these small and medium size businesses are more likely to fail. Maloney (2008). The creation of small and medium size businesses generate employment but these enterprises are short lived and consequently are bound to die after a short while causing those who gain job position to lose them and even go poorer than how they were Haltiwanger, J. (2013).

The services provided by nonfinancial MFIs are marketing and technology services, business training, production training and subsector analysis and interventions Quaye, D. (2011). Enterprise development services can be sorted out into two categories. The first is enterprise formation which is the offering of training to persons to acquire skills in a specific sector such as weaving as well as persons who want to start up their businesses. The second category of enterprise development services rendered to its clients is the enterprises transformation program which is the provision of technical assistance training and technology in order to enable existing SSEs to advance in terms of production and marketing. Yunus (2007). The main approach used by lenders in the past has been the promotion of such system through training in group formation constitution development, record keeping etc. Getting groups off to a good start is certainly important but problems that later arise are often still difficult for groups to resolve for themselves, and ongoing systems of support and supervision are usually lacking. The sustainability of these services has not been a focus. Johnson et. al ( 2005).

Pride Micro finance is known for successfully implementing the system of group-lending though there have been organization concentrating on offering loans and saving opportunities to needy people before. Counts,(2008). Yunu (2007) argued that global poverty does not emerge from market failure, but from capitalism as a theoretical concept which does not fully model real economic structures in general and economic behavior of each individual in particular. Access to capital is indeed crucial for development, and the concept of free markets has also the capacity to contribute to poverty reduction but the idea missing is to incorporate a social component into economic systems to meet observed behavior. The idea of microfinance meets both requirements. They provide access to capital on smaller scale and ideally act as social business realizing economicbehavior augmented by social preferences. Armendariz de Aglion & Morduch (2005). They enable poor people to engage in productive economic activities and thus contribute to development in low income population strata.

Morduch (1999) and standard financial systems note that microfinance is not a panacea but it is a main tool that fosters development in developing countries. MFI provide small scale financial services to poor people who are otherwise “excluded from the formal banking sector.” Operating merely in developing and emerging countries, they have specialized in offering loans of minor scale to enable individuals to start small productive businesses and enhance entrepreneurship which generally includes SSEs on very large scale especially in rural areas of developing countries, the development of financial systems is often poor, sometimes they have not fully emerged at all. In this case microfinance institutions often represent a first opportunity for the local population to participate in financial systems and to benefit from access to business and capital.

Uganda has adapted the definition of micro insurance given by the international insurance supervisors as the “insurance that is accessed by or accessible to the low income population potentially provided by a variety of different providers and managed in accordance with generally accepted insurance practice”. The insurance regulation authority has within its mandate a developmental role and specific targets towards increasing penetration of insurance in Uganda. A specific concern is that the insurance sector is only serving 8.4% of the total population under long term insurance business (inclusive of those insured under group life). Over 90% of the population in Uganda is exposed to many risks in life, many of which are insurable and the poor are the most exposed. Currently, less than ten insurance companies are offering micro-insurance products on a ‘window’ basis as part of their portfolio. The insurance companies offering micro-insurance are mainstream companies selling the conventional insurance productsCooper ( 2012).

2.3 Establishing the growth of SMEs.

In Uganda the small and medium Enterprises (SME’s) plays an important role in the Ugandan Economy. According to the Economic survey (2006) the sector contributed over 50% of new jobs created in 2005. Despite their significance, past statistics indicate that three out of five businesses fail within the first few months of operation. Ugandan National Bureau of statistics (2009). According to Koech (2011) the factors affecting growth were capital market, cost, capital access, collateral requirements, information access, capital management and cost of registration.Capital market, cost and capital access had the highest contribution to constraining SSEs growth into large businesses. As noted by Amyx (2009) one of the most significant challenges is the negative perception towards SSE’s. Potential clients perceive small business as lacking the ability to provide quality services and are unable to satisfy more than one critical project simultaneously. Often larger companies are selected and given business for their clout in the industry and name recognition alone.

As with many developing countries there is limited research and scholarly studies about the SSE sector in Uganda. The 2004 Baseline Survey conducted by UBOS provided the most comprehensive picture of SME in Uganda. Mead (2009) observes that the health of the economy as a whole has strong relationship with the health and nature of micro and small enterprises sector. When the state of the macro economy is less favorable by contract the opportunities for profitable employment expansion in SMES are limited. This is true especially for those SME’s that have linkages to larger enterprises and the economy at large. Given this scenario an understanding of the dynamics of SMES is necessary not only for the development of support programmes for SMES but also for the growth of the economy as a whole. In view of the importance of small businesses to the Ugandan economy and exposure to risks owing to their location, there is need to conduct an empirical enquiry to investigate on the effects of microfinance services on the growth of SMES in Kireka and how they access those services.

2.7 Relationship between MFI’s activities and Growth of Small Enterprises

2.7.1 Concept of SMEs

One of the major characteristics of the knowledge economy is entrepreneurship. Entrepreneurship is the gearing tool of growth in any economy.

It seems difficult to get a precise definition of small business enterprise. Several writers have propounded various definitions and explanations as to what small business enterprises are. Some have defined SEs based on the characteristics of the business, such as size, assets possessed, number of employees, and level of operations, market range, management or control of the business, type of the business.

This differs from industry to industry and country to country while by definition micro finance is described as the provision of appropriate financial services to significant numbers of low income, economically active people with an end objective to alleviate poverty (Ledger wood, 1998).

The difference amongst industries can be seen to be the difference in capital requirements of each business, which those among countries can arise as a result of difference in industrial organization by countries at different stages of economic growth. What might be defined as small business enterprise in developed country can be regarded as a large scale business enterprise in developing country using partners as fixed investment and employment of the labor force? It is also important to recognize that definitions change over time and hence even in developing country, what was classified as small enterprise can be regarded as a large scale industry when the quantities of relevant parachutes change during the production process.

In practice, most small enterprises operate with labor intensive technology. They find it very easy to stiff from one product line to something radically different; in fact, most small enterprises tie their objectives more closely to the product line than to other matters such as capital.

Finally the rate of business mortality is high probably due to reasons of inadequate market information, low capital, low levels of operation, lack of relationship between business life and that of promoter.

According to chief A Odeyemi in his paper “conceptual issues and feature of Uganda SMEs” presented in the development focus, June 23 – July 23, 2003; revealed that SMEs start typically with an ownership structure of sole proprietorship.

But in the past two decades, this orientation has been changing, partly as a result of the indigenization decree of ‘70s and partly as a consequence to better exposure and enlightenment. Many SMEs are now in one form of partnerships or the other and they are better for it, while some are still stuck in their old ways.

They are registered either as enterprises or as limited liability companies and are characterized by highly centralized labor intensive operations, management, administration, often built around the owner of the business, which also might be another reason why most of SMEs still highly collapse in the way before reaching 5 years of existence.

2.7.2 Contribution of SMEs to the economy

Small Enterprises all over the world are known to play a major role in socio-economic development. Estimates that about 1/3 of the GDP originates from SE sector; they tend to be labor intensive thus creating jobs: the International Finance Company (IFC) of the World Bank estimates that there are approximately 2.7 million enterprises in the country. A large majority of these (98%) are micro enterprises (employing less than 5 people), effective in the utilization of local resources using simple and affordable technology; and complementing large industrial requirements through business linkages, partnerships and subcontracting relationships. Olomi& URT, (2001, 2003).

2.8 The concept of financial performance of SMEs.

The study investigates the impact that ownership and board composition have on level of financial structure or performance of SMEs. The study will be one of the few that shed light on how corporate governance and ownership structures affect performance of small firms.

2.8.1Measurement of financial performance level of SMEs.

Sales revenue:It is the total amount of money that the firm has earned from the sale of all its goods services during a given time period usually called financial year (12 months) or 6 months.

If the firm produces only one product or service, the sales revenue will be the price of the product multiplied by the number of the products sold and in case of more than one product or service; the revenue from each product needs to be added together.

Profitability:This is the primary goal of all business ventures. Without profitability, the business will not survive in the long run .so measuring current and past profitability and projecting future profitability is very important and it is measured comparing income and expenditure of the business firm.

 Liquidity:This is the ability of the firm to meet its short term financial obligations when and as they fall due. This shows the functioning power of the firm to manage its financial obligations on a short term basis. It determines the strength of the business to stay in business or collapse with time.

CHAPTER THREE

METHODOLOGY

3.0 Introduction

This chapter presented the methodology which consists of the research design, area of study, study population, sample population and selection, sampling technique, data collection method, data quality control, data collection procedures and limitations of the study.

3.1 Research design

Across sectional research design will be used and both qualitative and quantitative approaches were used in data collection.

Qualitative approach: this approach will gather information based on an in depth understanding of human behavior and the resources that govern the behavior depending on thewhy and how. This was used because it dealt with smaller population and it put emphasis on uncovering more about people’s experiences.

Quantitative approach: this approach will be used because it will deal with numerical expression in figures in terms of quantity which will involves measurement of quantity and amounts.

However quantitative approach will be used because of the following reasons;

1. It will eliminatebehavioral biases were by the behavioral beliefs are done away with, the approach will guide the research findings to accuracy were by results will not be guessed, operational risks will be reduced. This approach would act as a way of getting actual figures and taking on calculations then getting answers.

3.3. Study area

The study will be carried out inat Kireka Market and the study will involve a total population of 45 , this consisted mainly of Owners small scale businesses, MFI officers.

3.4 Study population.

3.4.1. Population: This is the set of people or entities to which findings are to be generated from. In analyzing the impact of micro finance services on the growth of small enterprises level the population of over 100 people will be considered and the focus is to be given to those people in the small scale enterprises who access microfinance services and the staff.

This population will be given priority due to the needy of getting empirical evidence in Kireka.

Table 1: showing Sample size of respondents

3.3.2 Sampling Techniques

According to (Amin, 2005) sampling involves selecting a sample of the population in such a way that samples of the same size have equal chances of being selected.

The respondents will be selected using purposive sampling techniques. Berg (2006) purposive sampling, the researcher chooses the sample based on where they think would be appropriate for the study. A Purposive sampling technique will be used because it’s cheap.

The study also will also use stratified random sampling technique, according to Amin, (2005) this is were the researcher divides the population into separate groups called strata and all the respondents are given equal chances of being chosen.

This will be used for selecting respondents in marketing department; the researcher used the above technique since the marketing department has a large population.

3.4 Data Collection methods and instruments

The methods and instruments of data collection will be;

3.4.1 Questionnaires

The questionnaire will be used to collect quantitative data. The researcher will administer the questionnaires to respondents to different businessmen/women and officials of MFIs which will be designed basing on study objectives and questions. Respondents will read the questionnaires themselves. The questionnaires will be close ended which the researcher considers to be convenient because they will be administered to the literate and their anonymous nature would fetch unhindered responses.

3.4.2 Interviews

Qualitative data will be collected from businessmen and women i.e market venders and MFIs officialwhich will take approximately thirty to sixty minutes.

3.5 DATA SOURCES

Data Source will be from both primary and secondary sources.

3.5.1 Primary data

Primary data will be obtained from the questionnaires administered on the target respondents to gain opinions on effects of taxation on the performance of SMEs.

3.5.2 Secondary sources

Secondary data is data which has been collected by individuals or agencies for purposes other than those of a particular research study. It is data developed for some purpose other than for helping to solve the research problem at hand (Bell, 1997). This will comprise of literature related to effects of taxation on the performance of SME’s in relation to the case study. Secondary data will be sourced because it yields more accurate information than obtained through primary data, and it is also cheaper

3.6 Data quality, validity and reliability

3.6.1 Data quality

The instrument will be taken to the supervisor to check its correctness there after pretesting study will be carried out to find out if it measures what it is meant to for.

3.6.2 Validity

According to Amin (2005), face, content and construct tests can be done to determine the validity of the instrument. In this study, content and face validity of the questionnaires were ensured by pre-testing the instrument and consultation with the supervisor; and by use of professionals/experts who were given the instrument to assess the concept and rate it by trying to measure and determine whether the set items accurately represents the concept under study.

Chi-square test for validity

According to the table the asymp. Significance is 0.7 indicating that the questionnaires were valid. Therefore the researcher asked questions that were related to the topic  and were relevant to the study.

3.6.3   Reliability

Reliability of an instrument is the consistency of an instrument in measuring what it is intended to measure (Amin, 2005). In order to ensure that the instrument is capable of supplying consistent results, its reliability will be checked using the internal consistency method. This will determin the internal correlation between scores on items within the instrument by pretesting them on a sample of 10 respondents after which some of the questions in the questionnaire will be rephrased and others removed while putting new ones.

3.7 Procedures of data collection

Upon receiving the letter of introduction from Research Coordinator School of Management and Entrepreneurship to carry out research, the area of study will be visited for the purpose of familiarization.

The researcher will seek permission with staff and when allowed, he will proceed with research, questionnaires will be issued and interviews will be carried out with the selected staff.

3.8 Data analysis and presentation

Quantitative analysis of raw data will be done. Raw data took a variety of forms, including measurements, survey responses, and observations. Tabular and percentage calculations were used to list questionnaire responses. Analysis and interpretation of the raw data was based on the responses and opinions. Qualitative and Quantitative data analysis techniques will be used to manipulate data during the analysis phase in order to draw conclusions.

3.9 Anticipated limitation

Financial constraints: Financing the research study is estimated to be too costly in terms of transport costs, feeding and processing of the proposal and research report. The researcher appealed to relatives who managed to give a helping hand.

Non-response: Owners of businesses are expected to be busy busy attending to their customers and rarely might spare time for the researcher.

CHAPTER FOUR

4.1.1 Age of respondents

In order to attest the credibility of the responses, the respondents were asked to indicate their age bracket and the response was shown below.

Table 2: showing the respondents’ age

Source: Survey Study (2014)

The table above shows that 20% of the respondents were in the age group of 20-29, 28%in the age group of 30-39, 12% between 40-49, 24% between 50-59 and 16% in the age group of above 60 years. This implies that the majority of the respondents are between 30-39 years of age an indication that they can make independent decisions.

Figure 1showing age range of respondents

Source primary data

According to the figure 1 above, most of the respondents were between the age of 20 to 29 years which indicates that the company employs mostly young people who are energetic

4.1.2 Gender of the respondents

This seeks to establish gender balance in the study.

The table below clearly indicates what the researcher found out concerning the gender of the respondents in Kireka town.

Table 3: Showing gender of the respondents

Source primary data

Figure 2 showing the gender of respondents

Figure 2 above shows that the male gender dominated the study more than their counterparts the women.

The study population was selected in a way that avoid gender bias. As illustrated in the pie chart below, 60% of the respondents were male while 40% were female. This indicated that most of the respondents were male.

Source primary data

Table 5 above shows that 80% of the respondents have worked at Kireka market for long this indicates that the researcher got information from experienced people.

Table 6: Showing the use micro-finance services

Source: primary data

From the table above we observe that most of the respondents use micro finance services by a majority of 80%. This implies that most of the respondents use need microfinance services to support the growth of their businesses.

4.2 Services offered by micro finance services

4.4.1 How has micro finance help your business

Table 11: showinghowmicro finance help your business

Source: primary data

Table 19: shows that the variations in the microfinance services have averagely helped the people working in kireka market to improve their businesses. The micro finance institutions significantly help businesses in Kireka market as evidenced by 24% of respondents say they help them very well and 16% agreeing that well.

What services do micro-finance services offer

According to the table above the most offered service by microfinance institutions to Kireka Market business men is savings and credit service as proposed by 72 % of the respondents followed by marketing and technology services with 16% of the respondents. This indicates that most businesses in Kireka Market operate are operating using credit and saving services rendered to them by micro finance institutions.

Whether businesses men/women  finance business using microfinance services.

According to the table above, most of the respondents regularly finance thir businesses using microfinance services as 80% of them accepting that they do while 20% of them said they use it very regularly. This implies that most businessmen and women in Kireka Market run their businesses using micro- finance institution services.

4.2 ESTABLISHING THE GROWTH OF SMES

Table 11: establishing the growth of SMEs

From table 4.2.1 above, findings revealed that, 60% of respondents strongly agreed that Potential clients perceive small business as lacking the ability to provide quality service while 40% of the respondents agreed and no one was neutral or disagreed. This indicates that most micro finance institutions only lends to capable business men who are able to pay back the money.

According to the table 72% of the respondents strongly agreed that there are many small scale stand business enterprises being set up at Kireka market while 28% of them agreed. This implies that there is potential for the growth of micro finance institutions with the growing number of fresh businesses that are being set up.

.According to the table above, 88 % of the respondents strongly there is steady growth of small scale business enterprises at Kireka market while 12% of them agreed. This is as a result of the ever growing number of new businesses being set up at kireka market.

From the table 40% of respondents strongly agreed that Small scale Business Enterprises can finance their  loans due with the current  interest rates while 20% agreed, 18% were neutral and 28% disagreed which implies that a significant number of businesses in Kireka are able to finance their loans

The table above indicates that 52% of respondents strongly agreed that Small scale business fails to make enough profits as a result of inadequate capital employed hollowed by 20% agreeing and 28% were neutral. This implies that there is more need for micro-finance institutions with in the areas of Kireka to finance these businesses.

4.3 RELATIONSHIP BETWEEN MFI’S ACTIVITIES AND GROWTH OF SMALL ENTERPRISES

Table 12: Relationship between MFI’S activities and growth of small enterprises

Table above reveals that There is a relationship between MFIs and the growth of SSBEs at Kireka Marketas evidencd by 72% of respondents who strongly agreed while 28% of them agreed. This implies that micro finance services are essential for the growth of businesses in Kireka market

The table further indicates that majority of the respondents strongly and agreed that there is high interest rates on loans offered by micro-finance institutions where 88% of respondents strongly agreed and 12% of them agreed. This implies that micro finance institutions should reduce on their interest rates in order to help businesses grow and attract new investments

According to table above, 52% of the respondents strongly agreed that Microfinance institutions train business owners about loan management and business management techniquesat kireka market while 48% of the respondents agreed.

According to researchers’ findings, 68% of the respondents strongly  disagreed that Small scale business owners have training and skills in business management.limiting political influence is instrumental towards minimizing procurement irregularities. While the rest of respondents agreed this therefore shows that limiting political influence is important towards minimizing procurement irregularities.

According to the table 66.7% of the respondents strongly agreed that eliminating corruption is crucial towards minimizing procurement irregularities at NSSF while 16.7% agreed and the remaining percentage disagreed this therefore shows that minimizing corruption is essential towards minimizing procurement irregularities.

4.4 Effects of ICT systems adoption on detection of such procurement irregularities. Table

Table 13: Shows effects of ICT systems adoption on detection of such procurement fraud

From table above, 60% of the respondents strongly agreed that implementation of ICT system in an organization enables it to have e-catalogue systems which has got numerous benefits to an organization while the remaining 40% agreed; this therefore shows that the majority of the respondents agreed that ICT systems enables the implementation of e-catalogues to an organization in order for it to be efficient.

According to table above it indicates that, 73.3 % of the respondents strongly agreed that ICT enables an organization to reduce costs in procurement related process , while 26.7% agreed , while none of the respondents, was neutral, disagreed, and strongly disagreed, this findings also shows that indeed ICT  enables an organization to reduce costs.

Findings revealed in table above, shows that 50% of the respondents strongly agreed and the remaining percentage this therefore shows that 100% of the respondents agree with the fact that ICT enables an organization to increase its productivity.

According to the table 56.7% of the respondents strongly agreed that ICT enables an organization to visualize its expenditure, while the remaining 33.3% of the respondents Monitoring and controlling of the spend strongly agreed, while none of the respondents was neutral, disagreed or strongly disagreed, this therefore clearly shows that ICT enables an organization to visualize its expenditure.

From table above, majority of the respondents strongly agreed that ICT enables an organization to monitoring and controlling of the procurement process while 23.3% agreed while none of the respondents were neutral, disagreed or strongly disagreed.

The table above shows that majority of the respondent assert that E-receipting is achieved in the implementation of ICT in the procurement process the Table further indicates a large majority of around 60% of the respondents strongly agreeing to the fact while 33.3% of the respondents agreed and the remaining percentage of the respondents were neutral.The table reveals that 50% of the respondents strongly agreed that ICT increase on the speed of the procurement process, while 26.7% of the respondents agreed while the remaining percentages of 23.3% of the respondents were neutral.

CHAPTER FIVE

SUMMARY, DISCUSSION, CONCLUSION AND RECOMMENDATIONS

5.0 Introduction

This chapter covers the summary of the findings, conclusions based on the findings and recommendations based on the conclusions.

5.1 Summary of Findings

The study sought to establish the effect of tax administration is administered in three major ways, that is to say, identification of the taxpayer, assessment of income tax, and finally collection of tax dues. The findings of the study showed that tax payers were identified on the basis of their operation, however it was noticed that there were delays in the processing of assessment forms and collection of the tax dues was not easy since some of the tax payers defaulted on payment and others were given penalties. The researcher found out that local government often plays a critical role in the tax administration of small operators. However, municipal levies inhibit the creation of formal enterprises. For example, it was found out that licensing costs and requirements are a key driver of continued informality. Coordination between government agencies is usually very poor with inconsistent local and central government policies and multiple non-transparent taxes, fees, and non-regulatory “licenses” at the local level. This increases firm‟s compliance costs and the administrative costs of local authorities.

The findings of the study showed that the profit margins of the firms were too small to improve on the scale and size of the business. This is due to the high taxes imposed on these small firms that they could hardly have enough capital to re-invest.

Other factors that affect the profitability of small-scale business enterprises apart from income tax administration include business location, seasonal variations and other types of taxes. Most of the respondents were unsatisfied with the income tax rate based on the sales turn over and some of the respondents did not fully understand income tax and its computation. The findings of the study showed that the introduction of income tax has adversely affected the profitability of small-scale industries according to the responses strongly agreed that income tax affects the profitability of their businesses. The study showed that sensitizing the people about income tax and extending the period of income tax return could improve on the profitability of small-scale enterprises without necessarily adjusting the income tax rate.

5.2 Conclusion

The administration of small firms is an afterthought for income tax administration and technical assistance programs. This is due to the low benefit-cost ratio of administering small contributors from a revenue perspective. Therefore creating successful small business administration is thus closely linked to the decentralization agenda.

Constructing appropriate indicators and setting an appropriate tax rate is challenging. It requires extensive analysis of profit margins and will usually be disputed by some in the business community. Small businesses are not necessarily small earners; rates need to be high enough to encourage firms at the upper end of the threshold to join the general system and low enough to encourage informal entrepreneurs to comply. This process requires extensive survey-based analysis of small firms‟ profit margins to determine presumptive tax rates, which will not affect the small business earners. Income tax administration has greatly affected the profitability of small-scale businesses. Uganda Revenue Authority needs to intensify on the sensitization campaigns since the business communities do not take the education of income tax seriously.

5.3 Recommendations

The researcher made the following recommendations as a way of reducing the burden of income taxes on SMEs as well as to increase the revenue of the Nakawa town. Nakawa town should find a way of assessing the tax in that the SSBs should pay early in the financial year in order to give enough time to the businesses to pay their dues rather than make an assessment and demand for payment spontaneously. Nakawa town should introduce a scheme that allows taxpayers to pay the tax obligation in the installments over a given period as opposed to lump some at once. The URA should reach out and educate the business community about its different tax rates and mode of payment. The study revealed that the biggest problem with the tax paid is in fact that the SMEs community does not understand how the tax is arrived at as well as how it is paid but not because it is too high. The URA should improve on the methods of collecting the taxes. It should adopt the closure of business premises on default only as a last resort after all the other methods of collection have failed. This should be an exception and not a rule. The URA should improve awareness amongst the taxpayers of the need to pay taxes and how their tax liability is determined and the time process of the tax assessment.

QUESTIONNAIRE:

TOPIC: IMPACT OF MICRO FINANCE SERVICES ON THE GROWTH OF SMALL SCALE ENTERPRISES IN UGANDA.

A CASE STUDY: KIREKA MARKET

Dear respondent

I am Tuboruhanga Susan a student of Kyambogo University, am carrying out a study on the above stated topic. You are one of the respondents randomly selected to participate in the study. The information given shall be treated with at most confidentiality and shall only be used strictly for academic purpose.

Kindly spare a little time to fill this questionnaire.

SECTION A BACKGROUND INFORMATION:

1. Gender?

Male                                                    Female

2. Age

1. A) (10 – 30 years b) 31 – 40 years

1. c) 41 – 50 years d) 51 – 60 years

1. e) 61 years and above
2. For how long have you been working for this at Kireka Market?

• 1-5 years

• 6-10 years 10 above

Do you use micro-finance services?

Yes                                                                                          No

SECTION B: SERVICES OFFERED BY MICRO FINANCE SEERVICES

1. How has micro finance help your business?

1. a) Very well b) Well

1. c) Average d) Very poorly

2) What services do micro-finance services offer?

1. a) Savings and credit services b) Marketing and technology servicesBusiness training                         d) production training
2. e) Others (specify)………………………………………………………………………
3. Do you alwaysfinance your business using microfinance loans?

1. a) Very rarely b) Rarely

1. c) Not at all d) regularly
2. e) Very regularly

SECTION: ESTABLISHING THE GROWTH OF SMES.

Here you are requested to indicate the level at which you agree with the statement. The keys have been displayed below where:

Tick where appropriate

SA- Strongly Agree, A-Agree, NS- Not Sure, D- Disagree, SD-Strongly Disagree

SECTION D: RELATIONSHIP BETWEEN MFI’S ACTIVITIES AND GROWTH OF SMALL ENTERPRISES

Here you are requested to indicate the level at which you agree with the statement. The keys have been displayed below where:

Tick where appropriate

SA- Strongly Agree, A-Agree, NS- Not Sure, D- Disagree, SD-Strongly Disagree

The end

Thank you very much

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