Research consultancy

CHARPTER TWO

LITERETURE REVIEW

2.0     Introduction

This chapter reviewed relevant literature from different scholars on the factors that affect the performance of small enterprises in Uganda. It contains theoretical review, actual literature review and the summary of literature review. According to Delno, L.A. (2006), literature review is essential in research since it gives the researcher an insight into what has already been done in the selected field, pinpointing its strength and weaknesses. This information guides the researcher in the formation of theory that aims at addressing the identified gaps.

The literature review was done objective by objective based on the independent variables and the dependent variable that is; factors and performance respectively. The researcher reviewed the dimensions of the independent variables which are microfinance institutions’ practices sub divided into interest rates, loans and personal savings products; government support with indicators of infrastructure development, legal framework and administration of government policies plus  organisational management with indicators of financial management and business strategic management

2.1. Theoretical review

The study was guided by the systems theory proposed in the 1940’s by the biologist Ludwig von Bertalanffy and furthered by Ross Ashby (1956) in his Introduction to Cybernetics. Von Bertalanffy was both reacting against reductionism and attempting to revive the unity of science. He emphasized that real systems are open to, and interact with, their environments, and that they can acquire qualitatively new properties through emergence, resulting in continual evolution. Rather than reducing an entity to the properties of its parts or elements, systems theory focuses on the arrangement of and relations between the parts which connect them into a whole. This particular organization determines a system, which is independent of the concrete substance of the elements. Thus, the same concepts and principles of organization underlie the different disciplines, providing a basis for their unification. Systems concepts include: system-environment boundary, input, output, process, state, hierarchy, goal-directedness, and information (Francis et al, 1992).

Littlejohn, (2001) observes that the fundamental systems-interactive paradigm of organizational analysis features the continual stages of input, throughput (processing), and output, which demonstrate the concept of openness/closedness. A closed system does not interact with its environment. It does not take in information and therefore is likely to atrophy, that is to vanish. An open system receives information, which it uses to interact dynamically with its environment. Openness increases its likelihood to survive and prosper. Several system characteristics are: wholeness and interdependence (the whole is more than the sum of all parts), correlations, perceiving causes, chain of influence, hierarchy, suprasystems and subsystems, self-regulation and control, goal-oriented, and interchange with the environment (Littlejohn, (2001).

System theory is the transdisciplinary study of the abstract organization of phenomena, independent of their substance (Infante, 1997). It investigates both the principles common to all complex entities, and the models which can be used to describe them.  Infante, (1997) further states that a system can be said to consist of four things that include the objects first – the parts, elements, or variables within the system. These may be physical or abstract or both, depending on the nature of the system. Second, a system consists of attributes – the qualities or properties of the system and its objects. Third, a system had internal relationships among its objects. Fourth, systems exist in an environment. A system, then, is a set of things that affect one another within an environment and form a larger pattern that is different from any of the parts. This theory can help us understand a wide variety of physical, biological, social and organisations behavioral processes and the factors that affect them (Infante, 1997).

Because of the need for survival and better performance of small enterprises the systems theory was applicable in this study since small enterprises have to relate with other external factors. They have got to deal with internal management as well as deal with the external environment that may include but not limited to microfinance institutions that lend to these enterprises at an interest and provide voluntary savings products. Also, the government has specific areas of intervention for these enterprises in terms of providing a conducive environment for them. Dwivide (2000) affirms that the government holds tremendous authority not only to influence the private business decisions but also to control and regulate, directly and indirectly, the private business activities. By using its powers, the government can enact laws against production, sale, and consumption of certain goods; can prevent the entry of private entrepreneurs to certain industries through its industrial policy. This in effect contributes to performance of small enterprises.

2.2. Microfinance institutions’ practices and performance of small enterprises

2.2.1 Interest rates and performance of small enterprises.

According to Kikonyogo (200), interest rate is the percent charged or paid for the use of money. It is charged when the money is being borrowed and paid when it is being loaned. The interest rate that the lender charges is a percent of the total amount loaned (Kikonyogo, 2000). Similarly, the interest rate that an institution, such as a microfinance institution pays to hold a client’s money is a percent of the total amount deposited. In Uganda the interest rates that financial institutions charge make loans more expensive (Muhammad, 2007). When interest rates are high, that means fewer people and businesses can afford to borrow (PMA, 2010). High interest rates on savings however, encourage more people to save (if they can) because they receive more on their savings rate (Kikonyogo, 2000).

One of the principal challenges of microfinance is providing small loans at an affordable cost. The global average interest and fee rate is estimated at 37%, with rates reaching as high as 70% in some markets (Helms, 2006).  Helms (2006) further states that the reason for the high interest rates is not primarily cost of capital but rather, the main reason for the high cost of microfinance loans is the high transaction cost of traditional microfinance operations relative to loan size.

According to Milner (2000), high interest rates by microfinance institutions often discriminate against small enterprises because they are considered high risk clients with little or no resources to provide collateral. In Uganda, interest rates range between 22 and 36 per cent (MOF, 2012/2013). Business owners complain about the inflexibility of microfinance institutions in enforcing onerous collateral requirements for any credit they extend.  In the recently read budget the economy experienced a sharp rise in commercial lending rates with the inter-bank rate averaging about 28% (MOF, 2012/2013). This followed the rise in the lending rate by the central bank which rose by ten percent between July and November 2011 according to the ministry of finance (MOF). This means that small enterprises have little access to finance, which thus hampers their emergence and eventual growth (MOF, 2012/2013).

Microfinance practitioners have long argued that such high interest rates are simply unavoidable, because the cost of making each loan cannot be reduced below a certain level while still allowing the lender to cover costs such as offices and staff salaries. According to Muhammad et al (2007), the result is that the traditional approach to microfinance has made only limited progress in resolving the problem it purports to address: that the world’s poorest people pay the world’s highest interest for small business growth capital. The high interest of traditional microfinance loans limit their effectiveness as a poverty-fighting tool and therefore, offering loans at interest and fee rates of 37% mean that borrowers who do not manage to earn at least a 37% rate of return may actually end up poorer as a result of accepting the interest rates (Helms, 2006).

2.2.2. Loan facilities and performance of small enterprises.

According to Kikonyogo (2000), a loan facility is basically an arrangement in which a lender gives money or property to a borrower, and the borrower agrees to return the property or repay the money, usually along with interest, at some future point(s) in time. Kikonyogo further asserts that usually, there is a predetermined time for repaying a loan, and generally the lender has to bear the risk that the borrower may not repay a loan. Access to loan facilities is so crucial to the performance of small business enterprises. Small business in Uganda can rarely meet the conditions set by micro financial institutions, which see small enterprises as a risk because of poor guarantees and lack of information about their ability to repay loans. Therefore, improving business conditions, boosting the capacity of small enterprises, expanding the financial sector and strengthening links between firms will permanently increase small enterprises’ access to finance (Kauffmann, 2005).

It is generally acknowledged that the ability of small enterprises and rural households to invest for the long term and make calculated decisions for risky income flows is partly shaped by microfinance institutions and the services they offer (Ocaya,2002). Ocaya still says that despite some development in this service sector, in Uganda the majority of the small enterprises remain without access to the credit services they need to compete in the market and to improve their livelihoods. These loans are usually acquired by more wealthy and medium enterprises that can obtain large loans at low costs from formal lenders because they can credibly pledge assets or cash flows. Asset poor and small enterprises by contrast are limited to much smaller loans at higher interest rates because they have to turn to lenders who must substitute costly monitoring for collateral. Small enterprises often turn down loans, even if they qualify because they are unwilling to bear the risk of losing collateral. Consequently, this limits the performance of small enterprises since they can’t register growth (MOF, 2010).

There is limited dispersion of the MFI branch network, as most of them prefer to concentrate their activities in the urban areas where they enjoy economies of scale. In addition, there are a few large -scale and viable investment opportunities in the rural areas. Of recent, however, the resulting vacuum in financial services delivery, especially, in rural areas has been partially covered by MFI (Kasekende 2010).

Loan management involves a number of management activities that lead to successful utilisation of the funds and improved business performance (Helms, 2006). It involves having activity business plan before one gets a loan so as to have a clear purpose and means to pay back, there should be no loan diversion since it leads to poor loan payment and enterprise may lose collateral given to lender. Therefore, businesses should get the loan at the right time get the right amount not more or less as business overfunding or underfunding can cause business failure. Helms, 2006 advises that eenterprise owners should continuously save to service the loan. Savings help reduce the loan burden to the business and this encourages timely and prompt loan payments. To this end, one should avoid cumulative interest and fines that are caused by loan defaulting which is always an added expense to the business since all loan recovery cost are taken care of by the enterprise. It’s important to understand the conditions of the loan before taking it. These may include interest, grace period, fines, repayment period, and others like recovery cost and hidden charges like loan monitoring fees (FAO, 2002).

2.2.3. Voluntary savings and performance of small enterprises.

The term saving means withholding something of value for future use and it is intended for a better tomorrow (PML product manual, 2010). It can be in cash or material goods whose market value appreciates over time. But it entails discipline and sacrifice. Voluntary saving products (VSP) are crucial for the performance of small enterprises. This is because it provides a basis for interest free capital to small enterprises and therefore brings about rapid growth and performance (PML product manual, 2010). Kasekende (2003) notes however, that Uganda’s saving/GDP ratio is about 12%, including both private and public sector savings compared to the continental average of 17.7%. The ratio of money supply to GDP is only12%. There is only one financial institution per 180,000 people in Uganda, compared to an average of 7,000 per financial institutions in the Common Market for East and Southern Africa (COMESA) countries. Moreover, microfinance institutions are concentrated in the urban centers. Out of 123 branches studied in Africa, 64 are found in the 4 largest urban areas. This limits access by the small business enterprises and therefore reduce chances of having such capital that is interest free and good for business growth (Kauffmann, 2005).

Internal resource mobilization (saving) is one of the cardinal steps to self-reliance and overall sustainability for small enterprises and farmer groups (FAO, 2002). Saving is for the future and involves anticipating risks and emergencies (a bad harvest, sickness, or death), preparing for upcoming events and expenditures (payment of school fees, a marriage, old age, or funeral). Through small but regular saving, small enterprises can gradually build up capital to enable them invest in profitable economic activities or expand existing ones. This is the basis of “a savings first approach” to enterprise development. When individuals save in groups they can rapidly build up capital that can profitably be invested in individual or group enterprises (FAO, 2002).

While accessing the “A savings first” approach, FAO found out that it is based on the fact that even poor people understand the importance of saving and in small amounts which is done individually or as a group in cash or in kind e.g. livestock, produce or any other items that have monetary value. Pooling resources as a group is based on the fact that it is more efficient as members build up a larger pool of resources in a shorter time than if done individually.  This approach to enterprise development is therefore being widely promoted. Only when groups have shown strong signs of growth and individual or group enterprises have been fully developed, should groups be encouraged to borrow from other sources (FAO, 2002).

According to Bryan (1990), savings and investment are mutually interconnected economic variables. When examining the importance of savings, it is very essential to understand what the role of investment in one’s business is. In order to achieve higher growth in savings and investment, Microfinance institutions have an important role to play. Microfinance institutions have been playing a vital role in economic development of different countries of the world. Bryan further asserts that an efficient and diversified saving system is a must for promoting savings and thereafter channeling them into investment and helps to achieve a faster rate in enhancing performance of small enterprises. Thus, the good health of small enterprises is reflected in the good health of its savings culture. In modern economies Microfinance institutions are considered to be the dealers of money as well as leaders of development (Bryan, 1990).

2.3 Government support and performance of small enterprises

2.3.2. Infrastructure development and performance of small enterprises

While the economic policy debate has gone through cycles of arguing for and against state intervention, the provision of infrastructure has always been regarded as one of the main tasks of the state according to Kikonyogo (2000). Kikonyogo (2000) further argues that the private sector can participate in making the infrastructure effective, but its regulation is above all a state function. The importance of this function has increased in recent years, because of the changing nature of competition in regional and global markets. Speedy and punctual delivery of manufactured goods has become a major parameter in the new competition. Kikonyogo (2000) further stresses that a well developed infrastructure – for moving goods from factories to ports and for rapid international communication significantly reduces the transaction costs involved in exporting.

According to Ankole Private Sector Foundation (APSF) 2010, Bushenyi district in general lacks a good road network in the rural areas for proper and efficient transport of agricultural and business products. Only about 40 per cent of the country has pipe-borne water, the provision of electricity is inadequate and very limited in rural areas. In spite of the huge investments in physical infrastructure in the recent past in water from Nyaruzinga and other areas, road expansion and constant road repairs on the tarmac stretch, the district still has very poor and inadequate facilities for industrial development (APSF, 2010). Save for the tea factories in Kyamuhunga and Mashonga trading centers together with the coffee factories (not value adding apart from removing husks) in Bassajjabalaba industrial area, industrial activities are still low and privately initiated (BDLG, 2011).

In order to foster the economic performance and competitiveness of small enterprises in the district, functional, high-quality basic infrastructure is required. An optimal physical and IT infrastructure includes a good, well maintained road network, a stable power supply and an extensive telecommunication network that business friendly. Overall it seems that while considerable progress has been made in reforming the regulatory and policy framework, there has been less progress in improving infrastructure (APSF, 2010).

2.3.3. The legal framework and performance of small enterprises

There is need for an impartial legal system according to Kauffmann (2005) that can help settle contract disputes, commercial law reform and drafting and clarifying land titles, as well as effective bankruptcy procedures that are vital for growth of the business sector. A country’s tax laws can either coax small businesses into the formal sector of the economy or keep them out of it. Governments should also make sure that they pay small enterprises promptly, since public contracts are vital to the financial security of these firms (Hill, 2001).

According to Kauffmann (2005), it’s often argued that, absolute and unfair commercial laws have increased transaction costs for small enterprises (more than for larger firms), thereby hampering their economic performance and competitiveness. However, in countries such as Mauritius and South Africa the legal system appears to be more developed and conducive to small enterprise growth and development.

An appropriate political or consensual environment requires a government’s mediating role in involving the main interest groups in the process of industrial restructuring to discuss problems, to reach commonly agreed action plans and to implement policy recommendations. An inter-institution networking approach creates an atmosphere of trust among the interest groups (Kauffmann, 2005).

According to APSF (2010), in the case of Bushenyi, an extensive number of outdated and cumbersome laws and regulations have increased the transaction costs of small enterprises thereby hampering their economic performance and growth. Evidence shows that the problem has often been the district leadership’s inconsistency and lack of transparency in implementing policies. Corruption diverted the support programmes from the original beneficiaries as projected by the district. Illegal permits and licenses are being given at all levels to family members and friends operating informal micro-enterprises that do not qualify. Consequently, there has been little or no impact on the original target group of small enterprises that prompted entrepreneurs to complain about the complex administrative procedures for trade transactions and the lack of transparency in the processing of administrative matters (APSF, 2010).

However, the government is trying to overcome these obstacles although implementing an appropriate regulatory and policy environment in which business can flourish is a long and costly process that requires the commitment of the different parties involved. Emphasis is being put on targeting those businesses owned and controlled by formerly disadvantaged groups and the marginalized like the youth, women and the disabled. Efforts are being made to reduce business entry barriers, to provide direct tax payments to the authorities’ accounts mainly in URA or Stanbic bank for trading licenses and other legal expenses to encourage start-ups and expand existing businesses, and to reduce the complexity of the formal procedures to register businesses.

To sum up, poor regulatory environment in Bushenyi is characterized by the absence of laws and regulations for small enterprise development; the complexity of such regulations, which substantially increases the transaction costs of small enterprise putting them at a disadvantage vis-à-vis larger national companies like schools, hospitals like KIU, factories and church founded organisations that include those under St. Kagwa catholic parish and Ankole archdiocese (APSF,2010).

2.3.4. Administration of government policies and performance of small enterprises

According to Richards (2010), proper government administration in regard to policies is key for the better performance of small enterprises since it facilitates good policy formulation and implementation. He further asserts that centralized administration is a major challenge in the growth of small enterprises in Uganda since, regulations and policies have to be implemented by administrative institutions and authorities.

In many developing countries, bureaucracy has displayed a high degree of centralisation of resources and decision-making. Initiatives by local authorities to promote small enterprises activities are often stifled by a centralized decision-making process and lack of financial resources at the local level (David, 2011). This is followed by the problem of red tape. Procedures to comply with regulations such as registration, taxation, health and environmental regulations and procedures necessary to benefit from government incentives are difficult to comply with partly because of bureaucratic requirements. While large firms have staff specialised in these matters, such requirements represent an enormous burden for small enterprises (Helms, 2006). The required change is therefore, not exemption for small enterprises or complete de-regulation but simplification of procedures (Richards et al, 2010).

2.4. Organizational management practices and performance of small enterprises

2.4.1 Financial management and performance of small enterprises

Financial management plays a big role in the growth of small enterprises. Financial management involves all the activities like monitoring, control, budgeting and evaluation that enable an enterprise to obtain capital for growth, allocate resources efficiently, maximize the income potential of the business activity and monitor results through accounting documents. Such management requires a well-written, comprehensive financial management plan clearly outlining the assets, debts and the current and future profit potential of the enterprise (Bryan Ziegler, 1990). Note should be made to the effect that small enterprises hardly keep proper records that are crucial in directing business growth.

Proper financial management requires adequate financial control which Stonner (2002) defines (financial control) as the process of regulating an organization’s financial resources and activities such that actual performance conforms to the standards set.  Koontz and Heinz (2003), argues that the task of control is to make plans succeed; and normally control must reflect plans, and planning precedes control.  They further observe that a budget is a widely used device for managerial control, and argue that budgeting is the formulation of plans for a given future period in numerical terms. Mohsin (2002), also assert that financial control must complement financial planning, and that the control function is composed of four distinct phases i.e. determination of operational standards, evaluation of the enterprise progress in relation to pre-determined standards, investigation of organization financial function and taking corrective action in event of deviation, and lastly follow up actions by the executive personnel to ascertain whether corrective actions are effective.  Mohsin (2002) contends that the control function has to go hand in hand with coordination since the finance aspect affects almost every activity and department in an enterprise that the finance department has to coordinate various departments and activities by ensuring that financial information is availed to them so as to make consistent decisions in an enterprise.

On many instances the business community in Bushenyi has had inadequate financial control that has made their plans fail, despite having good plans and substantial amount of funds at their disposal for better enterprise performance (BDLG, 2011).  For instance the (Daily Monitor 14, June 2011), reported of Activists Suing Bushenyi Authorities over stadium Fund, “Activists sued Bushenyi Local Government demanding them to disclose information pertaining to the nine hundred million shillings expenditure on expansion and support of small enterprises that was not effected”. They went on to argue that the funds are tax payers’ money necessitating value for money and timely services, proper control and accountability.  From this article, one observes that planning could have been done properly but it is more likely that problems arose from financial control aspect, especially controlling expenditure, supervision and monitoring during the implementation of the planned projects, however this remains a question for investigation.

2.4.2. Business Strategy and performance of small enterprises

Over the years, the importance of business strategy in both large and small firms has been continuously emphasized in the strategic management. The business strategy comes from a well defined strategic plan which gives the vision, mission statement goals and strategic objectives of the enterprise. This helps to identify where the small enterprise is going, brings more individuals in the decision making process for the future of the enterprise through setting an organisational culture, proper change management, effective communication, problem solving mechanisms, team building, time management, motivation, and other aspects (Byaruhanga, 2005). Byaruhanga (2005) further states that strategic planning has got to give details on the short term, medium and long term plans of where the business is expected to be.

Firms adopt business strategy to outline the fundamental steps they need to follow in order to accomplish their organizational objectives. This further indicates that organizations can have a single strategy or many strategies, and that these strategies are likely to exist at three levels: corporate level strategies, business level strategies, and functional level strategies. Although this suggests that strategies are developed at the three different levels, theoretical and empirical studies of the relationship between strategy and organizational performance have mainly emphasized on business strategy (Lee, 1987).

2.5     Summary of literature review

Literature has been reviewed on various studies carried out in Uganda and elsewhere concerning the factors affecting the performance of small enterprises in Uganda. Many sources have revealed that small enterprises play a great role in the economy although they operate amongst many constraints and challenges that include but not limited to inadequate services offered by microfinance institutions, government weaknesses as well as inadequate organisational management practices.

In the area of study which is Bushenyi district, no attention has been put to this sector yet it’s the back born of the Districts’ income as shown by the literature. The studies that have been done on this problem were in different geographical setting as than Bushenyi district. Also these studies were done at different time, using different methods and approaches. Therefore this study addressed the gaps left out by other researchers as far as the performance of small enterprises is concerned in Bushenyi district.

CHARPTER THREE

METHODOLOGY

3.0     Introduction

Methodology is defined as an approach a researcher uses to investigate a subject (White, B. 2000). It refers to the philosophical basis on which a research is based. Methods on the other hand are particular techniques used to collect data and information. Therefore, the purpose of this chapter is to describe the methodology used in the study.

This chapter presents the research design , study population, sample size and selection, sampling techniques , and procedures , data collection methods and data collection instruments, validity and reliability, the procedure of data collection , data analysis and measurement of variables.

3.1. Research Design

Research design can be defined as the arrangement of conditions for data collection and analysis of data in a manner that aims to combine relevance to research purposed with economy in procedure (Kothari, 2004).

A cross sectional research design was used in the study. The cross sectional research design was adopted because the study intended to conduct an intensive investigation on the variables under study in a particular setup which was the small enterprises in Bushenyi district (Oso & Onen, 2008).

Cross sectional design was added because data was collected at one point in time from a cross section of respondents (Mugenda, 2003). A cross sectional design was used because it explains the cause-effect relationship, and takes place with minimal interference of natural flow of work in the organizations’ environment.  In addition it is relatively cheaper in terms of time and cost as observed by Mugenda (2003) and Sekaran (2004).

In the study, both qualitative and quantitative approaches were used. The two approaches supplement each other and help to reduce the biases in each approach according to Mugenda (2003). Still, according to Amin (2005) the approaches enables the researcher to have a deeper analysis using the inductive and deductive approaches through qualitative and quantitative perspectives which enable the researcher to analyse data from all angles and give a more concrete and realistic description of the findings.

Therefore, the researcher employed the qualitative approach in order to get the opinions of respondents in relation to the variables under study and their understanding on the factors affecting the performance of small enterprises was sought using interviews and documentary reviews.

The quantitative approach was used to obtain the magnitude of the relationship between the variables and this was mainly through questionnaires to the business people. The study was more quantitative than qualitative because most of the data was got from questionnaires. This was because of the number of respondents that responded to questionnaires against that of key informants.

Data was also got through face to face interviews and documentary review. The quantitative method was used to obtain the magnitude of the relationship between variables.

3.2. Study Population

According to Amin (2005), a population is an aggregate or totality of objects or individuals having one or more characteristics in common and which are of interest to the researcher in a given study.

In this study the target population was 200 people composed mainly of the business people and stake holders. It included agro businesses, retail businesses, welding and metal fabrication, management and staff of Pride Microfinance Ishaka branch. The district planner, chief administrative officer, district chairperson, chief finance officer (CFO), the director Ankole Private Sector Foundation, district engineer and the mayor Ishaka Bushenyi municipality were selected as key informants.

3.3. Sample Size and Selection

The researcher agrees with Mugenda and Mugenda (1999) that collecting data from the entire population is not possible due to cost and time constraints. Therefore by studying the sample, the researcher was able to draw conclusions that can be generalized on the population of interest.

A sample size of 127 respondents was selected from the business community in Bushenyi basing on mathematical approach developed by Krejcie and Morgan cited by Amin (2005).  Therefore, with the study population of 200, the estimated sample was 127. The table bellow summarizes the sample size.

Table 1: Sample Size Determination Table

Source:  from Krejcie and Morgan (1970), as cited by Amin E. (2005).

The sample size was chosen because it is difficult to get information from the entire population. The target population was the population to which the researcher generalized the results of the study. The sample was drawn from the target population. Therefore, the sampled results were generalized to the sampled population (Amin, 2005).

3.4. Sampling Techniques

Simple random; in this sampling technique all members of the population have an equal chance of being selected to participate in the study. The technique was selected because it avoids bias and is easy to use (Neumann, 2006). It was therefore used to select respondents in microfinance institutions, agro business, retail businesses and welding and metal fabrication.

Purposive sampling technique was also be used in the study. Purposive sampling according to Neumann (2006) is a non random sample in which the researcher uses a wide range of methods to locate all possible cases of a highly specific and difficult to-reach population. The researcher used purposive technique on the respondents that provided key information that couldn’t be attained by any other method. These respondents included the district officials for key information.

3.5. Data Collection Methods

3.5.1. Documentary Review

Documentary review involved the search and collection of information from the already existing documents and information like books, internet, magazines, newspapers, district literature on business growth and development in Bushenyi and other resource centers.

3.5.1. Questionnaire Survey

This method was used to collect data from respondents especially staff from microfinance institutions, agro business owners, retail shop owners, welding and metal fabrication businesses. Respondents we given a questionnaire containing a number of interrelated questions and items about the factors affecting the performance of small enterprises with questions from which they selected their opinions. This method was preferred because it reduces the cost of data collection; was used on the selected enterprises and individuals as selected in the sample to collect data (Mugenda, 2003).

3.5.3. Interviews

The researcher used face to face interviews with key informants and these were the district officials.  In this method the researcher asked a number of questions to a key informant who responded freely by giving their opinion, perceptions and views on the problem under investigation. This method was used because it provides in-depth data, is more flexible than questionnaires, and yields a higher response rate than questionnaires (Amin; 2005, Mugenda: 2003, Sekaran: 2004).

3.6 Data Collection Instruments

The researcher used both primary and secondary sources. Primary data was collected from the business community and key informants through questionnaires and interviews while secondary sources included records, government publications, websites, the internet and journals. Data instruments which were used included the questionnaires and interview guide.

3.6.1  Documentary Review Checklist

The researcher reviewed documents in form of books, internet, magazines, newspapers, district and government literature that were relevant to the study so as to get a more informed view of the problem.

3.6.2 The Questionnaire

The researcher used a close-ended questionnaire to collect data in the study. This consisted of questions which the respondents answered in writing. The instrument was used because it was cheap compared to other methods. The researcher used self administered questionnaires to collect data. The self administered questionnaires were filled by respondents who were selected to participate in the study. The self administered questionnaires were delivered physically by the researcher and the research assistant to ensure that they are not delayed.

A five Likert scale questionnaire was used. This contained the dimensions of Strongly Agree (SA), Agree (A), Undecided (UD), Disagree (D), and Strongly Disagree (SD). The same instrument was administered to the respondents who would fill their answerers therein. It was divided into five sections and these included A-back ground information, B-microfinance institutions’ practices and the growth of small enterprises, C-government policies and the growth of small enterprises, D-organizational management