INFLUENCE OF MICRO FINANCE INSTITUTION ON THE PERFORMANCE OF SMALL AND MEDIUM ENTERPRISES (SMEs)

1.0 INTRODUCTION

This chapter will include; background of the study, statement of the problem, purpose of the study, objectives of the study, research questions, scope of the study , significance of the study and operational definition of key terms.

1.1 Background

Loans from micro finance institution enables the poor and excluded section of people in the society who do not have an access to formal banking to build assets, diversity livelihood options and increase income, and reduce their vulnerability to economic stress. (Littlefield and Rosenberg, 2004).

Micro finance institutions play a very important role in the economic resource allocation of countries and they determine the development of both small and big business in a country. They channel funds from depositors to investors continuously after generating the necessary income to cover their operational cost they incur in the due course of their business (Ongore and Kusa, 2013).

Although small and medium-sized enterprises (SMEs) typically employ a major share of an economy’s total employees, SME management suffers from an insufficient business-related knowledge base that top managers in SMEs possess. Indeed, formal plans or cost controls are often only provided on an irregular basis and planning instruments are usually only used by a small number of individuals and developed rather intuitively (Brinkmann, 2002), in addition to that (Berger and Udell 2006.) further asserts that Small and Medium-sized Enterprises make significant contribution to the socio-economic and political infrastructure of developed and developing countries. Vibrant and expanding SMEs sector is very important for continual competitive advantage and economic growth for nations.

Loans are essential for business to be able to acquire capital and enable business organizations especially small and medium enterprises to be able to meet their day to day financial requirement in this competitive age (Azeem, 2012).

The traditional role of a bank is lending and loans make up the bulk of banks’ assets (Njanike, 2009). However, lending is not an easy task for banks because it creates a big problem which is called non-performing loans (Chhimpa, 2002) as cited in Upal (2009). According to Alton and Hazen (2001), non-performing loans are those loans which are ninety days or more past due on their payment or no longer accruing interest, cited from (Area, 2016).

Financial constraints are one of the most important obstacles to starting and running a business for small and medium enterprises (SMEs), particularly in less– developed and transition economies (Menkhoff et al. 2006 and 2012).

On a global view, Banks have been faced with the challenge of credit risk management and the aftermath of the credit crisis whose roots started with the bursting of the housing bubble and high default rate on sub–prime mortgages in the United states, a situation that was a result of high appetites for credit and weak credit controls that saw Lehman Brothers collapse while Merrill Lynch and Bear Stearns were sold at fire sale prices (The Economist, 2009).

Loans is the most common source of external finance for many SMEs and entrepreneurs, which are often heavily reliant on traditional debt to fulfill their start-up, cash flow and investment needs. While it is commonly used by small businesses, however, traditional bank finance poses challenges to SMEs, in particular to newer, innovative and fast growing companies, with a higher risk-return profile (OECD, 2015).

The vast majority of firms around the world fall into the category of micro, small- or medium-sized enterprises (SMEs). In terms of enterprises, more than 95 percent fall into this category, but even in terms of employment in low- and lower-middle-income countries, more than 50 percent of employees work in companies with fewer than 100 employees (Ayyagari, Demirguc-Kunt and Maksimovic, 2011a).  Africa’s financial systems are small, shallow and costly, with limited outreach. This is not just reflected in aggregate financial development indicators but also in firm and household data gauging the use of formal financial services; however this has had an effect on the performance of most of the SMES in the continent leading to unemployment and poverty (Beck and Cull, 2014).

In Uganda the SME sector contributes 20% to Gross Domestic Product and it provides employment to over 1.5 million people which accounts for 90% of total non-farming private sector workers (ADB, 2012).

A number of obstacles have continued to constrain the financiers’ further engagement with the SME segment in Uganda. According to the National-Small-Business Survey-report (2015), the key constraints to growth which SMEs feel confront them are financial. They centre on both ‘limited access to finance’ (74.3%), and the ‘cost of finance’ (73.2%). Above and beyond, Nahamya (2013) and Atupele (2013) have advanced that the fundamental challenge of SMEs is the extent to which financial institutions have stringent requirements around security (collateral) which SMEs are not able to meet.

Basing on this background this study intends to investigate into influence of micro finance institution on the performance of SMEs with specific reference to pride micro finance.

1.2 STATEMENT OF THE PROBLEM

SME owners (91%) raise their own start-up capital compared to only 9% who take a loan to start the businesses in Uganda. Accordingly, the National Small Business Survey report emphasizes that those who take loans mostly rely on family and friends (39%), money lenders (26%), SACCOs (13%) but very few take loans from financial institutions (10%).

Its common knowledge that credit availability, accessibility and above all affordability is crucial in driving the engine of Small and medium-sized enterprises (SMEs) not only in Uganda but worldwide. However, it is important to note that credit accessibility has increasingly become a challenge in Uganda due to the high lending rates by the commercial banks standing in the range of 23% to 25% way higher than the central bank rate (CBR) standing at 14% (Bank of Uganda, 2016). Furthermore, Lending rate has been left to be determined by the market forces of demand and supply which with no deliberate action by the central bank to lower these rates may pause a big challenge to the operations of the SMEs in Uganda. Nevertheless, many micro finance institutions lend to very poor people expecting to start a business in Uganda today in disguise of quick loans, this however has lead to the collapse of most of the SMEs in Uganda there by leading to the failure of most of the SMEs in the first five years after their creation. Against this Background this study therefore intends to investigate into influence of micro finance institution on the performance of SMEs.

1.3 OBJECTIVES OF THE STUDY

1.3.1 General objective

The purpose of study is to examine the investigate into influence of micro finance institution on the performance of SMEs.

1.3.2 Specific objectives

1. To examine the challenges to the performance of SMEs.
2. To analyze the Benefits of loans to SMEs

• To analyze the different ways of improving the performance of SMEs?

1.4 RESEARCH QUESTIONS 

1. What are the challenges to the performance of SMEs?
2. What are the Benefits of loans to SMEs ?

• What are different ways of improving the performance of SMEs?

1.5 SCOPE OF THE STUDY

This section will include content scope, time scope and geographical scope.

1.5.1 Content scope

This study will include; challenges to the performance of SMEs, the Benefits of loans to SMEs and different ways of improving the performance of SMEs..

1.5.1 Time scope

The study will be carried out from March to August 2018.

1.5.2 Geographical scope

The study will be carried out in pride micro finance Bank, Bukoto Branch.

1.6 SIGNIFICANCE OF THE STUDY

1. The study will enable the government of Uganda have information regarding the challenges to the performance of SMEs.
2. The study will also provide information on the different ways of enhancing the performance of SMEs.

• The study will also provide the future academicians with information on the relationship between loan performance and development of SMEs.

CHAPTER TWO

LITERATURE REVIEW

2.0 Introductions

This chapter discusses what various scholars have written about;

2.1 Challenges to the performance of SMEs

High Interest rates

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.

Difficulty in acquisition of Loan facilities

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.

Lack of affordable Voluntary savings products

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).

Limited resources

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).

Poor Infrastructure

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.

Unfavorable laws

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).

Poor government policies

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).

2.2 Benefits of loans

The first advantage is maintenance of complete control over the business. The lender charges a company interest for the use of a loan, but the lender does not have the right to say how a company should manage its business. The ownership of the business stays completely in the hands of the corporate directors and shareholders. This also means that lenders will not be entitled to any of the profits that companies make from the business; the borrowing company is merely required to repay the loan within the fixed time period Root (2009).

Cecchetti et al. (2011) observe that a reasonable debt level improves welfare and enhances growth but high level debts can lead to a decline in growth of a firm. Reinhart et al. (2009) reinforces this assertion by arguing that debt impacts positively to the growth of a firm only when it is within certain levels. He opines that a firm becomes vulnerable to financial crisis when the ratio goes beyond certain levels. Stern Stewart and Company shares a similar view that high level of debt increases the probability of a firm facing financial distress. Therefore Cecchetti et al. (2011) contends that over borrowing by a firm can cause bankruptcy and financial ruin. Accumulating high levels of debt by a small scale enterprise will constrain its ability to undertake project that are likely to be profitable, however it also helps the business to retain its autonomy.

Credit is appropriate for companies which pursue an aggressive growth strategy, especially when they have access to low interest rates. Though a company may lose some of its assets if it is unable to repay its loans, the company won’t lose corporate control or ownership to outsiders. Companies wishing to make use of debt financing are recommended to seek appropriate legal advice from the company’s lawyers and accountants for better information on asset protection.

Boah, (2010) adds that a credit policy is the primary means by which management and the board of an institution guides the lending activities. It therefore, provides the scope for achieving the loan portfolio quality and returns, guides the risk tolerance levels in a manner commensurate with the institution’s strategic direction. The credit policy also addresses the procedures of recovering loan from customers which are due for payment but stuck in the portfolio (Zeller, 2010)

Companies can deduct their interest payments (but not the principal repayments) as a business expense. The interest rate which a company pays is usually based on the prime interest rate, and the interest that the company has to pay on a company loan is tax-deductible. This means that debt financing covers up part of a company’s business income from taxes and reduces the company’s tax liability Soumadi and Hayajneh (2012) . A study by Ahmad et al.(2012) in Malaysia which sought to investigate how capital structure impacts on a firm’s performance by analysing the relationship between return on assets (ROA), return on equity (ROE) and short-term debt and total debt established that short-term debt and long-term debt had significant relationship with ROA.

Credit helps the organization to be able to improve on its cash management policies which helps it to improve on its performance. cash management may be defined as an activity at serving the dual purpose of increasing sales revenue by extending credit to customers who are deemed a good credit risk and minimizing risk loss from bad debts by restricting or denying credit to customers who are not good credit risk. It is also directly related to operation, quality, sales and the effectiveness of credit control lies in procedures employed for judging a prospect’s creditworthiness, rather than in procedures used in extracting the owed money also called credit management (Keneth, 2004).

Credit enables the business organization to be able to build a good Character, which improves on managerial performance. This evaluates the applicants’ traits to analyze the willingness to meet the credit obligations. (Kakuru, 2000) highlighted the following variables to consider when analyzing applicant’s character. This is done considering the applicant’s banking behavior from the bank records, the level of education, mental status, operation stability, contact, attachment to government agencies and the previous dealing with bank. This is done to ascertain the applicant’s honesty.

Maintenance of ownership, a primary advantage of issuing bonds and borrowing money from lenders is that a company maintains complete ownership. This is not the case with equity financing because stockholders have ownership rights in a company. The benefit of maintaining ownership is that management has complete control over the decisions made on behalf of the company. Management also has the ability to choose its own board members. The only obligation a debtor has to a lender is to pay back the principal and interest. When the business pays back its loan in full it maintains ownership of its business Maritala (2012).

Tax benefits are received by the organization, another advantage of Credit is that companies receive tax deductions for the interest paid on debt. In most cases, the Internal Revenue Service considers the interest paid a business expense and allows businesses to deduct the payments from their corporate income taxes. This is beneficial for businesses because it allows them to use the money saved to grow the business Fosu (2013).

Achievement of greater financial freedom, Businesses using Credit to raise capital have more flexibility than those using equity financing because they are only obligated to the investor or lender for the repayment period. After all money is paid back, the business is completely free from its obligation. Companies also have greater flexibility because the paperwork to obtain debt financing is less complicated and less expensive than equity financing of Thevaruban (2009).

Credit rating, another disadvantage is that Credit affects the credit rating of a business. A company that has a significantly greater amount of debt than equity financing is considered risky. A company with a lower credit rating that issues bonds typically will have to pay a higher interest rate to attract investors. Companies who have to pay more in interest may experience a cash flow problem in the future Suwastika and Anand (2012).

Cash qualifications, Companies seeking debt financing must meet the lender’s cash requirement, which means companies must have sufficient cash on hand. This is difficult for businesses depending on debt financing for a cash infusion. Some companies may have to put up collateral to qualify for financing, which puts assets at risk if they fail to repay the debt (Datta, 2010).

It improves on the capacity of the organization; This evaluates the applicants’ ability to pay the debt when advanced in the required period. This is ascertained by evaluating the value of customer’s capital and asset offered as collateral against the loan. This may be judged by assessing the customers’ capital and assets which may act as security (Erik, 2005).

2.3 Different ways of improving the performance of SMEs

Training SME owners on Financial management

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.

Capacity Building, The growing competition, poaching of staff and lack of training and increasing demand for higher pay levels make human resources one of the most intractable problems in the sector. Capacity building in the form of a skilled and professional human capital base and adequate access to funding is essential for the building of a sustainable and efficient microfinance sector. Vento (2004)

Improvement of infrastructure, Inadequate and expensive Infrastructure base, Inadequate and expensive infrastructure such as communication, information technology, roads and electricity results in high operational cost within the microfinance sector. The current limited supply of these resources limits operations and drives up cost. In respect of infrastructure development, there is the need to establish a solid base and provide adequate logistics such as telecommunications and information technology to support the operations of microfinance institutions to make them more efficient Murray and Boros (2002)

Improving on the level of funding, The key challenges confronting the microfinance institutions in developing countries such as Ghana include Inadequate funding for capacity building, inadequate and expensive infrastructure base, Inadequate credit delivery and management, the inability to target the vulnerable and the marginalized, information gathering and dissemination, regulation and supervision, consumer protection and research, monitoring and evaluation. Norell, (2001)

Developing cheap ways of gathering information, Armendariz et al, (2010) stated that the information asymmetry problems could potentially be eliminated if lenders had cheap ways to gather and evaluate information on their clients and to enforce contracts. However, lenders typically face relatively high transactions costs when working in poor communities since handling many small transactions is far more expensive than servicing one large transaction for a richer borrower. Another potential solution would be available if borrowers had marketable assets to offer as collateral. In this sense, any problem on the loan was covered by the borrower’s asset. Thus, the lender could lend without risk. But the starting point for microfinance is that new ways of delivering loans are needed precisely because borrowers are too poor to have much in the way of marketable assets. However, Behrman and Srinivasan (1995) stated that one way for the government to improve enforcement conditions for credit markets is to improve the possibilities for usable sources of collateral like implementation of land registration.

Improvement in credit management systems, Inadequate Credit delivery and management,the mechanism for credit delivery within the microfinance sector is inadequate and the microfinance institutions do not have the expertise to categorize their client into the various poverty categories so as to meet their specific needs. (NBE, 2010).

Regulation and Supervision Microfinance institutions in the formal sector operates within a rigid regulatory and supervisory environment which presents some challenges for innovation, outreach and overall performance of the institutions. There is also an absence of specific BoG regulatory guidelines for the apex bodies in the semi-formal and informal sectors for the supervision of their members, (Najoragan, 2000).

Better information gathering and Dissemination, Lack of adequate and reliable information remains a challenge to the microfinance industry. These problems adversely affect the ability to properly target the right clients in order to meet the specific needs of such clients. There is also a paucity of information on microfinance institutions and their operations. (MFRC, 2002)

Creation of better ways of generation of information from lenders, Karlan and Zinman (2006) stated that better understandings of information asymmetries are critical for both lenders and policymakers. For instance, adverse selection problems should motivate policymakers and lenders to consider subsidies, loan guarantees, information coordination, and enhanced screening strategies. On the other hand, moral hazard problems should also motivate policymakers and lenders to consider legal reforms in the areas of liability and enhanced dynamic contracting schemes.

CHAPTER THREE

METHODOLOGY

3.0 Introduction

This chapter presents 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

Qualitative and quantitative research designs will be used. the researcher will use the above methods because many aspects will be covered in the study concerning the influence of micro finance institution on the performance of SMEs given the complex nature of the pride micro finance qualitative research method will be used because it collects information within a short time while quantitative will be through interview to cross check what has been given.

3.2       Study population and sample size

The study will target Administrators, finance officers, and procurement officers.

3.3       Sampling Design 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.

3.3.1 Sampling Technique

Sekaran (2003) defines a population as the entire group of people, events or things that a researcher wishes to investigate.

The study will use purposive sampling, according to Barbie, (2001) Purposive sampling is one that is selected based on the knowledge of a population and a purpose of the study.

The study will use purposive sampling on all the respondents this is because purposive sampling helps the researcher to get specific information on influence of micro finance institution on the performance of SMEs also because it will help the researcher get people who are well experienced and have enough knowledge about the problem under the study.

3.3.2 Sampling size

The sample will target 30 respondents that will be selected in a way that 15 respondents’ will be from finance department, 5 will be key administrators and 10 respondents who are from procurement department. While carrying out research, purposive sampling will be applied to the above different categories of respondents.

Table: Sample size of the respondents

3.5 Sources of data collection

Source of data will be from both primary and secondary sources.

• Primary data

Primary data will be obtained from the questionnaires administered on the target respondents who will include administrators, procurement staff and finance officers, to gain opinions and practices on influence of micro finance institution on the performance of SMEs.

• 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 influence of micro finance institution on the performance of SMEs in relation to the case study. Secondary data shall be obtained from, published articles, journals, News Papers, Text Books, publications relating to influence of micro finance institution on the performance of SMEs. Secondary data will be sourced because it yields more accurate information than obtained through primary data, and it is also cheaper.

3.6 Data Collection Instruments

The major instruments for data collection will be questionnaires and interview guide. Surveys will be just one part of a complete data collection and evaluation strategy. The major method of data collection for the study will be the survey, which will be done using selected instruments like questionnaires. The questionnaire will provide respondents with ample time to comprehend the questions raised and hence, they will be able to answer factually.

3.6.1 Questionnaires

The questionnaire will be used to collect quantitative data. The researcher will administer the questionnaires to respondents in different respondents including, administrators, fiancé officers, and procurement staff, which will be designed basing on study objectives and questions. Respondents will read and write the questionnaires themselves. The questionnaires will be close ended and will be considered convenient because they will be administered to the literate and its anonymous nature will fetch unhindered responses.

3.6.2 Interviews

Qualitative data will be collected from the informants using interviews. The interview guide will be structured. The interviews will be held with administrators and procurement staff, and will take approximately thirty to sixty minutes. This will be used since it’s the best tool for getting first-hand information /views, perceptions, feelings and attitudes of respondents. Both formal and informal interviews will be used to get maximum information from the different respondents to participate in the research.

3.7Data collection procedures

Upon receiving the University permission to carry out research, the area of study will be visited for purposes of familiarization.  The researcher will seek permission from administrators and once allowed to proceed with research, questionnaires will be issued and interviews will be carried out with the selected respondents.

3.8Quality control of data instruments

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

3.8.1 Validity and Reliability

The data a collection tools shall be pre-tested on a smaller number of respondents from each category of the population to ensure that the questions are accurate clear and in line with each objective of the study.

3.8.1 Validity

It is the degree to which results obtained from the analysis of the data actually represents the phenomenon understudy, (Mugenda&Mugenda, 2003).  To ensure validity of instrument close guidance of the supervisor will be adopted. This will help to identify ambiguous questions in the interval and be able to re-align them to the objectives.

3.8.2 Reliability

Reliability tests and analysis shall be carried out.

3.9Data processing and analysis

The raw data will be coded, edited, and arranged ready for analyzing only completed raw data will be analyzed using statistical tables and graphs.

3.10 Limitations of the study

The researcher may face the following challenges in the course of the study;

• The researcher may not get enough time to interview all the respondents, but this will be solved by budgeting for the time appropriately.
• The researcher may also face challenges in language as other respondents may feel comfortable expressing themselves in local languages like luganda.
• Other researchers may ask for money from the researcher, this will not affect the study as the respondents will be persuaded that the research is meant for academic purposes