IMPACT OF MICROFINANCE SERVICES ON BUSINESS GROWTH IN RURAL UGANDA.

CASE STUDY; MUKONGORO Town, Kumi District

Abstract

The topic of study was impact of microfinance services on business growth in rural uganda and the study objectives were; to determine the microfinance services available in rural Uganda, to determine the relationship between microfinance services and business growth and to examine other factors affecting business growth in rural Uganda. The study used cross-sectional research design, the study also used questionnaires and interview guides as data collection methods.

According to the study microfinance services include Financial intermediation to the poor is one of the micro finance services in rural areas, Social networking is one of the key micro-finance services, Skills development is one of the key micro-finance service offered, Educational support is one of the micro-finance services and Business capacity development is one of the microfinance services offered by these organizations.

The findings shows that microfinance organizations provide of start up, Provision of access to micro-credit services for building up a business is very essential and they also train the small scale business entrepreneurs on how to provide skills.

The findings from the study indicates that Women empowerment is one of the key factors affecting business growth ,  Insufficient access of credit by the poor is one of the key challenges facing Business growth and Poor management is one of the key factors affecting business growth and  Political climate is one of the key factors affecting performance of micro finance services, Micro finance services  is one of the key challenges of business growth ,  Economic conditions  has an influence on performance of business and  Industry conditions. The study recommends the micro finance organizations should provide training to the small scale business owners. The study also recommends that microfinance organizations should provide leadership to the small scale entrepreneurs so that they are able to learn key skills to enhance their growth and lastly the study also recommends that microfinance institutions should provide educational services to the microfinance entrepreneurs.

CHAPTER ONE

INTRODUCTION

This study will examine the impact of microfinance services on business growth in rural Uganda. Its main focus will be to establish how microfinance services have affected or contributed to the growth of rural businesses in mukongoro Town, Kumi District. This chapter is therefore comprised of; the background of the study, the problem statement, objectives ,research questions, scope of the study, significance of the study, justification of the study, definitions of key terms used In research and conceptual framework.

1.1Background to the study

“Microfinance” is often defined as financial services for poor and low income clients offered by different types of financial service providers.In practice, the term is often used more narrowly to refer to loans and other services from providers that identify themselves as “microfinance institutions”(MFIs). More badly, microfinance refers to a movement that envisions a world in which low-income households have permanent access to a range of high quality and affordable financial services offered by a range of retail providers to finance income-producing activities, build assets, stabiles consumption, and protect against risks. These services include savings, credit, insurance, remittances, and payments among others (Asiama, 2007). Microfinance, according to Otero (2010) is “the provision of financial services to low-income poor and very poor self-employed people”. These financial services according to Ledgerwood (2014) generally include savings and credit but can also include other financial services such as insurance and payment services.  (Colombet, 2009) define microfinance as “the attempt to improve access to small deposits and small loans for poor households neglected by banks.” Therefore, microfinance involves the provision of financial services such as savings, loans and insurance to poor people living in both urban and rural settings who are unable to obtain such services from the formal financial sector. The vast majority of the world’s poor live in rural areas of developing countries with very limited infrastructure.

Though Microfinance is not new in Uganda, formal Microfinance institutions first appeared in the 1980s (CEO, MFTransparency, 2011). However Informal financial arrangements like ROSCAs had existed in many forms in Uganda for several decades. Originally microfinance was perceived as a socially motivated bid by the non- governmental organization (NGO) sector to alleviate poverty and increase access to financial services for the rural poor. A number of NGOs and aid bodies developed microfinance departments and a few specialized MFIs started operations offering microcredit collaterised by compulsory savings (Carton et al, 2001).

The first true microfinance institutions like FINCA and UgandaWomen Finance Trust (UWFT) appeared in the early 1990s (Carton et al, 2001). However, they did not start to expand in terms of significant client outreach and receive recognition until the mid-1990s. With increased interest from donors and NGOs, after discovering that they can make a lasting impact on poverty alleviation by offering sustainable financial services ,the  microfinance industry began to take shape.Within 20 years, Uganda’s Microfinance industry has grown from an insignificant sideline to a key sub sector in the economy. Customers have in thus time increased from 300000 to over 3.5 million. Adaptation of international sound practices and stakeholder cohesion have mutually reinforced each other to accelerate industry growth.

Currently, there is one commercial bank providing microfinance services (CERUDEB), one recently established privately owned credit institution (CML), about 15 larger MFIs and around 80 CBOs and NGOs providing savings and credit services on a smaller scale. The top five institutions (CERUDEB, FINCA, PRIDE, UMU, UWFT) have already surpassed or are close to full financial sustainability. New providers continue to enter the market and join a relatively mature and professional industry.

Uganda ranked second in 11 Sub-Saharan Africa in terms of GDP growth since 1990.During the same period, inflation was brought down from the dizzy heights of 240% pa in 1986/87 and has been less than 10 percent in the last five years. These achievements can largely be attributed the government’s commitment to macroeconomic stability and the liberalization of the economy including the financial system (MFPED 2000; Wright et al 1999a).

1.2Problem statement

Rural businesses are manned by the poor who need both financial and non-financial services to facilitate the operations of their activities in terms of increased sales/ output, profitability and to be able to sustain and improve on their businesses (Sultan, 2004).Rural business performance is a fundamental feature for survival and sustainability (Covin&Slevn, 1991). Performance factors such as innovation and organizational learning have been found to spur business expansion, technological progress, wealth creation in both start-up and existing firms.

Microfinance provides credit to rural businesses as one of their major roles, and also provides non-financial services like training, management skills to help improve the capacity of their clients in managing loan resources granted to them. It should be noted that rural businesses in Uganda appear to greatly rely on micro-finance services such as loans, in attempt to spur their growth, sustainability and profitability. However , despite all the efforts by government to provide support to rural businesses to attain performance , sustainability and growth through different government programs offering microfinance services such as NAADS, YOUTH FUND, and ENTANDIKWA. It against this background that the researcher purposed to carry out a study on the impact of microfinance services on business growth in rural Uganda.

1.3Objectives

1.3.1General objective

To investigate the impact of microfinance services on the growth of rural businesses Inuganda.

1.3.2Specific Objectives

1. To determine the microfinance services available in rural Uganda.
2. To determine the relationship between microfinance services and business growth.

• To examine other factors affecting business growth in rural Uganda.

1.4 Research questions

1. What are microfinance services in rural Uganda?
2. What are the relationship between microfinance services and business growth in rural Uganda?

• What are factors affecting business growth in rural Uganda?

1.5 Scope of the study

1.5.1content scope

The study was to find out the effect of microfinance services on growth of rural businesses on growth of rural businesses in Mukongoro Town, Kumi District. Specifically the study will determine the microfinance services available in rural Uganda,  determine the relationship between microfinance services and business growth and also examine other factors affecting business growth in rural Uganda.

1.5.2Geographical scope

This study was carried out in Mukongoro Town which is located in Kumi District, the study will take place at Mukongoro Town because of the existence of a multiplicity of rural business activities that include farming, food and beverages, handcrafts and jewelry, energy and electronics, metal work among others. This area will be selected because of the increasing number of rural businesses coming up daily and also because of the existence of microfinance institutions such as Vision Fund Uganda.

1.5.2 Time Scope

The research took place from June to September 2018. The study also made a reference to a period from 2010 to 2018 because of the background of microfinance services in Uganda.

1.6 Significance of the study

The study will provide the government with the information in designing a policy frame work to enhance the growth of rural businesses, which will promote development.

It will also enlighten the public on the role of microfinance services in the growth of rural business thus ensuring that the owners can access them and boost their businesses.

The study will assist Microfinance Institutions to adopt the necessary measures needed to ensure the desired growth in rural businesses in Uganda andspecifically Mukongoro Town board.

To donors, that fund and support microfinance activities in monetary terms, the study will help in guiding them in their choices of investment.

1.7 Definition of key terms

Growth: Is the process of improving some measure of an enterprise success through boosting the top line or credit of the business with greater product sales or service income, or by increasing the bottom line or profitability of the operation by minimizing costs?

Small enterprise: Is any type of business that operates on a small scale, it requires small investment. Small- scale enterprises would generally mean enterprises with less than 50 workers. In this research we shall regard to small businesses as entities which operate on small scale such as household’s accessories, plastics, medical supplies, retail shops among others.

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

Credit: According to the American Bankers Association (0021 Booklet), credit refers to borrowed money. Typical forms of credit include credit cards, personal loans, overdrafts and home loans.

Livelihood: It is defined as a means of making a living. It encompasses people’s capabilities, assets, income, and activities required to secure the necessities of life such as food, shelter, clothing, health, education and others.

Small Enterprises: It is any type of business that operates with on small scale, it requires small investment. Small scale enterprises would generally mean enterprises with less than 50 workers. In this research we shall regard to small business as entities which operate on small scale such as household accessories, plastics, medical supplies, retail shops among others.

CHAPTER TWO

LITERATURE REVIEW

2.1 Introduction

Microcredit and microfinance are relatively new terms in the field of development, first coming to prominence in the 1970s (Robinson, 2001) and (Otero, 1999) prior to then, from the 1950s through to the 1970s, the provision of financial services by donors or government’s was mainly in the form of subsidized rural credit programs. These often resulted in high loan defaults, high lose and an inability to reach poor rural households (Robinson, 2001)

The 1990s “saw accelerated growth in the number of microfinance institutions created and an increased emphasis on reaching scale” (Robinson, 2001) , 1990s was referred to as “the microfinance decade” (Dichter, 1999). Microfinance had now turned into an industry[Robinson, 2001].Along with the growth in microcredit institutions, attention changed from just the provision of credit to the [microcredit],to the provision of other financial services such as savings and pension [microfinance]when it became clear that poor had a demand for these other services.

2.2 Micro finance service in rural areas of Uganda

Microfinance is “the provision of financial services to low-income poor and very poor self-employed people”[Otero ,1999 where  these financial services generally include savings and credit but can also include other financial services such as insurance and payment services[Ledgerwood,1991].Microfinance as “an attempt to improve access to small deposits and small loans for poor households neglected by banks”[schreiner&colombet ,2001],Therefore ,microfinance involves the provision of financial services such as savings, loans and insurance to poor people living in both  and rural settings who are unable to obtain such services from the formal financial sector.

Micro-loans  is  a financial  innovation which originated  in developing countries where  it has successfully enabled extremely  impoverished people  to engage  in  self-employment projects  that allow  the poor and voiceless to generate  income, begin to build wealth and exit poverty. Micro-credit was invented in Bangladesh during the famine of 1974, when Professor Yunus  studied  the  lives of  the poor   13   entrepreneurs  in Bangladesh. Yunus began by  loaning to groups of women an equivalent of $30 to  forty  two  basket  weavers  to  help  them  purchase  bamboo.  Upon the advice of banks and government, he carried on giving out micro-loans and in1983 formed theGrameen Bank. The program proved thatsmall loans could not only quickly improve lives of poor people, but were paid back with interest and on time. By 1997, there were 1.8 million poor borrowers in 22,000 out of 68,000 villages in Bangladesh with 830 millions credits worth every month (Micro-credit Summit 1997, Yunus 2004).

Consequently,  MF  emerged  in  the  1970‟s  as  an  alternative  to  the  Development  Finance Institutions  in  delivering  financial  intermediation  to  the  poor  and  voiceless. The  design  of  the financial  services  offered  by  microfinance  institutions  (MFI)  were  largely  based  on  the mechanisms of informal sector self-help groups such as ROSCAs , but came to prominence afterthe Grameen Bank and BRAC in Bangladesh which were modeled on the social support of group solidarity in helping the poor households to exit their unfortunate condition of poverty.

In Uganda, micro-credit institutions includemoney lenders, small banks, MFIs and MDIs like Uganda Finance Trust Ltd, FINCA Uganda, Faulu Uganda, BRAC Uganda, and Pride MF Ltd among others. Other micro credit institutions include; several companies limited by shares and a large numberof credit NGOs, companies limited by guarantee, cooperatives and credit unions according to theDirectory ofMicrofinance Institutions in Uganda. There  are  also many  other informal  financial  services  such  as  simple  reciprocal  arrangements  between  relative/friends, neighbors, savings clubs and Rotating Savings and Credit Association (ROSCAs) and systems ofcooperative business  finance. These  informal support systems are hinged on  the social  network arrangements  where  members  regard  each  other  as  a  source  of  support  for  development.

2.3 relationship between microfinance services and business growth

The MFI subsequently provides different services to a client, most commonly in the form of a loan. These services lead to the client modifying her/his microenterprise activities which in turn lead to increased or decreased microenterprise income. The change in microenterprise income causes changes in household income which in turn leads to greater or lesser household economic security. The modified level of household economic security leads to changes in the morbidity and mortality of household members, in educational and skill levels and in future economic and social opportunities. Loans are delivered following the minimalist approach where the requirements for loans are not often difficult to meet by customers; little collateral, character and co-signing for loans between members. These loans are usually loans within the savings of the member (Schmidt, 1997).

Microfinance provides a wide range of financial services to low-income clients, including self-employed and low earning individuals who are working in informal sectors. The core objective of microfinance is to create a favorable environment for the low income self employed and near-poor households in which they have permanent access to an appropriate range of high quality financial services, including not just credit but also savings, insurance, and general banking services. Microfinance provides a comprehensive range of financial services to the “unbanked people” working in informal sectors which best fits their needs and affordability. Group Lending is independent variable in the model. This method of providing small credits to the poor is most use by microfinance that provides loans without collateral. The interest charge isaround not much different from that of commercial banks but far lower than interest charge by individual by money lenders (Natarajan, 2004). Individual Lending is independent variable in the model. This is the lending of loans to individuals with collateral. Besley and Coate (1995), say despite the advantages of lending to groups, some members of the group may fail to repay their loan. Montgomery (1996) stresses that this method of lending avoids the social costs of repayment pressure that is exerted to some group members.

The MFIs offer Enterprise Development facilities by assisting people, individually and in groups to access financial services to start and grow enterprise which can sustain them and their families above the poverty line. This is mainly done through the provision of access to micro credit services for building up self-employment, in form of loans at interest free, low interest and market rates [Rogaly, 1999] .Making inexpensive credit available to the rural poor has been key to breaking the vicios circle of low capital, lowproductivity, and low saving thus overcoming poverty.

They also offer loans for consumption and Asset  Development which help beneficiaries to build up asset bases for their families or consume certain products that they would not consume if they were earning low income [transport, meals , and weddings].This may be enhanced through encouraging of saving especially using low or no fee small deposit savings accounts .Saving is at least as important , if not more so , than loans in the efforts to help household to accumulate resources [shreiner and  morduch ,2001].ack of access to finance has been identified as one of the major constraints to small business growth ( Lawson, 2007). The reason is that provision of financial services is an important means for mobilizing resources for more productive use. The extent to which small enterprises could access fund is the extents to which small firms can save and accumulate own capital for further investment (Hossain, 1988). However, small business enterprises find it difficult to access formal financial institutions such as commercial banks for funds. The inability of the Small rural business to meet the standard of the formal financial institutions for loan consideration provides a platform for informal  institutions to attempt to fill the gap usually based on informal social networks, and this is what gave birth to micro-financing.

Many impact studies of micro finance have focused on educational status [Chowdhury and Bhuiya in 2004].studies the impact of a micro finance program, Bangladesh Rural advancement committee [BRAC]poverty alleviation program in Bangladesh and found that both member and non-member groups of BRAC had improved education performance through micro finance trainings. However, the BRAC member household benefited much more than poor non-member households .Furthermore, girls gained more than boys .The effects of micro-finance on childhood education  were examined  by two micro finance programs in South India-one with direct bank-borrower credit , the other with group-mediated credit. This showed that loans to women, through women’s groups, had significant positive impact on schooling and literacy for girls, whereas it remained mainly unchangeable in the case of boys [Holvoet, 2004]. Many SMEs owners or managers lack managerial training and experience. The typical owner or managers of small businesses develop their own approach to management, through a process of trial and error (Anderson, 1993). As a result, their management style is likely to be more intuitive than analytical, more concerned with day-to-day operations than long-term issues, and more opportunistic than strategic in its concept. Although this attitude is the key strength at the start-up stage of the enterprise because it provides the creativity needed, it may present problems when complex decisions have to be made. A consequence of poor managerial ability is that SME owners are ill prepared to face changes in the business environment and to plan appropriate changes in technology. Majority of those who run SMEs are ordinary lot whose educational background is lacking. Hence they may not well equip to carry out managerial routines for their enterprises (King and McGrath, 2002).

Education and skills are needed to run micro and small enterprises. However lack of basic skills in business management and entrepreneurship is a major drawback in the growth and development of rural business sector (Sessional paper of 2005) the integration of entrepreneurial training into the country’s education system, exposure of potential rural entrepreneurs to modern business management skills and creation of an environment that permits rural business to emerge and flourish, has been a major challenge  Research shows that majority of the lot carrying out micro and small enterprises in Kenya are not quite well equipped in terms of education and skills. Study suggests that those with more education and training are more likely to be successful in the business sector (King and McGrath 2002). As such, for small businesses to do well in Uganda, people need to be well informed in terms of skills and management. Rural business in ICT appear to be doing well with the sprouting of many commercial colleges offering various computer applications. Further, studies show that most of those running small business in this sector have at least attained college level education (Wanjohi and Mugure, 2008).

The informal sector for example has proved that it can be a factor that can boost economic growth in uganda once empowered. In this sector, practical skills need to be developed at low cost and with financial support; various types of small scale technology could be developed for labour-intensive enterprises that could absorb hundreds of young job seekers. However, those who run the businesses in this sector lack adequate business skills mainly attributed to low levels of education. It is not sufficient to know how to produce a high quality product. The producer must also know how to sell it effectively and how to control the financial side of the business and in doing that the entrepreneur must be skilled in business. K-rep research paper Series No 24 (1995).

Access to good finance goes hand in hand with providing the appropriate skills and vocational resources to utilize the finances. This not only includes the development of new skills and vocations, but also strengthens existing skills that the micro finance recipients possess- leading on to more eligible economic development (khandker, 2005).

Leadership Training systems,Identification and nourishing good community leaders helps in bringing the community together and in giving a representative voice to the community in articulating its needs and wishes. Many micro finance programs have leadership training components built in them. Good leaders instill discipline among the borrowers, leading to better financial management ( khandker, 2005).

The success of micro finance programs greatly depends on the degree of networking incorporated into the program both within the community in which it operates external agencies and institutions that can help its development. Building  the training program capacity as well as instituting governance structures in its management is dependent on the links it develops, and in the information and transparency it incorporates into the training program. Good networking and information gathering system also leads to better informed decisions and understanding market operations (khandker,2005).The developmental and implementation of a micro finance program facilitates, and is facilitated by, organizational and operational systems that are set up as a part of the training program of micro finance institutions. They include community based organizations, peer groups etc. as well as systems of operation to manage the micro finance program. A good organizational/ operational system also leads to better financial sustainability.

Micro-credit  through  MFIs  is  perceived  by  many  development  scholars  as  a  financially sustainable  instrument meant  to reach significant number of poor people who most are not able to access financial services from commercial banks. Credit enables the poor to boost their businesses, agriculture production and able to meet the household daily needs. In developing world like Uganda, millions of people are suffering from poverty and its crippling effects  (Lotter 1998). One of themajor barriers to escaping poverty is the  lack of sufficient access  to credit by  the poor (Ledgerwood et al 2002). As a result, the poor especially in rural areas adopt mitigation and survival strategies as a way of coping with the hemorrhage of poverty  (Songsore  1992).  He  further  argues  that  generally  credit  plays  a  crucial  role  in  the expansion  and  development  of  productive  forces.  It provides adequate savings and creditfacilities to individual households.  Credit enables peasants to expand and develop income generating activities, and supporting payment of other necessities like food security, education, and water and health charges.  In addition, Johnson and Rogaly (1997) have demonstrated that availability of credit for micro enterprises can have positive effects on the individual  income and  that of  the household. Thus, access to financial services play an important role in the fight against poverty and enhancing business growth in rural Uganda.

The rate of failure of businesses in Uganda is also one of the highest in the world. This means that there is high rate of new enterprises but also high business failure rate of newly formed enterprises. Accordingly, Rukunga (1999:16) and Mogale (2007:346),  the  failure  rate could  be due  to  low operating capacity  (unpreparedness) of micro-entrepreneurs  to  take  on  business  ventures  professionally.  They  argue  that  people  go  into business  by  choice;  others  are  forced  into  business  by  circumstances  such  as  poverty  and unemployment. For example according  to  the New Vision  edition of Tuesday, September 30th 2008, 80 percent of Ugandans end up  in business by accident with  little or no prior preparation: due  to  high  unemployment  levels,  copy  and  apply  syndrome  and  unplanned  retirement  orretrenchment. Thus, even where the poor have access to micro-credit, the greatest question is do the poor have the capacity  to use the credit (the  level of preparedness), prioritization of  income generating activities, how to management and monitor business progress

Micro-credit services through MFIs across the globe and particularly in the third world countries have  experienced  explosive  growth  since  the  1980s,  and  have  been  discovered  to  have  the potential  to  alleviate  poverty  among  the marginalized  poor  populations  especially  in  the  rural areas.  Micro-credit  is  an  essential  input  to  increase  productivity  at  household  level.  Many scholars  in  the development  field argue  that MC globally  improves  the borrowers‟ well  being; boost  income  levels  and  increase  employment  of  household  members  Okurut  et  al  (2004). However,  there  are  many  variables  which  influence  the  extent  of  success  at  individual, households,  organization  and  environmental  level,  for  example, who  are  initially  targeted,  the borrowers‟ skill  level, gender relation  in the household and the external support available to the borrowers.

According  toNavajas et al (2000),  the professed goal of micro-credit  is  to  improve  the welfare of  the  poor. However, Berger  (1989)  observed  that microfinance  tend  to  stabilize  rather  than increase  income  and  tend  to  preserve  rather  than  create  jobs.  In  addition, Mosley  and Hulme (1998) in their study of 13 MFIs in seven developing countries concluded that household income tended to increase at a decreasing rate, as the debtors income and asset position improve.Other scholar such as Diagne and Zeller (2001) in a study in Malawi suggested that microfinance did not have any significant effect on household income. Equally so, Ross (2002) asserted that the arguments developed above do not necessary imply thata few individuals are not about to rise above their previous condition. Nevertheless, the transformation claimed by the advocates of 23 micro-credits is exaggerated. Thus, the impact of micro-credit on household income remains only partial and contested. On one end of the spectrum are studies arguing that micro-credit has very beneficial economic and social impacts of the household. While on the other end of the spectrum are scholars who contend against such optimism. Given the fact that there is a knowledge gap in the  reviewed  literature,  the  impact of  access  to  and  utilization  of micro-credit  program  on  the households remains a critical area of study.

2.4 Other factors affecting business growth in rural Uganda

Access  to  micro-credit  by  women  is  also  regarded  as enhancing women‟s  participation  in  economic  development  and  there  by  elevating  the  socio-economic status of women, Mayoux 1998 and Pitt and Khandker 1998).  Mayoux (1998) holds the exposition that microfinance is an entry point in the context of a wider strategy for women‟s economic and  socio-political empowerment. Other gender  lobbyists have also advocated credit targeting women because of higher  levels of  female poverty and women‟s responsibility  for the household well being (Alejo 1993). The assumption is that increasing women‟s access to micro-credit enables women to make a greater contribution to household income. Kuntala and Samanta (2006:288) also argued  thatwomen‟s access  to credit does not only empower women, but also opens new opportunities  to master financial skills and create economic enterprises. To  illustrate this, I will focus on Yunus (2004) with the Grameen Bank, which is the pioneer of micro-credit, and  has  provided  finance  for  non-agricultural  self-employment  activities  and  served  over  two millions borrowers, of whom 94 percent were women with a  loan repayment rate of over 90 per cent  by  1994.   Women  are  much  more  likely  than  men  to  repay  loans  and  to  devote  their earnings to serving the needs of the entire family.

Mayoux (2000, 1998) argued that micro-credit is much more than access to money; it is about women gaining control over the means of making a living.  It is about women achieving economic and political empowerment with inwomen‟s lives at household, village and country level. The challenge that remains however  is whether or not women have access to credit or not and  whether  they  have  control  or  not  over  credit  utilization  and  proceeds  from  credit  at household  level.  Some  studies  such  as  Kuntala  and  Samanta‟s  (2006)  in  their  study  of  rural women  in  India  show  that  the  participation  rate of women  in  cooperative  and microfinance  is   16   lower  than  for men.  In addition,  recent  research on micro-credit  in South Asia has also  shown that the availability of credit can increase women‟s work burdens, and that men often control the income  generated  by  the  credit  that  women  receive.  Further,  Songsore  (1992)  while  writing about cooperative credit Union movements in North Western Ghana points out that most men in the  region do not  like  their  spouses  to have  financial  autonomy as  in  their  view;  it erodes  the position  of  control  by  men.  This  implies  that  there  is  no  universal  evidence  to  suggest  that women‟s access to credit translates into women‟s empowerment in the household.

Zeller (2001) argue that insufficient access to credit by the poor just below or just above the poverty line may have negative consequences for small rural business and overall welfare. Access to credit further increases SME’s risk-bearing abilities; improve risk-copying strategies and enables consumption smoothing overtime. With these arguments, microfinance is assumed to improve the welfare of the poor. In many developing countries, many loan takers have been proven to have much benefit as they get credits.

Studies undertaken by Chaliand (2003) a on the impact of micro-credit programmes on household income show that participants of such programmes usually have higher and more stable incomes than they did before they joined the programmes.  Some practitioners still have reservations about the findings of those studies.  Moreover, not many micro credit programmes can afford to undertake impact assessments because they are generally expensive and time-consuming.  There are serious disagreements among experts on the validity methodologies used in some of the published studies.  In some cases, even the more rigorous studies have produced inconclusive results (Chaliand, 2003). Chijoriga (2000) revealed that there are limits to the use of credit as an instrument for poverty eradication, including difficulties in identifying the poor and targeting credit to reach the poorest of the poor.  Added to this is the fact that many people, especially the poorest of the poor, are usually not in a position to undertake an economic activity, partly because they lack business skills and even the motivation for business.

In addition, the administrative structures governing these institutions are commonly either fragile or rudimentary, and often involve large transaction costs.  A study by the Organization for Economic Cooperation and Development (OECD), for example, found that many specialized agricultural institutions were not designed to serve as financial intermediaries.  The success of financial intermediation at any time depends significantly on how efficiently the transaction is completed.  If the transaction costs, combined with high interest rates, require that the operation in question generate profit margins of the order of 30% to 50%, it is not clear that this would be economically beneficial (Chijoriga, 2000). It is not surprising that in many micro lending operations, trading activity – with quick turnover and large profit margins – dominates. In many cases, micro-credit programmes have been stand-alone operations.

According to Coleman (1998) social network refers to the manner in which ties and their emergent properties trust and norms can constitute a resource for the members.  In  this  respect social  ties are critical  for economic prosperity and  sustainable development which is formed out of repeated social interactions between individuals and groups such as gift circles, credit associations  like SACCOS  and ROSCAs, Atterton  (2007), Coleman (1998) and Putman (1993). Networks help to overcome some of the disadvantages of peripheral location  by  serving  as  means  of  economies  of  scale:  sources  of  support,  information  and knowledge  (Granovetter  1973).  The various relationships and associations among individualsaffect individual attitudes and perceptions towards utilization of small loans. As a result, social ties such as group solidarity enables the property less and voiceless to access credit for MCIs.  In addition,  the  existence  of  social  relations  in  the  form  of  indigenous  networks  and  norms  of association are seen as substituting the physical collateral  like  land titles which the poor lack,  in the  selection  of  loan  beneficiaries  and  loan  disbursal  and  recovery  (Mayoux  2001).  The assumption here is that social networks are  inherently positive and beneficial with the horizontal norms  accrued  to  general  trust  and  information  which  can  be  used  by  MCIs.

2.5 Conclusion

The growing competition of MFIs and other credit  lending  institutions has  forced microfinance institutions  to become more concerned with client’s needs,  thereby providing quality  services like;  training  credit  user, loan and business empowerment so as to enhance its growth.  The  trainings  are  offered  by  officers (loan/credit officers  locally called “Musomesa” meaning  teacher) from  lending  institutions such as  FINCA,  BRAC,  Faulu Uganda. Most MCIs andMFIs offer knowledge and skills in business management and loan servicing to clients before extending financial services to clients. The knowledge and skills offered to clients mainly focus on credit servicing, MFIs rules and regulation businessmanagement and business investments planning among others.

CHAPTER THREE

METHODOLOGY

3.1 Introduction

This chapter examines the methods and techniques that the researcher will use in the collection of data. It consists of the study design, study population, sample size, data collection methods, data collection instruments, ethical consideration, limits of the study and analysis.

3.2 Research design

Research design provides a framework for the collection and analysis of data. The study will employ a cross-sectional design which will involve the sample subjects at one particular point intime( Allan& Emma 2003). Since the researcher’s academic period is short, this design will be the best to employ in examining the impact of microfinance services on the growth of rural businesses in Mukongoro Town, Kumi District. The researchers will collect both primary and secondary data to make sure that all the relevant materials on information required for the study are acquired and utilized.

3.3 Data Type and sources

The study collected both qualitative and quantitative data which enhanced accuracy in making a report thereafter.Qualitative data is information about qualities, information that cannot be expressed in numbers and Quantitative data is information about quantities for example it can be measured and written down with numbers which will enhance accuracy in making a report thereafter.

The data was collected from both secondary and primary data source. Secondary sources provide data that was got from different publications.

Primarysources provide imformation got from the field by the researcher and shall be treated as first hand information which is gathered from questionnaires and interview guide.

3.4 Study area and population

3.4.1Research study area

This study was carried out in Mukongoro Town, which is located in Kumi District along Soroti-Lira road. The study took place in Mukongoro Town because of the existence of a multiplicity of rural business activities that include farming, retail businesses among others that are financed by microfinance institutions.

3.4.2 Study population

The study targeted small business owners/operators in Mukongoro Town microfinance customers and workers of the MF institutions.

3.5 Sample size and selection criteria

The researcher used the non-profitability sampling technique such as purposive sampling. Purposive sampling is a deliberately non-random method of sampling, which aims at sampling a group who are concentrated with the phenomenon under study and also knowledgeable about it. This is also sometimes called judgment sampling where respondents are selected because they have knowledge that is valuable to the research process.

The sample size of the study was 30 respondents , this was selected randomly because it was easier to manage enough and to generate findings of the formula to a bigger population.

3.6 Data Collection Tools

Questionnaires

This were the main data collection instrument and the respondent were given self-administered questionnaires to fill in the answers at their own will and choice, which the researcher will analyze to get first hand, additional and accurate information. The questions will be both open ended and close ended.

Interview

The researcher will also use semi-structured interviews which will involve use of a check list of items to be discussed with the respondents as more questions emerge. This method will mainly be used for those respondents who cannot read and write and thus going to help the researcher obtain in-depth information from the respondents  about the impact of microfinance services on business growth in the rural Uganda and also identify how the research topic has affected them through capturing their attitudes, reception and emotions.

Documentary Review

The researcher used many types of documents and is used as primary research data. This was used as a systematic collection, documentation, analysis and interpretation and organization of data.

3.7 Data Collection Procedure

After  the  approval  of  the  research  proposal  by  the  research supervisor,  the  researcher  is  then  given  an  introductory  letter from  department of accounting and finance of Kyambogo University. The letter obtained by the researcher will be taken to seek for permission from the chief administrative officer ofKumi District, Mukongoro Town to carry out research legally from differentrespondents as per the questionnaires and interview guide. Respondents will be assured by the researcher that the study is purely for academic purposes and that the information and also held confidential. The researcher will also assure the respondents that no information revealing the identity of any individual will be included in the final report or any other communication prepared in the course of the study, unless, the individual concerned gives written consent to its inclusion and deemed necessary for the research topic. When the period of research is over, the research will return to the Chief Administrative Officer to bid farewell thereafter proceed to University for report submission.

3.8 Data Processing and analysis

From the quantitative and qualitative data gathered from the field, the researcher will use tables and graphs to obtain the frequency counts, cross tabulations, inferential statistics and determine percentages of results for descriptive purposes and followed by descriptive explanations to establish impact of microfinance services on business growth in rural Uganda with mukongoro town, kumi district as a case study. This will enable the researcher present more understandable and forward data findings.

3.9 Data validity and reliability

The study will use two approaches of quantitative research to generate data that will be used to establish the relationship between microfinance services and growth of rural businesses in Mukongoro Town, Kumi district. Questionnaires and interviews will be used for data collection, and the data will be analyzed using Excel, tabulation and percentages that will establish conclusions for the study.

3.10 Limitation to the study

The researcher is likely to face the following problems:

Some respondents may not return their questionnaires while others may be incomplete which may create a problem for the researcher in analyzing the data. The researcher will make a follow up of each questionnaire issued out and help the respondent in filling the questionnaires appropriately.

Some residents may think that the researcher is a spy from the government and therefore give biased information. The researcher shall make clear introduction to the respondent and explaining the purpose of research as for academic purpose strictly.

Some respondents may demand for money after filling or answering questionnaire or interviews. The researcher shall make introduction as a student making research for obtaining academic award not for any other gain.

The researcher may also face challenge of transportation from one point to another during the questionnaire and interview exercises. This will be solved by moving on foot to other places.

Kumi District Mukongoro Town is far from University therefore geographical location and adaptation to climate changes may affect the researcher negatively. This will be solved by carrying raincoat for the period of rainy seasons whereas during hot the researcher shall use usual dressing office dressing code.

CHAPTER FOUR

PRESENTATION, ANALYSIS, INTERPRETATION OF FINDINGS

4.0 Introduction

This chapter presents the results in reference to objectives in chapter one. Gender of respondents, Age of respondents, Education level of respondents, the study will specifically analyze the findings in relation to study objectives which will include; to determine the microfinance services available in rural Uganda, to determine the relationship between microfinance services and business growth and to examine other factors affecting business growth in rural Uganda.

4.1 Findings on general information

4.1.1 Findings on the Gender of respondents

Depending on the sample of respondents that was taken, below is the table showing the gender distribution.

Table 4. 1.2: Shows the findings on the gender of the respondents

Source: primary data

Table 4.1.2 above shows that 60% of respondents were male and 40% were female. This means that the biggest percentage of respondents and employees in the organization that were sampled were male and apart from that it also shows that male gender dominate the response rate in Mukongoro Town, Kumi District.

4.1.2 Findings on age category of respondents

Source: primary data

According to the findings from the study majority 63% of the respondents were in the age category of 31 years and above, this results indicates that most of the respondents were mature and therefore were able to give correct information that could be relied upon.

4.1.3 Findings on marital status of respondents

Source: primary data

Findings from the study indicates that majority 77% of the respondents were married this was good for the researcher because she was able to get information from responsible respondents who could give good information.

4.1.4 Findings on educational level of respondents

Source : primary data

Findings from the study indicates that majority 57% of the respondents state that they had completed their studies up to secondary school level, 30% were from primary school level and the remaining 13% had studied up to university level. This results indicates that most of the respondents had knowledge and therefore could answer the questions asked by the researcher.

4.2Microfinance services in rural areas

The Microfinance services in rural areas are summarized in the table below;

Table 4.2.1: Shows the Microfinance services in rural areas.

Source: primary data

From table 4.2.1 above, findings revealed that, 50% of respondents strongly agreed that Financial intermediation to the poor is one of the micro finance services in rural areas, 33.3% agreed while 16.6% agreed this therefore shows that majority of respondents agree that micro finance services in rural areas.

According to the table 60% of the respondents strongly agreed that Social networking is one of the key micro-finance services, while the remaining 40% agreed this therefore shows that all the respondents agree with the fact that social networking is one of the key micro finance services in Mukongoro, kumi.

According to the table above, 73.3 % of the respondents strongly agreed that Skills development is one of the key micro-finance service offered by the organization while 16.7% agreed, 3.3% of the respondents were not sure while the remaining 10% basing on this response it is therefore clear that skills development is one of the key micro-finance services.

From the table 83.3% of respondents strongly agreed that Educational support is one of the micro-finance services offered by the micro-finance institutions in Mukongoro, kumi district while the remaining percentage of 16.6% of the respondents agreed.

The table above indicates that 60% of respondents strongly agreed that Business capacity development is one of the microfinance services offered by these organizations in Mukonngoro kumi district, 20% agreed while the remaining 20% were neutral over the issue.

4.3 Relationship between microfinance services and business growth

Table 4.3.1: Shows Relationship between microfinance services and business growth.

Source: Primary Data

From table above, 60% of the respondents strongly agreed that Provision of start up capital is one of the key influences of micro finance services to the area of mukongoro Kumi district while the remaining 40% agreed, this therefore shows that the majority of the respondents agreed.

According to table above it indicates that, 73.3 % of the respondents strongly agreed that Provision of capital to purchase business growth has led to the increase in business growth, while 26.67% agreed , while none of the respondents, was neutral, disagreed, and strongly disagreed

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 Provision of access to micro-credit services for building up a business is very essential.

According to the table 56.7% of the respondents strongly agreed that Self employment has affected business growth while the remaining 33.3% of the respondents strongly agreed, while none of the respondents was neutral, disagreed or strongly disagreed.

From table above, majority of the respondents strongly agreed that Provision of asset development knowledge is one of the key microfinance services which are essential in the business growth while 23.3% while none of the respondents were neutral disagreed or strongly disagreed.

From table above, 60% of the respondents strongly agreed that Provision of skill development by micro finance services has affected business growth to the area of mukongoro Kumi district while the remaining 40% agreed; this therefore shows that the majority of the respondents agreed.

According to table above it indicates that, 73.3 % of the respondents strongly agreed that Provision of access to good finance has led to the increase in business growth, while 26.67% agreed , while none of the respondents, was neutral, disagreed, and strongly disagreed

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 Provision of leadership to good financial services is essential for business growth.

According to the table 56.7% of the respondents strongly agreed that Provision of leadership training has affected business growth while the remaining 33.3% of the respondents strongly agreed, while none of the respondents was neutral, disagreed or strongly disagreed.

According to the table 56.7% of the respondents strongly agreed that Social networking has affected business growth has affected business growth while the remaining 33.3% of the respondents strongly agreed, while none of the respondents was neutral, disagreed or strongly disagreed.

From table above, majority of the respondents strongly agreed that Provision of asset development knowledge is one of the key microfinance services which are essential in the business growth while 23.3% while none of the respondents were neutral disagreed or strongly disagreed.

From table above, 60% of the respondents strongly agreed that Improving the welfare of the poor  by micro finance services has affected business growth to the area of mukongoro Kumi district while the remaining 40% agreed; this therefore shows that the majority of the respondents agreed.

4.4 Factors affecting business growth in Uganda.

Table 4.4.1: Shows Factors affecting business growth in Uganda..

Source: primary data

From table above, 60% of the respondents strongly agreed that Women empowerment is one of the key factors affecting business growth while the remaining 40% agreed; this therefore shows that the majority of the respondents agreed that women empowerment is one of the key factors affecting business growth.

According to table above it indicates that, 73.3 % of the respondents strongly agreed that Insufficient access of credit by the poor is one of the key challenges facing Business growth in  , while 26.7% agreed , while none of the respondents, was neutral, disagreed, and strongly disagreed.

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 Poor management is one of the key factors affecting business growth.

According to the table 56.7% of the respondents strongly agreed that Political climate is one of the key factors affecting performance of micro finance services, while the remaining 33.3% of the respondents strongly agreed, while none of the respondents was neutral, disagreed or strongly disagreed.

From table above, majority of the respondents strongly agreed that Micro finance services  is one of the key challenges of business growth 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 Economic conditions  has an influence on performance of business 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 Industry conditions, while 26.7% of the respondents agreed while the remaining percentages of 23.3% of the respondents were neutral.

CHAPTER FIVE

DISCUSSION, CONCLUSION AND RECOMMENDATIONS OF THE STUDY

5.0 Introductions

This section discusses what various scholars have written about; impact of microfinance services on business growth in rural Uganda.

5.1 Discussions of findings

5.1.1 Microfinance services in rural areas 

Findings from the study indicates that financial intermediation to the poor is one of the micro finance services in rural areas, this results was also in line with yunus, (2004) who indicated that provision of small loans to the poor people could help alleviate poverty among the poor people.

The findings in the study indicates that Social networking is one of the key micro-finance services, this results indicates that micro finance services organizations provide the different social networking ways to the people this helps the poor people to get contacts of the different financiers it needs.

The results in the study indicates that Skills development is one of the key micro-finance service offered by the organization this findings shows that micro finance organizations provides skills to the people to enable them be in position to ensure the success of their business.

The results in the study shows that microfinance organizations provides eduicational services to the people  this is because most of the customers of micro fiannce organizations are illiterates therefore the provision of these educational knowledge is paramount to them. .

The results in the study shows that micro finance organizations provide business capacity development to most of the local people in the area, this helps in enabling mainly the pooer people of micro finance organizations to grow their business.

5.1.2 Relationship between microfinance services and business growth

The results in the study shows that the  Provision of start up capital is one of the key influences of micro finance services to the area Schmidt, (1997) These services lead to the client modifying her/his microenterprise activities which in turn lead to increased or decreased microenterprise income. The change in microenterprise income causes changes in household income which in turn leads to greater or lesser household economic security.

The findings in the study indicates that micro finance institutions provision of capital to purchase business growth has led to the increase in business growth is one of the key. The microfinance institutions provide start up capital.

The study will provide of access to micro-credit services for building up a business is very essential, this is also in line with Natarajan, (2004) who states that this method of providing small credits to the poor is most use by microfinance that provides loans without collateral. The interest charge is around not much different from that of commercial banks but far lower than interest charge by individual by money lenders.

The findings in the study indicate that self employment has affected business growth this is also with Rogaly, (1999) who states that the MFIs offer Enterprise Development facilities by assisting people, individually and in groups to access financial services to start and grow enterprise which can sustain them and their families above the poverty line.

The findings in the study shows that provision of asset development knowledge is one of the key microfinance services which are essential in the business growth this indicates that micro finance institutions provide asset development knowledge to the poor people.

The study shows that respondents in the study assert that provision of skill development by micro finance services has affected business growth to the area of mukongoro Kumi district , this findings indicated that micro finance institutions provide microfinance services to the people.

The findings from the study shows that respondents state that provision of access to good finance has led to the increase in business growth this indicates that microfinance institutions provide access to finance to help in the business growth of business.

Findings in the study shows that provision of leadership to good financial services is essential for business growth, this findings was also in line with (Lawson, 2007) who indicates that micro finance organizations provide leadership to the low income eaners.

The study findings indicates that micro finance institutions also offer loans for consumption and Asset  Development which help beneficiaries to build up asset bases for their families or consume this was also in line with shreiner &  morduch ,(2001) who indicates that microfinance institutions provide certain products like loans.

The results in the study shows that microfinance institutions provide leadership training to the people which helps in facilitating business growth, this indicates that microfinance institutions help in provisision of leadership to the small scale business owners.

The findings in the study indicates that microfinance institutions provide social networking  to the business owners to enable them grow this helps in enabling the business grow , this findings also indicates that microfinance institutions provide social networking to the people.

The results in the study shows that microfinance institutions provide asset development knowledge is one of the key microfinance services which are essential in the business growth.

5.1.3 Factors affecting business growth in Uganda

The results in the study indicates that women empowerment is one of the key factors affecting business growth this results indicates that because most of the women are not empowered and therefore they cannot make their own decisions this affects the ability of microfinance institutions to perform.

The findings in the study indicates that  Insufficient access of credit by the poor is one of the key challenges facing Business growth in  this Mayoux (2000, 1998) argued that micro-credit is much more than access to money; it is about women gaining control over the means of making a living.  It is about women achieving economic and political empowerment with inwomen‟s lives at household, village and country level. The challenge that remains however  is whether or not women have access to credit or not and  whether  they  have  control  or  not  over  credit  utilization  and  proceeds  from  credit  at household  level.

The results also indicates that poor management is one of the key factors affecting business growth, this results also indicates that due to poor management by most of the entrepreneurs this has affected the ability to manage their business.

The results in the study indicates that climate is one of the key factors affecting performance of micro finance services, this findings indicates that poor political climate has agreat influence on the success of small scale business owners.

The results in the study shows that Micro finance services  is one of the key challenges of business growth this results also indicates that it’s hard to access micro finance services by the small scale business owners this hinders their business from growing.

The results in the study indicates that Economic conditions  has an influence on performance of business , this findings indicates that poor economic conditions has an influence on the performance of the business organizations.

5.2 Conclusions

According to the study microfinance services include Financial intermediation to the poor is one of the micro finance services in rural areas, Social networking is one of the key micro-finance services, Skills development is one of the key micro-finance service offered, Educational support is one of the micro-finance services and Business capacity development is one of the microfinance services offered by these organizations.

The findings shows that microfinance organizations provide of start up, Provision of access to micro-credit services for building up a business is very essential and they also train the small scale business entrepreneurs on how to provide skills.

The findings from the study indicates that Women empowerment is one of the key factors affecting business growth ,  Insufficient access of credit by the poor is one of the key challenges facing Business growth and Poor management is one of the key factors affecting business growth and  Political climate is one of the key factors affecting performance of micro finance services, Micro finance services  is one of the key challenges of business growth ,  Economic conditions  has an influence on performance of business and  Industry conditions.

5.3 Recommendations

• The study recommends the micro finance organizations should provide training to the small scale business owners.
• The study also recommends that microfinance organizations should provide leadership to the small scale entrepreneurs so that they are able to learn key skills to enhance their growth.
• The study also recommends that microfinance institutions should provide educational services to the microfinance entrepreneurs.

Appendix I: Interview guide

1. What are microfinance services available in your area.
2. Can people access microfinance services easily?
3. Which kind of business do borrowers operate after accessing Microfinance services?
4. Which group of people access microfinance services?
5. What is the rate of business growth?
6. What is the relationship between microfinance services and business growth.
7. What are factors affecting business growth in rural Uganda.

Thank you so much, may surely God bless you

End

QUESTIONNAIRE

Dear respondent,

My name is AkitengJoanitah Reg. No. 15/U/1403/AFD/PDam carrying out a study about the impact of Microfinance services on business growth in Rural Uganda. The study is part of the requirement for the award of a Bachelors Degree of Science in Accounting and Finance of Kyambogo University, you are requested to complete this questionnaire to the best of your knowledge, your opinion and response will be kept confidential and if at any time you wish not to respond to specific questions you are free to leave them out

SECTION A

Personal information

1. Sex

a)Male                                     b) Female

2. Age group
3. a) 8-30 years b) 31 and above

3. Marital Status
4. a) single b) Married c) Others

4. Level of Education
5. a) Primary Level b) Secondary level         c) University/College

SECTION B- SPECIFIC QUESTIONS

SECTION D: Micro finance services in Rural areas of Uganda.

Key: SA= strongly agree, A=agree, N=neutral, D=disagree, SD=strongly disagree

Relationship between microfinance services and business growth

Agree (A)Strongly Agree (SA)Disagree (D)Strongly Disagree  (SD)

Factors affecting business growth in Uganda

Agree (A)Strongly Agree (SA)Disagree (D)Strongly Disagree  (SD)

APPENDIX III: BUDGET ESTIMATES

APPENDIX IV: TIME PLAN