Research consultancy
THE EFFECT OF MICRO CREDIT IN THE PERFORMANCE OF SMALL AND MEDIUM ENTERPRISES (SMES) IN SOUTH SUDAN
CHAPTER ONE:
1.0 Introduction
This Section presents the background to the study, problem statement, purpose and objectives of the study, research questions, area and scope of the study and significance of the study.
1.1 Background of the study.
Worldwide, today’s consumers are used to having technology integrated into most aspects of their work and personal lives; and banking is no exception. To respond to changing customer expectations, banks, credit unions and other financial institutions have incorporated mobile technology into consumers’ banking experiences (Porteous, 2007). According to Hernandez (2011), this is further necessitated by the increasing number of people in developing countries with mobile phones more than bank accounts. In 2007, for instance, there were over 3.3 billion phone users, and close to 60% of the subscribers lived in the developing world. Many entities thus with a global development focus had to turn to the mobile phone as a potential platform for delivering financial services to the formally unbanked (Hernandez, 2011).
Porteous (2007) argues that the formally unbanked populace is limited in ability to take out loans, maintain savings or make remote payments, and these constraints can inhibit their economic opportunities. Further, Porteous (2007) contends that these obstacles could be partially overcome if financial services were delivered over mobile phones. In most of the countries, mobile phone-enabled banking services are already available and are increasingly being targeted at unbanked populations that are largely low-income and low-literate. However, there seem to be a number of issues which prevent this population from meaningfully adopting and using existing services (Hernandez, 2011).
The concept of micro credit which came as a result of microcredit arose out of the need to provide financial services to low income earners who were left out by the formal financial Institutions. The Practice of microcredit dates back as early as 18th Century and can be traced to Irish Fund System which provided small loans to rural poor with no collateral. Over the years, the concept of microcredit spread to Latin America then to Asia and later to Africa. The today use of the expression microcredit has its roots in the 1970’s when organizations such as GrameenBank of Bangladesh with the microcredit pioneer Mohammad Yunus, were starting and shaping the mode industry of microcredit(Ogindo, 2006).
According to Organization for Economic Co-operation and Development (OECD) (2004), SMEs are known to contribute to over 55% of GPD and over 65% of total employment in high – income countries. They also account for over 60% of GPD and over 70% of total employment in low-income countries.
The small and medium enterprises sector is recognized as an integral component of economic development and a crucial element in the effort to lift countries out of poverty (Wolfenson, 2007:28-39). The dynamic role of small and medium enterprises in developing countries as engines through which the growth objectives of developing countries can be achieved has long been recognized. It is estimated that SMEs employ 22% of the adult population in developing countries (Fisseha, 2006:43).
In developing countries, SMEs by virtue of their size, capital investment and their capacity to generate greater employment, have demonstrated their powerful propellant effect for rapid economic growth. The MSE sector has also been instrumental in bringing about economic transition by providing goods and services, which are of adequate quality and are reasonably priced, to a large number of people, and by effectively using the skills and talents of a large number of people without requiring high-level training, large sums of capital or sophisticated technology (ILO, 2008:56). Similarly, Lara and Simeon (2009:1453–1464) found that the MSE sector generates substantial employment and economic output in many countries. Their share of overall employment tends to be higher in developing countries, which are typically more focused on small-scale production.
The sector has potential to provide the ideal environment for enabling entrepreneurs to optimally exercise their talents and to attain their personal and professional goals (MoTI, 1997:9). In all successful economies, SMEs are seen as an essential springboard for growth, job creation and social progress. The small business sector is also seen as an important force to generate employment and more equitable income distribution, activate competition, exploit niche markets, and enhance productivity and technical change and, through the combination of all of these measures, to stimulate economic development.
In Ethiopia, SMEs sector is the second largest employment-generating sector following agriculture (CSA, 2005:34-35). A national survey conducted by Ethiopian Central Statistical Authority (CSA) in 2005 in 48 major towns indicates that nearly 585,000 and 3,000 operators engaged in micro and small scale manufacturing industries respectively, which absorb about 740,000 labour forces. Accordingly, the whole labor force engaged in the micro enterprises1 and small scale manufacturing industries is more than eight folds (740,000 persons) to that of the medium and large scale manufacturing industries (90,000 persons). This is a contribution of 3.4% to GDP, 33% of the industrial sector’s contribution and 52% of the manufacturing sector’s contribution to the GDP of the year 2001 (CSA, 2005:34-35).
Small and medium enterprises are the backbone of many economies in Sub-Saharan Africa (SSA) and hold the key to possible revival of economic growth and the elimination of poverty on a sustainable basis. Despite the substantial role of the SMEs in SSA’s economies, they are denied official support, particularly credit, from institutionalized financial service organizations that provide funds to businesses (Kailembo, 2011). According to Wangwe and Semboja (1997), these enterprises account more than one –half of the economic activities of the countries within the sub-region, by contributing about 12% and 34% of rural and urban employment activities in Tanzania. Numerous evidences have pointed to the fact that the number of these enterprises in Tanzania is declining at an alarming rate (Satta, 2002) and little has been achieved in Tanzania, despite of the many efforts done to fight for poverty reduction
According to Hossain (2012), the international development community has taken a more systemic view of the provision of vital financial services to the poor as a vital tool for the accomplishment of the poverty reduction goals, this has led to the establishment of several Micro Credit Institutions (MFIs) in Ghana and the other developing world where poverty is acute. Its dedication is to fight poverty through the provision of credit facilities at reasonable amount of interests.
Small and Micro Enterprises are a major source of entrepreneurial skills, innovation and employment. They are the main source of employment in developed and developing countries alike, comprising over 90% of African business operations and contributing to over 50% of African employment and GDP (Okafor, 2006). In Tanzania, they create employment at low levels of investment per job, lead to increased participation of indigenous people in the economy, use mainly local resources, promote the creation and use of local technologies, and provide skills training at a low cost to society. Emphasizing further on their role in employment creation, Wachira (2006) points out that 12.8% of the retrenches who received the golden- handshake‟ in Kenya in the year 2002 started their own business.
In South Sudan, microcredit grained momentum in the late 2000s as a result of exclusion of large proportion of the population from the formal financial institution mainly Banks. Following the Comprehensive Peace Agreement which was signed by the Government of North Sudan and Sudan People’s Liberation Army (SPLA) creating opportunities for development of Small and Medium Enterprises. Period Ogindo (2006). In the early 2000s with the opening up of political space and ensuring economic stability, the need for credit by individuals, Small and Medium Enterprises increased and this led to the recognition of microcredit institutions in South Sudan.
Among the pioneer of micro credit institutions in South Sudan includes Credit South Sudan, Rural Credit Initiatives. RUFI are Equity Building Society (currently Equity Bank Limited) Family building Society currently South Sudan Microcredit Institution Cooperative Bank of South Sudan and some informal sectors like SACCOs including REMEO SACCO LTD, Kajo-Keji SACCO and South Farmers’ Cooperative.
The importance of microcredit in the field of development was reinforced with the launch of thee Microcredit summit in 1997. The summit aims to reach 175 million of the world’s poorest families, especially the women of those families, with credit for the self-employed and other financial and business services, by the end of 2015 (Microcredit Summit, 2005). More recently the UN has previously stated, declared 2005 as the International Year of Microcredit.
The Republic of South Sudan is currently recovering from more than 20 years of civil war between then Government of Sudan (GoS) and Sudanese People’s Liberation Army (SPLA/SPLM). However in 2005, Comprehensive Peace Agreement (C.P.A) was signed between the Government of Sudan (GoS) and Sudan People’s Liberation Movement (SPLM), institutionalizing wealth sharing and autonomy for the South and starting a 6-year interim period leading to national elections in in 2010 and referendum on secession in 2011. Consequently, the referendum resulted in formation of Republic of South Sudan (RSS) after 98% of the people voted overwhelmingly in favor of separation from Sudan.
Several microcredit institutions (MFIs) operate in South Sudan, as well as a number of Small cooperatives/ rotating savings and credit associations (ROSCA’s/ASCA’s). The main MFIs consist of BRAC South Sudan (a subsidiary of the BRAC Bangladesh), Rural MicrocreditInitiative (RUFI) and credit South Sudan (FSSL) funded by ARC International and Micro Africa Limited.
Presently, micro credit institutions estimate that they cover only 3% of the available clients in the greater Juba region and less than 1% of the potential market of other areas including Yei, Nimule, Kajo-Keji, Yambio in South Sudan. Whilst the majority of clients are still focused in urban hubs and have a very low rural penetration, the micro credit institutions address mainly women (67%) and 6 of the 10 states of South Sudan already benefit from microcredit services. Overall, the MFIs’ experience a low default rate of 10% in South Sudan.
Loans range from 500 SSP to 3000 SSP and are usually issued for a period between 3 to 12 months (depending on the particular micro credit institutions and the respective product type). The MFIs interest rates are not unduly excessive (range of 24% to 36% per annum) given the high costs of funds in South Sudan and the Kenyan averages (30% per annum), but their products are not as yet serviced the strong demand for savings products and housing loans.
MFIs clients mainly consist of informal vendors that operate without license or registry. Trade and Services sectors are the main client sectors (68%), without a sprinkling of loans to agriculture and livestock mainly in Counties of Yei, Kajo-Keji, Nimule, Magwi, Torit, Yambio and Wau (15%) and manufacturing (11%) mainly in Juba City. Clearly there is much room for expansion both in terms of breadth and depth of coverage, along with a more clear set support for the productive sectors.
Unfortunately, there is very little information on how the small business sector is structured. Operating a small business includes a possibility of success as well as failure. According to K‟Obonyo (1999) enterprises size and failure are inversely related, with smaller enterprises facing higher risks of failure than larger ones. Stokes (1995) found that the smallest firms were most vulnerable and that those that grew were less likely to fail than those that did not hence there is a great danger of remaining small.
1.2 Statement of the Problem
In most developing countries, SMEs face constraints both at start up phases and after their establishment. In Africa, for example, the failure rate of SMEs is 85% out of 100 enterprises due to lack of skills and access to capital (Fedahunsi, 1997:170-186). It is typical of MSEs in Africa to be lacking in business skills and collateral to meet the existing lending criteria of financial institutions (World Bank, 2004:29). This, according to World Bank, has created credit gap in most markets.
According to the National Business Incubator Association (NBIA) (2003), about 80% of new businesses fail within the first five years and this high rate of failure makes it difficult for lenders to assess accurately the viability of the entrepreneurs and the likelihood of repayment.
SMEs are essential to a country as they help in the provision of employment opportunities, provide goods and services for the nation an increase on the country’s Gross national product., microcredit institutions such as Credit South Sudan Limited, Rural and Credit Initiatives (RUFI), BRAC South Sudan, Equity Bank, Cooperative Bank South Sudan among others are working hard to ensure that SMEs get the necessary financial and educational support that they need. Small and medium enterprises are the major agents of economic growth and employment. However, despite government efforts in South Sudan to promote SMEs activity, not much progress seems to have been achieved, judging by the performance of the informal sector (Nkonoki, 2010). When the state of the macro economy is less favorable, by contrast, the opportunities for profitable employment expansion in SMEs are limited, However despite of the existence of several micro creditinstitutions in South Sudan, the performance of SMEs are still very poor, this study therefore toinvestigate the effect of microcredit services on the performance of small and medium enterprises (SMEs) in Juba County Central Equatoria State ofSouth Sudan.
1.3.0 General Objective
To find out the effects of microcredit services on the performance of Small and Medium Enterprises (SMEs) of rural communities in Juba County of Central Equatoria state Republic of South Sudan.
1.3.1 Specific Objectives.
- To examine micro credit products in juba county.
- To examine the effect of micro credit on performance of SMEs.
- To assess the effectiveness of micro credit on determining the performance of SMEs in juba county.
1.4 Research Questions.
- What are the different micro credit products in Juba County?
- What are the effects of micro credit on performance of SMEs?
- What is the effectiveness of micro credit on determining the performance of MEs in Juba County?
1.5Scope of the study
This included; subject scope, geographical scope and time scope.
1.5.1. Subject Scope
The study was limited to the effect of microcredit services on the performance of Small and Medium Enterprises (SMEs) beginning from the period for which South Sudan gained its independence.
1.5.2. Geographical Scope.
The study was confined in Juba County of Central Equatoria state located in the Southern part of the country and in Munukipayam located in west of Juba City. The study covered an area with a population of approximately 80000 people who are engage in economic activities from the view point of improving their livelihoods.
1.5.3. Time Scope.
The study covered period from 2012 to 2014 this time scope cover a period from which South Sudan gained its independence from North Sudan as result of Comprehensive Peace Agreement between the Sudan government and the Sudan Peoples’ Liberation Army (SPLA) within this period, South Sudan had been in relative peace and stability and was engage in the economic development. This will give sufficient assessment period for the research.
1.6. Justification.
Although there have been several studied on the effect of Microcredit Services in poverty alleviation, no specific study had been carried out on the effects of microcredit services on the performance of small and Medium Enterprises (SMEs) in Munuki, Kator, Rajap, Lirya and Lokiliripayams of Juba county in South Sudan. The Small and Medium Enterprises (SMEs) are still experiencing major challenges in terms of growth and performance. Therefore this study is intended to examine the effects of microcredit services on the growth and performance of small and Medium (SMEs) in Juba county.
1.7. Significance of the study.
To the Government
The results of this study will be used by the Government through the relevant ministry to enable itdesignfavorable policies that facilitate better performance of small and medium enterprises.
The study will enable the government have information that will enable it enact laws that govern micro credit institution to enable the citizens of the country benefit from their existence.
To Academicians
Academicians will be able to get enough literature on micro credit institutions and have a better understanding on it has been able to transform the small and medium enterprise sector in South Sudan.
Academicians who wish to undertake further research on the subject are able find the literature arising from this study to be of great value since it will add value on the existing literature. Likewise the findings of this study will enable the researcher to make recommendations on ways to improve performance of SMEs particularly SMEs.
Researcher
The researcher will manage to graduate after this study is completed. The study will be useful even for the other coming researchers; by using it as reference and adding unique recommendations.
1.8. Conceptual Framework.
Figure.1: Effects of Microcredit services (loans) on the performance of SMEs in Juba in County.
| MFI Policies Loan amount Training Compulsory Savings Interest rate
|
| Microfinance Services Microcredit (loans) Trainings Savings |
Independent variables. Dependent variables.
| SMEs Performance Profit Sales revenues Market Share Service Quality |
Intervening variables
1.9 Definition of key terms
Micro credit
Microcredit can be defined as the provision of financial services such as loans, savings, insurance, and money transfers and payments facilities to low income groups. (Robinson 1998)
CHAPTER TWO: LITERATURE REVIEW
2.0. Introduction
This chapter reviews the study according to different scholars.
2.1. The Concept of Microcredit
The concept of micro credit is not new. Its origin lies in the numerous traditional and informal systems of credit that have existed in developing economies since centuries. Many of the current micro credit practices were derived from community-based mutual credit transactions that were based on trust, peer-based non-collateral borrowing and repayment (Adongo and Stork, 2005).
According to Putzeys (2002), micro credit is defined as the provision of a broad range of financial services such as deposits (savings), loans, payment services, money transfers and insurance to poor and low-income households and their microenterprises. According to her, micro credit goes beyond the access to and the distribution of money. It enters into the deeper issue of how money is used, invested and how savings are done. Micro credit goes beyond the supply of financial services as it gives people access to new opportunities. Together with the ability to increase their income, MSEs receive information and training and learn how to manage their money. Micro credit therefore includes issues such as organizational and operational aspects, leadership development, and trust building, small enterprise management, education and information transfer. These non-financial services define the specific character of micro credit and thus make micro creditprograms so valuable.
According to Robinson (2003), microcredit refers to all types of financial intermediation services (savings, credit funds transfer, insurance, pension remittances, etc.) provided to low-income households and enterprises in both urban and rural areas, including employees in the public and private sectors and the self-employed
2.2 Theoretical frame work
2.2.1 Games Theory of Microcredit.
The microcredit games theory also supports the idea of group lending among microcredit institutions. Many of the new mechanisms rely on groups of borrowers to jointly monitor and enforce contracts themselves. It based on Grameen lending model of microcredit which is based on group of four to seven. Group members collectively guarantee loan repayments and access to subsequent loans in dependent on successful repayment by all group members. Payment is usually made weekly. The groups have proved effective in deterring defaults as evidenced by loan repayment rates attained by organizations such as Grameen Bank (Bangladesh) that use this type of microcredit model. The model has also contributed to broader social benefits because of their mutual trust arrangement at the heart of group guarantee system and the group itself often becomes the building block to a broader social network. Ledgewood (1999). However, group based mechanism stand to be vulnerable to freer idingand collusion. Inefficiencies are well known to emerge in similar contexts. Guber (2005).
2.2.2 Uniting theory of microcredit.
The uniting theory of microcredit emphasizes on joint liability. Ghatak and Guinnane (1999) reviewed the key mechanisms proposed by various theories through which joint liability could improve repayment rates and the welfare of credit constrained borrowers. They established that all the theories have in common the idea that joint liability can help alleviate the major problems facing lenders i.e. screening, monitoring, auditing and enforcement by utilizing the local information and social capital that exists among borrowers under explicit joint liability, when one borrower cannot repay a loan, group members are contractually required to repay instead. Such repayment can be enforced through the threat of common punishment typically the denial of future credit to all members of the defaulting group or by drawing on a group savings funds that serves as collateral. Second, the perception of joint liability can be implicit. That is borrowers believe that if a group member defaults, the whole group will become in eligible for future loan even if the lending contract does not specify this punishment.
2.2.4Financial sustainability theory.
Long-term survival and sustainability is critical for an MFI in being able to reach its targeted clientele and cover administrative and alter her costs. While social goals of reaching the poorest and poverty alleviation are valid sustainable standing on one’s own feet is a true for low income households receiving microcredit as for microcredit itself. Sustainability for the microcredit has internal and external implications. Internal in terms of deposit and savings mobilization, financial performance, staff motivation, loan administrative costs etc. While external in terms of availability of funds for loan disbursement, grant for community organizing etc. Morduch(2002).
The pressing need for rural economy is to create jobs for a large unemployed and under employed labor force. It is customarily argued that jobs can be created either by generating wage employment or by promoting self-employment in nonfarm activities.
Creation of employment requires investments in small working capital. Unfortunately Income from Other sources is low that they cannot generate investigate surplus on their own. Thus obtaining credit under certain circumstances can help the poor accumulate their own Capital and thus improve their living standard through the income generated from investments. Wahid (1994).
2.3 Different micro credit products
In the literature, the terms microcredit and microcredit are often used interchangeably but it is important to highlight the differences between them because both terms are often confused. Sinah (1998,p.2) states “microcredit refers to small loans, whereas microcredit is appropriate where NGOs and MFIs supplement the loans with other financial services (savings, insurance, etc). Therefore microcredit is a component of microcredit in that it involves providing credit to the poor but microcredit also involves additional non-credit financial services such as savings, insurance, pensions and payment services (Okiocredit, 2005)
Microcredit and microcredit are relatively new terms in the field of development, first coming to prominence in the 1970’s, according to Robinson (2001) and Otero (1999). Prior to then, from the 1950s through to the 1970s, the provision of financial services by donors or governments was mainly in the form of subsidized rural credit programs. These often resulted in high loans defaults, high loses and inability to reach poor rural households (Robinson,2001).
Micro savings; a possibility to save money without no minimum balance, Allows people to retain money for future use or for unexpected costs. In SHGs the members save small amounts of money, as little as a few rupees a month in a group fund. Members may borrow from the group fund for a variety of purposes ranging from household emergencies to school fees. As SHGs prove capable of managing their funds well, they may borrow from a local bank to invest in small business or farm activities (Putzeys, 2002).
Micro insurance; Gives the entrepreneurs the chance to focus more on their core-business which drastically reduces the risk affecting their property, health or working possibilities. The is different types of insurance services like life insurance, property insurance, healt insurance and disability insurance. The spectrum of services in this sphere is constantly expanded, as schemes and terms of providing insurance services are determined by each company individually,( Robinson, 2002).
Micro leasing;for entrepreneurs or small businesses who can´t afford buy at full cost they can instead lease equipment, agricultural machinery or vehicles. Often no limitations of minimum cost of the leased object (O’brien, 2007).
Money transfer,a service for transferring money, mainly overseas to family or friends. Money transfers without opening current accounts are performed by a number of commercial banks through international money transfer systems such as Western Union , Money Gram, and Anelik. On the surface they may seem like small money transfers, but when one considers that such transactions take place millions of times around the world each week, the numbers start to become impressive. According to the World Bank, the annual global market for remittances – money transferred home from migrant workers is around 167 billion US dollars. The estimated total is closer to 230 billion dollars if one counts unregulated transactions. Remittances are also an important source of income for many developing countries including India, China and Mexico, all of which receive over 20 billion dollars each year in remittances from abroad, (MIX,2005).
Robinson states that the 1980s represented a turning point in the history of microcredit in that MFIs such as Grameen Bank and BRI began to show that they could provide small loans and savings services profitably on large scale. They received no continuing subsidies, were commercially funded and fully sustainable and could attain wide outreach to clients (Robinson,2001). It was also at this time that the term “microcredit” came to prominence in development. The difference between microcredit and the subsidized rural credit programs of the 1950s and 1960s was that microcredit insisted on repayment, on charging interest rates that covered the cost of credit delivery and by focusing on clients who were dependent on the informal sector for credit (ibid). It was now clear for the first time that microcredit could provide large-scale outreach profitably.
2.4. Effects of micro credit on performance
Provision of credit facilities, Lack of access to credit has been identified as one of the major constraints hindering the development of small businesses, and therefore the supply of entrepreneurial activities not just in Tanzania, but in other developing Countries. Commercial banks have traditionally concentrated their lending mainly to large formal enterprises which possess collateral and, therefore, contended to be less risky. According to a 1997 study on the supply and demand for financial services in Tanzania by K-Rep, less than 5% of households (not necessarily all entrepreneurs) in the urban and rural areas in Tanzania had access to credit from formal sources. Women’s World Bank estimated that worldwide, less than 2% of low-income entrepreneurs have access to financial services(Kailembo, 2011).
Although the role of credit as a determinant for successful entrepreneurial activity may look obvious when using a partial analysis, the dynamics in the entrepreneurial processes makes this role less obvious. The analysis of an entrepreneurial activity shows that credit does not in itself create economic opportunities. Rather it is entrepreneurial people who see ways in which they can generate income from situations, skills or contact or other push factors. It is in this context that the role of credit should be seen.
Entrepreneurial success could be defined in a conventional sense in terms of a firm’s profit generation and growth in terms of employment, output, and sales etc. over-time. Through growth a firm can graduate from one size to a higher one. In addition, firms that are also realizing results like increased employment of family members, and increased household welfare (increased access to education, health, better housing) and those businesses that are able to survive under intense competition are also included. In a competitive situation these successes cannot happen unless a firm is developing an edge that allows it to take advantage of opportunities. The issue then becomes that of how credit can assist in a process of exploiting such opportunities (Kuzilwa, 2003).
Microcreditclients are either very small businesses or poor individual who usually have few assets, non – existent credit histories, and low income levels (Shima, 2004). This is a problem because it means these clients cannot offer any collateral to microcredit providers against loans. As a result, microcredit institutes (MFIs) may either raise their interest rates (which are already high for small loan transactions) or turn down/rejects hundreds of applications.
Financing the firm is essential and getting access to credit plays a crucial role on firm’s growth process. There are various ways the business owners can credit the growth of their firms but the fundamental decision is whether or not to accept external equity credit return for part ownership of the business. If owners allow external equity credit they choose to surrender part of their control to either a financial institution or other individuals (Guffey, 2008). For many lenders it is almost impossible to assess the risks of an investment of SMEs. This is mainly because of the high level of uncertainty shown by these SMEs.
Loans help the business in acquiring startupcapital;all business ventures regardless of size require credits from commencement and throughout their life cycles. The amount invested will influence greatly the size of the venture, which in turn determines the early survival of an enterprise if other factors are held constant. The entrepreneur will require seed capital to start the business, to operate and manage the business enterprise. Hogarth et al, (2000) noted that unavailability or lack of information about alternative sources of credits and inability of SMEs to evaluate financing option were some of the major problems facing the SMEs. Mambula (2002) singled out lack of access to credits as the main bottleneck facing SMEs growth which was similarly echoed by Florida et al, (1996) and Livard Pang (2006) who found that start-up capital is a barrier to entry in most entrepreneurial activities.
Provision of cash for business, during the early stages of starting a business, many owners commit themselves to taking any sources of credit they have available to them including loans. This can be disastrous as high interest rates and unfavorable repayment schedules are overlooked due to the pressure of financing their business. For the entrepreneur and small business owner, taking on high risk of borrowing is a simple choice between starting a business, or never starting a business. As a result, profits can often only meet the interest payable and the actual credit used is paid off very slowly leading to further monthly interest charges. In a continuing cycle, it is only a matter of time before the business reaches a cash crisis (Mulugeta, 2008).
Financial education to entrepreneurs, Education is a key constituent of the human capital needed for business success. It is argued that education and training provides the basis for intellectual development needed by entrepreneurs in business to be successful. Moreover, they provide the entrepreneurs with confidence to deal with clients (Storey, 1994). SMEs face difficulties in employing and retaining skilled professional skilled workers, because they prefer to work for Large Enterprises that can offer higher salary, job security and career possibilities. In order to meet the demands of the fast changing work environment which is typically associated with SMEs, it is essential that smaller firms ensure that they are able to attract, retain and motivate high quality employees with effective transferable skills through the existence of a strategic training plan and a specific budget for training (Jameson, 2000).
A study by Grameen Bank (1983) found that many Small and Medium Enterprises (SMEs) had limited capital, lacked relevant skills and used outdated technologies that constrained their performance. However there are a number of factors that influence the decisions of SMEs operators and managers before deciding the source and amount of credit to credit business investments to invest in business activities. Parsad, Green and Murinde (2005) found that financing policy, capital structure and firm ownership are all strongly linked. Their argument was that financing policy by firms requires managers to identify ways of funding new investment. The managers may exercise main choices use retained earnings, borrow or issue new shares.
Carpenter and Petersen (2002) argue that firms whose financial needs exceed their internal resources may be constrained to pursue opportunities for growth. The insufficient internally generated liquidity is therefore one of the factors which are frequently cited as the causes of SMEs business failure in developing economies. It is from this perspective, the micro credits are considered to be an appropriate solution because the amount of money needed to start a micro or small business is generally quite minimal (Sonfield&Barbato, 1999). Access to credit will enable the SMEs owner to cover some or all of the cost of capital equipment, expansion or renovation of buildings. Similarly UWFT (2005) found that majority of SMEs that accessed adequate funds from microcredit institutions increased their volume of sales and the profit. The study also will find how SMEs acquired assets using MFIs loans.
According to a study by UNDP (2002) found that SMEs in Kenya were able to acquire fixed assets and technologies using MFIs. The study will try to establish a positive significant relationship between amount of loan and SMEs achievement of goals. Makokha (2006) revealed that inadequacy of capital hindered the expansion of businesses. The study will further find the fact that larger loans enabled SMEs to graduate to bigger enterprises. This argument is supported by Otto, Muli and Ongayo (2010) in their study that indicated that those SMEs that received Larger loans frequently had larger labor force that those SMEs that received smaller loans. Appropriate loans sizes for clients matching their needs, realistic interest rates, savings as a prerequisite, regular, short and immediate repayment periods and achieving scale can contribute to the sustainability of Small and Medium Enterprises.
The review of literature will try to find mixed results. Some studies argue that loan size borrowed significantly and positively do contribute to thee development and growth of business especially Small and Medium Enterprises, while others studies indicated that MFIs that accessed MFIs Loans did not show any sign of growth. Due to mixed results it was worthy to investigate between loan sizes and performance.
Development micro credit focuses on the activities that the organization employing the individual or that the individual is part of, may contribute in the future. This is almost impossible to evaluate. Generally training ensures that the identified competency requirements are built through a systematic and focused approach (Elywood& James, 2003) and development ensures that individuals are provided with opportunities to develop their competencies that enable them to achieve professional and personal career objectives within the organization’s goals (Kelly,2001). If the employees are not evaluated against their current Jobs, those that they are likely to hold in future or against the activities of the organization there will be no bias for training and development. The employees and organizations affected are likely to witness reduced performances. In view of the poor performance by the SMEs in Kisumu municipality, the quality of training and development strategies employed by these SMEs require evaluation.
Organization’s competitive success is achieved through people (Pfieffer, 1994). It therefore follows that the skills and performance of people are critical. Organizations spend a lot of money on training in the belief that training will improve their employees’ performance and hence the organization’s productivity (Leimbach, 2008). However there is a strong feeling that acquisition of knowledge, skills, behaviors and attitudes as such through training is of little value if the new characteristics are not generalized to the Job setting and are not maintained overtime (Kozlowski & Salas, 2002). Swanson (2005) argues that for human resource development to become a core business process, performance is the Key and this makes core issue in linking individual change to the requirements of the organizational system. If managers believe that training truly makes a difference in organizational and individual performance, then they must support training in organizations.
Training has the distinct role in the achievement of an organizational goal by incorporating the interests of organization and the workforce (Stone 2002). Today training is the most important factor in the business world because it increase the efficiency and the effectiveness of both employees and the organization. The employee performance depends on various factors but the most important factor is training because it enhances the capabilities of employees. The employees who have more on job experience have better performance because there is an increase in both skills and competencies because of more on the job experiences (Fakhar& Anwar, 2008). Training also has impact on the return on investment. The organizational performance depends on the employee performance because human resource capital of organization plays an important role in growth and the organizational performance. So to improve the organizational performance and the employee performance, training is given to the employee of the organization (Chang Associate, 2004).
This research pay more concern on the effect of training on Small and Medium Enterprises. Without training, small and medium enterprises performance will be greatly affected thus making it hard for them to achieve their goals and objectives. Lack of training affects the performance of the small and medium size business enterprises. Training is essential for the performance of the smooth operations and running of these enterprises. Without training no enterprise will prosper. The aim of the research is to establish whether there is a relationship between training and performance for small and medium enterprises. Performance will focus on operations in terms of profitability, market share, competitive edge, acquisition of skills and technology. The researcher shall be the view that lack of training has a negative impact on performance of these SMEs businesses. The purpose of the study is to evaluate the effects of training on the performance of Small and Medium Enterprises (SMEs).
2.6Effectiveness of micro credit on determining the performance of SMEs
The mobilization of savings and channeling credit to the lower income group in both the rural and urban areas is done by the informal sector, (Dmitri et al, 2006). They play a significant role in savings mobilization for example microcredit institutions though they are not allowed to mobilize deposits; they fill the gap left by formal institutions (Kasekende, 2007). The formal sector includes central bank, commercial banks, credit institutions, development banks and so on.
For financial intermediaries, savings mobilization increases the supply of internally generated funds that can be invested in housing, microenterprise and small business loans, (www.woccu.org/education/savimgs).
Savings is a foundational pillar in inclusive financial system. Savings contributes to financial inclusion at the client, microcredit institutions and industry levels. Savings services strengthen the credits of low- income households, savings deposits strengthen the funding base or microcredit and are the basis for a competitive, efficient and sound microcredit industry,(Alliance for financial inclusion policy/ formalizing microsavings,2010).
On a micro level, there’s of course an extensive body of academic research to explain how a well-developed (deep) financial market contributes to economic growth in a country, an industry and in individual firms,( Levine,2005). Further it shows that financial development reduces income inequality in general, has a disproportionately positive impact on the income of the poor, and that it contributes to poverty alleviation, (Beck,et.al,2007).
MFIs that intermediate deposits are the best positioned to sustain growth and innovation. MFIs that are funding growth by mobilizing local savings as regulated financial intermediaries have derived benefits from deposit-based funding in at least three ways. First, deposits tend to be more stable and scalable funding source relative to other options. Microcredit organizations typically face challenges with wholesale funding related to credit costs, term structure, currency risk, administrative effort and ultimately getting enough capital to fund growth that keeps up with demand. Also the recent international financial crisis has demonstrated the liquidity risks associated with over dependence on foreign debt funding. In addition to the stability of savings in most markets, it’s also a less expensive funding source.
The second benefit manifests in incentives that drive a MFIs approach to growth and expansion. Deposit based institutions link their asset growth to deposits and therefore growth is based on service to savers and the perception of savers of the integrity to MFI. These MFIs tend to be disciplined, service-oriented and cautions about their reputation. Deposit funding also links the MFI evolution to economic realities since MFIs can only grow if they are successful in intermediating effective market demand for savings and credit.
Finally deposit-based MFIs enjoy customer loyalty since customers that save in an institution have a sense of trust and ownership that credit clients don’t necessary have. For some customer’s savings may be the first step to accessing credit and other services later on, (AFI policy/formalizing microsavings, 2010).
To increase savings, policies should be focused on the major determinates of savings in the economy,(Mukwanason, 1994). The mobilization of small and micro savings respond to demand if the poor and is commercially viable source of funds. It should be noted that successful savings mobilization requires a macroeconomic environment that is conducive. Financial institutions need to put in place strategies that are dynamic and aggressive to encourage savings by enhancing public confidence, provide cost effective schemes, and most importantly they must be seen by the public especially to the concerned not only with balancing sheets but promoting peoples welfare and prosperity, (Bagonza, 2001).It’s important to understand why people save, in doing so financial institutions will create products that are suitable and complement with the needs of those who save,(Fin scope Ug, 2009)
Communities in Uganda have always raised capital for farming, petty trading and other income generating activities through savings mobilization. It is this traditional arrangement that modern micro credit institutions are trying to modify in the mobilization of savings. Over the last decade, micro credit institutions have found those poor households are interested in a variety of savings services and products. Deposit services allow low income household to save for large expenses like dowries, or school fees, accumulate funds for future investment as purchasing a cow, or prepare for periods such as rainy periods when they may have little or no income; this is according to the microcredit experience with savings mobilizations and that they are basically two reasons why microcredit should mobilize savings. Locally mobilized savings are potentially the largest and the most immediate available source of credit for some microcredit institutions, and there is a vast demand for institutions savings services at the local levels.
Provide information on financial management, Burki and Perry, (2006) [10] assert that the bank owners are directly or indirectly involved in the weakening of the loan assessment systems in that they often turn banks’ credits to finance their own activities which they in most cases did not pay in time and thus affecting bank operations. However they did not explain the procedure that can be undertaken to avoid such loopholes
Assist in determining credit worthiness, financial institutions have failed to determine credit worth borrowers simply because they have inadequate credit policies, failure of bank officers to comply with lending policies, inadequate customer relations, low staff morale, and bank officers’ exposure to fraud. Nguyen (2007) on the other hand believes that, the inefficient mechanisms used in assessing loans are attributed by the banks’ pessimism about the ability of technology to come up with decisions on who qualifies and who doesn’t. He went ahead to suggest that the failures need to be closely examined because they reveal deep-rooted weaknesses and limitations about banks.
Financial institutions hold and lend out cash, lending embraces a wide range of risks. In an economy where survival almost depends on loans, loan officers have to be careful while assessing borrowers. Where interest rate is considered as an important factor, a lending officer should not use a single rate of interest for all loans because it would lead to inappropriate investment decisions. Other things being constant, a loan should be required to earn a rate that is at least equal to the risk free rate plus a premium. The premium would compensate for the risk attached to the loan. Nguyen (2007) considers a model of repeated moral hazard, without learning and risk neutrality. In the optimal loan contract, the loan interest rate and collateral requirements decrease with the duration of the bank-borrower relationship, after the firm has demonstrated some project success. In a recent contribution, Freixas (2005) presents a model where relationships arise because there is an initial fixed cost of monitoring, that is, repeated lending from the same bank avoids duplication of monitoring costs
Balancing Macroeconomics in an economy, Saudi Arabian monetary agency, (2003) [31] argues that the main causes of the problems faced by Saudi banks arises from the macroeconomics imbalances which are mainly created by lacked adequate credit assessment and monitoring procedures in relation to lack of required technical expertise and that all this therefore made banks so difficult to recover their cash from the borrowers. However no remedies were advanced to counteract the situation of poor credit assessment in banks.
Accepting deposits in banks, many deposits, According to the International Monetary Fund, (2003) a key feature of the Ugandan banking sector is the high degree of concentration on both the loan and deposit sides. When loans to the top five borrowers for each bank are aggregated, they represent about 40 percent of all loans with deposit concentration having a smaller percentage. Banking sector’s exposure to a small number of borrowers and depositors means that a cyclical downtown or terms of trade shock affecting these borrowers could translate quickly into asset quality problems for banks. I agree with IMF simply because a loan is a major asset of a financial institution so if it is not properly managed, there are few chances of survival.
Extending credit to low income earners, People living in poverty, like in Ethiopia, need a wide range of financial services for consumption smoothing, running their business and building assets. But due to collateral problems, poor people in most cases have no credit access from Banks. Microcredit offers financial services such as loans, savings and micro insurance to the poor people either in individual or in a group basis. Lending to the poor usually means that a lender will not be able to get any collateral to secure the loan (Njoroge, et al, 2009). Moreover, Kimentyi et al. (1998) argues that the most difficult aspects of lending to poor clients are borrower selection and repayment enforcement.
High level of risk in lending, Dejene, (2003) argues in his study on the economic importance of the informal institutions in Ethiopia that the poor are often marginalized in the formal credit markets. This can be explained partly in terms of: 1) a lack of collateral, which makes lending to the poor a risky venture; 2) transaction cost of lending to and borrowing by the poor is often high; and 3) utility loss from repayment is higher for the poor as compared to the rich. So the poor don’t have access to the formal financial sources. Lack of access to institutional credit is one of the crucial factors impeding the poor from involving in operating small business and in particular and economic development in general.
Speculation in the financial market is one of the , another publication (kalyan-city.blogspot.com) identifies speculation: i.e. investing in high risk assets to earn high income and also fraudulent practices such advancing loans to ineligible persons or advances without security or reference as some of the causes of failures in loan management. It also cites internal reasons such as labor agitation/shortage and market failure as some of the causes of the incidence of NPLs. External factors such as recession in the economy and natural calamities/disasters were also cited by the same publication as some of the factors accounting for loan default. (Barth et al., 2004).
Paying of clients deposits in future (Kay Associate Ltd), 2005). Because of this risk of default in loan repayment, lenders needs to project into the future and make sound judgment that will ensure that repayment is effected at the agreed date. Available literature places so much importance on the lender‟s role in ensuring good decisions relating to the granting of loans in order to minimize credit risk. The lender must always aim at assessing the extent of the risk associated with the lending and try to reduce factors that can undermine repayment. The lender should therefore assemble all the relevant information that will assist him/her in arriving at a sound credit decision. In view of the possibility of non-payment which leads to NPLs, MFIs have adopted a standard loan request procedures and requirements usually contained in credit policy manual to guide loan officers and customers. Some of the factors that the MFIs consider before granting loans include the following which are often referred to as the canons of good lending:
Due to moral hazard and problems with information cloudiness typically being more severe during the initial stages of SME development, internal equity financing, as best represented by owner – manager personal savings, is crucial source of funding for SMEs in these early stages (seed financing and start up). Subsequently, in later stages, in order to develop and grow SMEs tend to reduce their dependence on these sources and start seeking alternative channels for raising capital. Internally generated profits and venture capital exemplify just two of the other equity options SMEs seek to expand as they grow.
In general, “equity capital is that capital invested in the firm without a specific repayment date, where the supplier of the equity capital is effectively investing in the business.” (Ou& Haynes, 2006, p.156). Equity capital can be raised either internally or externally. Internal equity is funds obtained from the current business earnings, family and friends or from the retained earnings within the firm. External equity, however is capital acquired from external channels other than the existing partners and their relatives.
As mentioned above, equity financing is preferred over debt as a mode of financing for new and young SMEs as they undergo a typical cash shortage and are generally unable to secure loans with collateral during the founding phase. The advantages of savings is financing in this regard are twofold (Ou& Haynes, 2006). First, unlike debt, savings is financing with minimum cash outflow in the form of interest. Second, savings helps enhance the new/young SMEs or firms creditability by indicating that the enterprise has the approval of sophisticated financial approvals.
Ou and Haynes (2006) determined two situations when SMEs pursue financing from equity capital sources in order to meet expansion needs. The first case is when SMEs face financial distress coupled with a lack of alternative sources of credit. The second case is when cash outflows exceed the cash flows generated from regular sources. Ou and Haynes (2006) attributed this attitude adapted by SMEs in these two particular cases to the reluctance of regular lenders to lend SMEs because of uncertainty about the enterprises’ future growth opportunities. As a result, these SMEs are usually classified as high risk. Inconsistent with this, in their 1investigation of the determinants of financing mode chosen by young innovative SMEs in Germany, Schafer, Werwatz and Zimmermann (2004) found it that risky SMEs are more likely to receive equity financing.
Other arguments suggests that SMEs owner – managers may choose not to use equity as a source of financing in order to avoid any undesirable changes in the ownership of their firm (Ried, 1996). Other entrepreneurs, nevertheless, may choose to source funding from external equity in order to share the risk with less risk averse investors. However, the valid judgment of the importance of the external equity for SMEs should be based on the eventual success of firm that receives it, not on the quantity that the firm utilizes (Berger &Udell, 1998).
2.7. Conclusion.
Microcredit organizations provide financial services to their clients such as credit, training and savings services to credit the informal sector in developing countries. They provide access to capital on smaller scale and enabled poor people to engage in productive economic activities and thus contribute to the development in low income population strata. Microcredit organizations also provide social intermediation services such as formation of groups, development of self-confidence and the training of members in that group on financial literacy and management.
The growth of SMEs in South Sudan has been attributed to the availability of Microcredit training and saving opportunities in the county. Microcredit services have made it possible for the poor to start small and medium enterprises. Microcredit services too have enabled poor people to afford business related trainings and other payments like money transfer. The studies reviewed area clear indication that the microcredit services and concepts where majority of the population is believed to have no access to mainstream banking services due to strict requirements.
CHAPTER THREE: METHODOLOGY.
3.1. Introduction.
This section covered the methods and procedures that the researcher used in the study. It covered the research design, area of the study, population study, sample size and sampling procedure, data sources, instruments used for collecting data, methods of data analysis and limitations of the study.
3.2. Research Design.
The study used both qualitative and quantitative research designs. Research design is defined as “a blueprint for conducting a study with maximum control over factors that may interfere with the validity of the findings”, (Burns and Grove (2003). The researcher used the above methods because many aspects were covered in the study concerning the effect of microcredit services on the performance of small and medium enterprises (SMEs) in South Sudan. According to Holloway and Wheeler (2002) qualitative research is defined as “a form of social enquiry that focuses on the way people interpret and make sense of their experience and the world in which they live”. Researchers use the qualitative approach to explore the behavior, perspectives, experiences and feelings of people and emphasize the understanding of these elements, (Kothari, 2004). Quantitative research is a formal, objective, systematic process in which numerical data are used to obtain information about the world, (Burns & Grove 2005). Quantitative research method will be used because it is easy to use in data analysis.
3.3. Target population
Target population is the population which the researcher wants to generalize results of the study on (Mugenda and Mugenda 2003). The researcher focused on MFIs and SMES Managers, Employees and Customers and loan officials.The target population therefore include a section of the population of 100 respondents from Credit South Sudan Limited clients in Munuki and KatorPayams of Juba County in central equatoria, South Sudan. The study comprise of women and men who had access to loan products and other microcredit services, loan officers, management team, sales and marketing teams. All these members were selected for the study because they are directly affected and responsible with microcreditservices.
Table showing the different categories of respondents
| Category Of Respondents | Total Sample
|
| cashiers | 16 |
| ICT department | 30 |
| Accountant | 16 |
| customers | 23 |
| Top management | 13 |
| Total | 100 |
The customers were selected using random sampling technique; this was done inoder to ensure that all respondents get equal opportunity of being selected.
According to Amin , (2005) he defines simple random sampling as a method of selecting a sample (random sample) from a statistical population in such a way that every possible sample that could be selected has a predetermined probability of being selected.
3.4. Area of the Study.
The study wasconducted at Payams of Munuki and Kator Juba County of Central Equatoria state in South Sudan. The area was selected because it exhibits a good example of Microcredit institutions offerings products. In addition the areas has big sample size from which to choose at random thus representatives and lastly the area is in close reach to the researcher.
3.5. Sampling techniques.
Kothari (2004) defines sampling as the selection of some parts of an aggregate or totality on the basis on which judgment or inference about an aggregate or totality is made. In other words, it is the process of obtaining information about an entire population by examining only a part of it. For the purpose of this study simple random sampling was used.
This technique was used to get information from the different micro credit officials, managers, loan officers and different clients mainly of South Sudan Credit Limited and RUFI.
3.6. Data sources.
The study involved the use of primary and secondary data collection methods (Best &Kha, 1993). Primary data was mainly obtained from filled in research questionnaires designed in relation to the objectives of the study and spontaneous interviews of the management team, sales and marketing team, loan officers and farmers both for crops and animals.
Secondary data was equally used to aid the researcher to obtain relevant information about the relationship of microcredit loans and poverty reduction in South Sudan. This data source wasrequiredbecause the relevant literature relating to this topic is readily available in libraries and internet. The secondary data was obtained from the journals, libraries, internet and other research reports written by other people about the same topic.
3.7. Data collection Techniques.
The researcher collected the data using research questionnaires which were distributed within the microcredit for responses. Research questionnaires were collected later by the researcher for analysis presentation and interpretations. This instrument was most preferred because of its reliability in collecting primary data; this give respondents the opportunity to write what they know freely.
3.7.1. Questionnaires
In this method, questions wereset logically, typed, printed and sent to respondents who were required to answer the questions and later on collected from respondents. The reason for using this instrument was that information can be kept for future references; it’s cheap to use in terms of data collection and ease the process of analyzing data
The study will use likert scale questionnaire, according to Babbie, Earl R. (2005), A Likert scale is the sum of responses on several Likert items. Because many Likert scales pair each constituent Likert item with its own instance of a visual analogue scale (e.g., a horizontal line, on which a subject indicates his or her response by circling or checking tick-marks), an individual item is itself sometimes erroneously referred to as a scale, with this error creating pervasive confusion in the literature and parlance of the field.
The questionnaires contained open-ended questions, pre-coded answers as well as close-ended questions with multiple choices to the responses. These varied structure questions were particularly useful to avoid influencing respondents by always providing a list of possible answers.
3.7.2. Interviews
An interview is a conversation where questions are asked and answers are given. In common parlance, the word interview refers to a one-on-one conversation with one person acting in the role of the interviewer and the other in the role of the interviewee, (Amin, 2003).In this method, the researcher conducted personal dialogues with the data scanning and scrutiny technique were employed from available questionnaires from respondents to examine and validate the survey instrument so as to ensure content validity and reliability.
The researcherwill use opinion interview for getting the opinion of the customers whilethe researcher will also use credential verification questions in order to get information from the staff in RUFI specifically cashiers, ICT department, accountants, and management of RUFI.
3.8.1. Validity
Validity of research instruments ensure scientific usefulness of the findings arising thereof (Nachmias and Nachmias, 1996). Validity therefore refers to the question if the results of the research are applicable to other populations, setting and periods; that is, can the results be generalized (Ghauri, Gronhaug&Kristianslund, 1995). To uphold content validity, the researcher discussed the contents of the questionnaires with the supervisor before going to the field. These ensured that vague and unclear questions are eliminated or corrected.
3.8.2. Reliability.
Data reliability is a cornerstone of making a successful and meaningful study. In order to collect reliable data, research designs the interviews and questionnaires through an elaborate procedure which involved a series of revisions under the guidance of the study supervisors to ensure that filed work was conducted by use of high quality data collection.
Also quotes from interview and statement form questionnaires was used as references to ensure reliability. In order to measure internal consistency, researcher used Cronbach’s Alpha method provided by statistical package for social services SPSS. Researcher used check list of questions when making personal interviews with respondents so as to achieve data consistency and completeness.
3.9. Data Analysis.
Data collection from the field was edited, categorized, coded and entered into the computer using micro soft excell. The program used by the researcher to generate frequency tables, graph and figures. The percentage and frequencies used to test the study objectives. Qualitative data from the field was arranged according to main themes developed by the researcher.
3.10. Ethical Consideration.
The researcher considered the research values of voluntary participation, anonymity and protection of respondents from any possible harm that could arise from participating in the study. Thus the researcher introduced the purpose of the study and not for any other hidden agenda by the researcher and request the respondents to participate in the study on a voluntary basis and refusal or abstaining from participating is permitted. The researcher also assured the respondents of confidentiality of the information given and protection from any possible harm that could arise from the study since the findings were used for the intended purposes only
CHAPTER FOUR
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, to examine the effect of microcredit (loans) on the performance of Small and Medium Enterprises (SMEs) in Juba County, to examine the effect of training on the performance of Small and Medium Enterprises in Juba County and to examine the effect of savings on the performance of small and medium Enterprises in Juba County.
4.1.1 Findings on the demographic information of respondents
4.1.2 Findings on the Gender of respondents
Depending on the sample of respondents that was taken, below is the table showing the gender distribution.
Table 1: Showing gender of respondents
| GENDER | FREQUENCY | PERCENTAGE | DEGREES |
| MALE | 60 | 60 | 216 |
| FEMALE | 40 | 40 | 144 |
| TOTAL | 100 | 100 | 360 |
Source: primary data
Table 1 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 work force of the organization which eased the work due to flexibility of men other than women.
4.1.2 Findings on the age of respondents.
The age groups of the respondents were represented as shown below;
Table 2: Showing age category of respondents
| AGE | FREQUENCY | PERCENTAGE |
| 18-29 | 10 | 33 |
| 30-39 | 15 | 50 |
| 40 and above | 5 | 17 |
| TOTAL | 30 | 100 |
Source: primary data
This was only answered by the employees of RUFI, this shows that majority of the organization were mature.
Pie chart showing age category of respondents
Figure 1: pie chart showing age category of respondents
The table and pie-chart above shows that 33% of the respondents are in the age group of 18-29 while 50% of the respondents are in the ages of 30-39 while the remaining respondents of 17% are in the ages of above 40 years. This showed that respondents between the age 30-39 dominated all therefore are still in an active range therefore can give sound and clear responses in relation to the questions which gives accuracy in data collected.
4.1.3 Findings on the education level of respondents.
The education levels of the respondents were as shown in the table below;
Table 3: Showing findings on educational level of respondents
| RESPONDENTS | FREQUENCY | PERCENTAGE |
| Masters | 16 | 16 |
| Degree | 67 | 67 |
| Diploma | 10 | 10 |
| Others | 7 | 7 |
| TOTAL | 100 | 100 |
From the findings above the table this implies that the degree holders are able to give reliable information about the topic since they have enough knowledge and qualifications.
4.1.4 Findings on the number of year’s respondents have worked at RUFI.
The number of years respondents have worked with RUFI is as shown in the table below;
Table 4: Showing number of respondents has worked
| NUMBER OF YEARS | FREQUENCY | PERCENTAGE |
| 3-5 years | 27 | 27 |
| 6-10 years | 50 | 50 |
| 10 and above | 23 | 23 |
| Total | 100 | 100 |
Source: primary data
The table shows that majority of the respondents have worked for the time period of 6-10 years and therefore have much knowledge about the organization thus can give adequate information.
Figure 2: Bar graph showing number of years respondents have worked
The bar graph above shows that majority of the respondents have works between the range of 6-10 years this shows that the majority of the respondents have enough knowledge on the operations of RUFI and therefore they were able to give detailed information regarding the topic.
Then the least of respondents have worked there for 10 years and above however those that have worked between 3-5 years are more than them.
Shows findings on the designation of the respondents
| CATEGORY | FREQUENCY | PERCENTAGE |
| cashiers | 16 | 16 |
| ICT Department | 30 | 30 |
| Accountant | 16 | 16 |
| customers | 23 | 23 |
| management of RUFI | 13 | 13 |
| Total | 100 | 100 |
The findings in the study indicates that 16% of the respondents were cashiers, 30% were from ICT department, 16% of the respondents were accountants, 23% were customers and 13% of the respondents were managers of the respondents.
4.5 Different micro credit products
Table 6: Different micro credit products
From table above, 60% of the respondents strongly agreed that ; this therefore shows that the majority of the respondents agreed that Micro credit saving is one of the products of micro credit. Micro credit facilities enable low income earners to save for the future and also to enable their business to grow.
This was also supplemented by one of the customers who states that one of the “most critical services by micro credit is enabling wecustomers to save”.
In line with this one of the top managers of the organization also highlighted that by “offering micro credit services to customers they are able to save this helps them to grow financially and be able to meet the necessary financial needs of their business organization”.
According to table above it indicates that, 73 % of the respondents strongly agreed that Through Micro credit insurance low level income earners while 27% agreed, while none of the respondents was neutral, disagreed, and strongly disagreed, this indicates that low income earners who get loans services from micro credit institutions get insurance.
This response was also further strengthen by the response from one of the respondents who stated that “by being able to get micro credit facilities there is guarantee of insurance by the customers”.
According to the table 57% of the respondents strongly agreed that Micro leasing is essential in ensuring that low income earners get leases while the remaining 33% of the respondents strongly agreed, while none of the respondents was neutral, disagreed or strongly disagreed, this also further indicates that micro credit customers are able to get leases this helps them in ensuring that they are able to acquire the products they need.
From table above, majority of the respondents strongly agreed that Micro transfer is one of the products of micro creditwere neutral disagreed or strongly disagreed, the above findings therefore indicates that training employees is essential to enable employees to achieve their goals.
4.6Effects of micro credit on performance
Table 5: Showing the Effects of micro credit on performance
From table 4.2.1 above, findings revealed that, 50% of respondents strongly agreed that getting access to credit plays a crucial role on firm’s growth process. , 33% agreed while 17% agreed this therefore shows that majority of respondents agree that micro credit institution enhance the growth of SMEs.
This results was also in line with the respondents from one of the customers who stated that,
“Micro credit helps the customers to be able to start up business to be able to eliminate poverty and increase on their productivity”.
According to the table 60% of the respondents strongly agreed that Loans help the business in acquiring start-up capital, while the remaining 40% agreed this therefore shows that all the respondents agree with the fact that loans are essential in the growth of the business.
The response from the interview indicates that one of the female customers stated that, “most of the financial needs of the business in the early can be given by micro credit institutions”
According to the table above, 73 % of the respondents strongly agreed that most of the financial needs of the business in the early can be given by a micro credit institutions at RUFI while 17% agreed, 3% of the respondents were not sure while the remaining 10% basing on this response it is therefore clear that micro credit institutions can help the firm be able to finish most of its business needs.
The study shows that financial needs of business are easily meant with the use of micro credit , this view was also shared by the respondents in the interview specifically one of the customers stated that, “when a customer get micro credit from the lenders they are able to purchase the necessary business start upequipments”.
From the table 83% of respondents strongly agreed that Micro credit institutions provide financial education to the SMEs to enable their take off at RUFI while the remaining percentage of 17% of the respondents agreed this makes it clear that micro credit institutions provide financial education to the SMEs.
The results in the study indicates that micro credit institutions provide financial education to the customers which helps them in ensuring that they are able to use the acquired capital very well, this was specifically used by one of the respondents who stated that “I got financial education from RUFI this has helped me to minimize costs that could have arose as a result of the lack of knowledge”
The table above indicates that 60% of respondents strongly agreed that financial institutions provide SMEs with the necessary technologies that they need in case of any issue, 20% agreed while the remaining 20% were neutral over the issue. Due a big percentage of 80 percent in favor of the fact that it is therefore clear that micro credit institution helps SMEs acquire the necessary technologies that they need to boost their productivity.
The findings in the study further shows that through the use of “micro credit facilities customers are able to acquire the necessary technological facilities in the organization”
The above table also shows that 50% of the respondents strongly agreed that SMEs are able to grow due to the existence of the capital they acquire from Micro credit institution while the remaining 50% agreed this therefore shows that 100% of the respondents.
The results from the interview as stated b y one of the male customers stated that,
“Their businesses are able to grow due to the capital they acquire from micro credit facilities in the organization”
However some of the managers of RUFI during the interview also confirmed that, “micro credit facilities help the youths and low income earners to be able to start up their own business by enabling them buy capital equipments like machinery and be able to start up their business which helps in ensuring that they are able to break up their poverty cycle”.
4.7 The Effectiveness of micro credit on determining the performance of SMEs
Table 7:ShowingEffectiveness of micro credit on determining the performance of SMEs
| Effect of savings on the performance of small and medium Enterprises | Response | ||||||
| No. and %age | SA | A | N | D | SD | Total | |
| Savings got from the SMEs are turned into deposit | No | 60 | 40 | 0 | 0 | 0 | 100 |
| %age | 60 | 40 | 0 | 0 | 0 | 100 | |
| Financial institutions provide a system where savers deposit their amounts and borrowers can access such amounts. | No | 73 | 27 | 0 | 0 | 0 | 100 |
| %age | 73 | 27 | 0 | 0 | 0 | 100 | |
| Mobilization of savings and channeling credit to the lower income group | No | 50 | 50 | 0 | 0 | 0 | 100 |
| %age | 50 | 50 | 0 | 0 | 0 | 100 | |
| saving enables SMEs to raise capital for their business | No | 57 | 33 | 7 | 0 | 0 | 100 |
| %age | 57 | 33 | 7 | 0 | 0 | 100 | |
| Assist in determining credit worthiness by micro credit institutions | No | 50 | 33 | 17 | 0 | 0 | 100 |
| %age | 50 | 33 | 17 | 0 | 0 | 100 | |
| Extending credit to low income earners | No | 60 | 33 | 7 | 0 | 0 | 100 |
| %age | 60 | 33 | 7 | 0 | 0 | 100 | |
From table above, 60% of the respondents strongly agreed that Savings got from the SMEs are turned into deposit and capital for expansion of the business this helps the SME to expand which has got numerous benefits to an organization while the remaining 40% agreed.
This view was also shared by one of the respondents who stated that;
“Savings got from the micro credit facilities are turned by customers into deposits”
The results further reveals that during the interviews one of the top managers of RUFI stated “that micro credit facilities has helped in ensuring that there is an increase in deposits by the customers, he further stated that RUFI has helped the customers grow their income base”.
According to table above it indicates that, 73 % of the respondents strongly agreed that Financial institutions provide a system where savers deposit their amounts and borrowers can access such amounts , while 27% agreed , while none of the respondents, was neutral, disagreed, and strongly disagreed.
The results in the study indicates that financial institutions provide a system to enable borrowers be certain of liquidity.
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 Mobilization of savings and channeling credit to other new business opportunities is essential for the micro credit institutions.
This view is also shared by one of the respondents who was a customer stated that, “micro credit has helped in ensuring that customers are able to save this has also helped customers in growing their income”.
According to the table 57% of the respondents strongly agreed that saving enables SMEs to raise capital for their business, while the remaining 33% of the respondents, while none of the respondents was neutral, disagreed or strongly disagreed.
From table above, majority of the respondents strongly agreed that saving by SMEs Assists in determining credit worthiness by micro credit institutions while 23% agreed while none of the respondents were neutral, disagreed or strongly disagreed.
The table above shows that majority of the respondent assert that Extending credit to low income earners 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 results in the study indicate that micro credit has helped in extending credit to low income earners.
However the results from the interview as stated by one of the respondents who was a customer stated that “micro credit institutions like extend income to low income earners”
The table reveals that 50% of the respondents strongly agreed saving ensures that SMEs are able to acquire equity to enable the organization expand and achieve its goals, while 27% of the respondents agreed while the remaining percentages of 23% of the respondents were neutral
CHAPTER FIVE
DISCUSSION OF FINDINGS, RECOMMENDATIONS AND CONCLUSION
5.0 Introductions
5.1.1 Micro credit products
The results in the study indicates that micro credit institutions helps in provision of Micro credit saving to improve on the performance of SMEs this is also shows that low income earners who cannot go to the banks to acquire loans are catered for in the micro credit institutions, this view is also shared by (Putzeys, 2002) who states that micro credit facilities gives the small business people a possibility to save money without no minimum balance, Allows people to retain money for future use or for unexpected costs.
The study also indicates that micro credit facilities provide micro insurance to its clients this helps the members to be in position to protect themselves against loss of their small start upbusiness , which enables the boosting of the business this view was also shared by Robinson, (2002) who states that micro insurance provides the entrepreneurs the chance to focus more on their core-business which drastically reduces the risk affecting their property, health or working possibilities.
The study indicates that micro credit facilities are essential in enabling Micro leasingenvironment which drastically helps for entrepreneurs or small businesses who can´t afford buy at full cost they can instead lease equipment, agricultural machinery or vehicles. Often no limitations of minimum cost of the leased object as shared by (O’brien, 2007), who further supplements that micro leasing is essential for the SMEs to be in position to acquire a plant or any capital facilities they can use to develop their business.
The results in the study also shows that micro credit facilities are also involved in money transfer which helps the entrepreneurs be in position to transfer their money to different accounts this findings is also in line with (Guffey, 2008) who states that Money transfer is a service for transferring money, mainly overseas to family or friends, this helps the entrepreneurs in a number of ways especially in purchase of a capital asset that is needed in production process to enhance the output.
5.1.2 Effects of micro credit on performance
The results shows micro credit facilities provide access to capital to entrepreneurs this helps them in eliminating the major constraints hindering the development of small businesses this is also in line with (Kailembo, 2011), who states through provision of micro credit facilities there is access of capital of the low income earners, while (Shima, 2004), states that Microcredit clients are either very small businesses or poor individual who usually have few assets, non – existent credit histories, and low income levels, therefore acquisition of micro credit facilities to buy capital assets is essential to enable the firm grow and develop into a bigger firm.
This is also further supported by (Guffey, 2008), who states that Financing the firm is essential and getting access to credit plays a crucial role on firm’s growth process. There are various ways the business owners can credit the growth of their firms but the fundamental decision is whether or not to accept external equity credit return for part ownership of the business, however firma which are small can gain access to capital from micro credit facilities.
The findings in the study indicate that micro credit facilities are essential in enabling the business to acquire startup capital all business ventures regardless of size require credits from commencement and throughout their life cycles. The amount invested will influence greatly the size of the venture, which in turn determines the early survival of an enterprise if other factors are held constant. The entrepreneur will require seed capital to start the business, to operate and manage the business enterprise. Hogarth et al, (2000) noted that unavailability or lack of information about alternative sources of credits and inability of SMEs to evaluate financing option were some of the major problems facing the SMEs.
Provision of cash for business by micro credit facilities is essential during the early stages of starting a business, many owners commit themselves to taking any sources of credit they have available to them including loans. This can be disastrous as high interest rates and unfavorable repayment schedules are overlooked due to the pressure of financing their business , this was however stated by (Mulugeta, 2008), who stated that For the entrepreneur and small business owner, taking on high risk of borrowing is a simple choice between starting a business, or never starting a business. As a result, profits can often only meet the interest payable and the actual credit used is paid off very slowly leading to further monthly interest charges. Therefore provision of start up capital by micro credit facilities is essential to enable the business grow.
Micro credit institution help to provide financial education to entrepreneurs, Education is a key constituent of the human capital needed for business success. It is argued that education and training provides the basis for intellectual development needed by entrepreneurs in business to be successful. Moreover, they provide the entrepreneurs with confidence to deal with clients this view was shared by (Storey, 1994) who states that SMEs face difficulties in employing and retaining skilled professional skilled workers, because they prefer to work for Large Enterprises that can offer higher salary there for micro credit intuitions help in provision of knowledge and education to the SME entrepreneurs.
5.1.3Effectiveness of micro credit on determining the performance of SMEs
The results in the study indicates that Savings got from the SMEs are turned into deposit and capital for expansion of the business this helps the SME to expand which has got numerous benefits to an organization, this view was also shared by (Dmitri et al, 2006), who stated that the mobilization of savings and channeling credit to the lower income group in both the rural and urban areas is done by the informal sector and therefore SMEs micro credit facilities to enable them be in position to to enable their growth and development, this was also further stated by (Kasekende, 2007) who stated that micro credit facilities play a significant role in savings mobilization for example microcredit institutions though they are not allowed to mobilize deposits; they fill the gap left by formal institutions.
The results in the study shows that Financial institutions provide a system where savers deposit their amounts and borrowers can access such amounts , this view was also shared by (Alliance for financial inclusion policy/ formalizing microsavings,2010), which indicates that Savings is a foundational pillar in inclusive financial system. Savings contributes to financial inclusion at the client, microcredit institutions and industry levels. Savings services strengthen the credits of low- income households, savings deposits strengthen the funding base or microcredit and are the basis for a competitive, efficient and sound microcredit industry.
Findings revealed that Mobilization of savings and channeling credit to other new business opportunities is essential for the micro credit institutions, this view is also shared by ,( Levine,2005), who states that on a micro level, there’s of course an extensive body of academic research to explain how a well-developed (deep) financial market contributes to economic growth in a country, an industry and in individual firms, while (Beck,et.al,2007), Further shows that financial development reduces income inequality in general, has a disproportionately positive impact on the income of the poor, and that it contributes to poverty alleviation.
The results show that with the help of micro credit facilities SMEs are able to raise capital for their businessthis is also in line with (Mukwanason, 1994) who states that to increase savings, policies should be focused on the major determinates of savings in the economy, The mobilization of small and micro savings respond to demand if the poor and is commercially viable source of funds. It should be noted that successful savings mobilization requires a macroeconomic environment that is conducive. While (Bagonza, 2001) further states that Financial institutions need to put in place strategies that are dynamic and aggressive to encourage savings by enhancing public confidence, provide cost effective schemes, and most importantly they must be seen by the public especially to the concerned not only with balancing sheets but promoting peoples welfare and prosperity.
The findings in the study indicates that SMEs are taught how to be credit worthy by micro credit facilities, this was further stated by Levine,2005),who indicates that micro credit institutions accumulate deposits from SMEs which helps in the growth of the business of the entrepreneurs.
The findings in the study indicates that most of the respondents asserted that micro credit institutions helps in Extending credit to low income earners this is also in line with, AFI policy/formalizing microsavings, (2010), which indicates that deposit-based MFIs enjoy customer loyalty since customers that save in an institution have a sense of trust and ownership that credit clients don’t necessary have. For some customer’s savings may be the first step to accessing credit and other services later on. Communities in Uganda have always raised capital for farming, petty trading and other income generating activities through savings mobilization. It is this traditional arrangement that modern micro credit institutions are trying to modify in the mobilization of savings.
Micro credit facilities ensure that they Extend credit to low income (Njoroge, et al, 2009) who states that micro credit facilities is able to ensure that they extend credit to people living in povertythis helps them to be able to set up business he further stated that due to collateral problems, poor people in most cases have no credit access from Banks. Microcredit offers financial services such as loans, savings and micro insurance to the poor people either in individual or in a group basis. Lending to the poor usually means that a lender will not be able to get any collateral to secure the loan.
To enable SMEs be able to take off they must receive micro credit facilities like micro saving to enable them be in position to improve on their performance and finance their projects , however other micro credit facilities like micro insurance is necessary to enable the SMEs prevent different risks like risks of fire, bade health, and possible theft.
Micro leasing is also necessary for SMEs to be able to acquire different capital equipments to enable the business be in position to develop their business this is because through this they are able to acquire capital equipments that are necessary for the business to develop.
The results shows micro credit facilities provide access to capital to entrepreneurs this helps them in eliminating the major constraints hindering the development of small businesses and also Financing the firm is essential and getting access to credit plays a crucial role on firm’s growth process.
The findings in the study indicate that micro credit facilities are essential in enabling the business to acquire startup capital all business ventures regardless of size require credits from commencement and throughout their life cycles.
The results in the study indicates that Savings got from the SMEs are turned into deposit and capital for expansion of the business this helps the SME to expand which has got numerous benefits to an organization
Financial institutions provide a system where savers deposit their amounts and borrowers can access such amounts ,this helps SMEs to have enough finance to help them in growth and development, Mobilization of savings and channeling credit to other new business opportunities is essential for the micro credit institutions.
5.2 Recommendations
Micro credit institutions should provide facilities like micro saving,Micro leasing, micro insurance to SMEs to enable them be in position to grow and develop.
Micro credit institutions should also provide access to capital to entrepreneurs this helps them in eliminating the major constraints hindering the development of small businesses and also Financing the firm is essential and getting access to credit plays a crucial role on firm’s growth process.
Micro credit facilities should provide startup capital toall business ventures regardless of size require credits from commencement to enable the SMEs to grow.
