Contribution of Microfinance Institutions in the Growth of Small and Medium Enterprises in Tanzania: Evidence from Trade Enterprises in Moshi Municipality
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Published:
Aug 31, 2023
Keywords:
MFIs, SMEs Growth, Trade Enterprises, Moshi Municipality, Tanzania
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Abstract
Small and Medium Enterprises (SMEs) in developing and developed countries play a vital role in economic development. Despite their crucial role in the economy, SMEs continue failing in large numbers due to various problems that Microfinance Institutions (MFIs) claim to offer solutions such as access to finance. This study intended to assess microfinance institutions' contribution to SMEs' growth. Precisely, the study aimed at examining the contribution of credit to SMEs, determining the extent to which entrepreneurial training contributes to the growth of SMEs, and examining the contribution of MFIs technological innovations to the growth of SMEs. The study used a cross-sectional research design with a sample size of 231 respondents to collect the information required. Multiple Regression Analysis (MRA) and descriptive statistics were used in data analysis, whereas graphs and tables were used to present the results. It was found that MFIs play an important role in providing services to SMEs. With access to credit, the adjusted R2 was 50.3%, indicating a highly positive relationship between access to credit and SMEs’ growth. The results of entrepreneurial training also showed an adjusted R2 of 38.8%, implying a normal positive relationship between entrepreneurial training and SMEs’ growth. It can, therefore, be concluded that MFIs play an important role in facilitating the growth of SMEs. However, it was also revealed that the SMEs were still struggling to have a high pace of growth due to unfavorable credit terms, less entrepreneurial training, and low awareness of technological innovations. The study recommended that the MFIs improve the credit terms, and the government should also intervene in the activities of MFIs by creating policies aiming to favor the SMEs to improve the sector.
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Prosper J Kimaro. (2023). Contribution of Microfinance Institutions in the Growth of Small and Medium Enterprises in Tanzania: Evidence from Trade Enterprises in Moshi Municipality. PanAfrican Journal of Governance and Development (PJGD), 4(2), 93-121. https://doi.org/10.46404/panjogov.v4i2.4849
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Research-based/ Original Articles
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
References
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Mmari, G.A. (2012). Performance of small and medium enterprises in Tanzania: Evidence from vehicle garages in Arusha and Moshi municipality. Thesis for the Award of Ph.D. Degree at Sokoine University of Agriculture. Tanzania. 122pp.
Mohanty, S., & Patel, N. (2015). Role of Financial Institutions in the growth of micro, small and medium enterprises. International Seminar on Management of SMEs in Global Era. Excel publishers: India. 34pp.
Mukulu, E. (2017). Role of Entrepreneurship Training in Growth of Micro and Small Enterprises in Kiambu County. Saudi Journal of Business and Management Studies. 2(1): 532–543.
Muriithi, S.M. (2017). African small and medium enterprises (SMEs) contribution, challenges and solutions. European Journal of Research and Reflection in management sciences, 5 (1) ISSN 2056-5992.
Nkwabi, J., & Mboya, L. (2019). A review of factors affecting the growth of small and medium enterprises (SMEs) in Tanzania. European Journal of business and management. 11 (8). Retrieved from https://www.researchgate.net/publications/337648899 (Accessed on 06-02-2021).
Organization for Economic Co-operation and Development-OECD (2020). SME performance and entrepreneurial dynamics in Brazil. Retrieved from https://www.oecd-library.org/sites//5b16cf2c-en/index on (Accessed on 5-02-2021).
Rotar, L.J., Pamic, K., & Bojnec, S. (2020). Contributions of small and medium enterprises to employment in the European Union countries. Economic Research, 32(1): 3302-3314, Doi: 10.1080/1331677X.2020.16585.
Salifu, K. (2020). Contribution of small and medium enterprises to economic developments in sub-Saharan Africa. International Journal of Accounting, Finance & Management Research (IJAAFMR), Vol 4 (1), 63 – 74. Retrieved from www.ijeais.org/ijaafmr on 24 Jan 2021.
Saunders, M., Lewis, P. & Thornhill, A. (2019). Research Methods for Business Students. Pearson: New York. 872pp.
Tsatsenko, N. (2020). SME development, economic growth, and structural change: Evidence from Ghana and South Africa. Journal of Agriculture and Environment, 2(14): 1-13. Retrieved from https://www.researchgate.net/publications/342702784 (Accessed on 06-02-2021).
URT. (2017). National Microfinance policy. Government printing house: Dar es Salaam. 51pp.
URT. (2018). Regional Investment Guide. Kilimanjaro. 88pp.
USAID (2019). Theories of Change: High-Growth Small and Medium Enterprise Development. Retrieved from https://f.hubspotusercontent20.net/hubfs/7126072/eBooks/ (Accessed on 20-02-2021). 41pp.
World Bank. (2020). World Bank East Asia and Pacific Economic Update. Retrieved from World Bank East Asia and Pacific Economic Update: World Bank Publications. 234pp.
Ajose, S. (2010). SMEs and the tough terrain of business: Personal Finance and Entrepreneurship. Publication of National Newspaper, 5 (2): 38–39.
Ayyagari, M., Demirguc-Kunt, A., and Maksimovic, V. (2017). Who creates jobs in developing countries? Small Business Economics, 43(1): 75–99.
BOT. (2019). Annual report 2018/2019. BOT: Dar es Salaam. 246pp.
Clark, D. (2020). Number of small and medium-sized enterprises (SMEs) in the European Union. Retrieved from htpps://www.statista.com/statistics/878412/number-of-smes-in-europe-by-size/ (accessed on 23-12-2020).
Claude, R. (2020). Access to finance and performance of small and medium enterprises in Rwanda. International Journal of Science and Research, 9(9):950- 980 Retrieved fromhttps://www.ijrs.net/search_index_result_paperid.php?id=SR20828010020 (accessed on 05-12-2020).
Cook, P. and Olafsen. E. (2016). Growth Entrepreneurship in Developing Countries: A Preliminary Literature Review. World Bank: Washington, DC. 122pp.
Cooper, D., Schindler, P. and Sharma, J.K. (2018). Business research methods, 12th edition. McGraw-Hill Higher Education: New York. 890pp.
Costley, C. & Fulton, J. (2018). Methodologies for practice research: Approaches for Professional Doctorates. SAGE: United Kingdom. 280pp.
Ernest, D. (2016). Contribution of training and technical assistance provided by SIDO to the performance of SMES in Arusha region. Dissertation for Award of the Degree of Masters of Business Administration Corporate Management (MBA) of the Mzumbe University: Tanzania, 68pp.
Fadahunsi, A. (2012). The growth of small business: Towards a research agenda. American journal of economics and business Administration, 4(1): 105 – 115. Retrieved from https://doi.org/10.3844/ajebasp.2012.105.115 (Accessed on 15-12-2020).
Gambacorta, L. and Marquez-Ibanez, D. (2011). The bank lending channel: Lessons from the crisis. Economic policy. 26(66): 135- 182.
George, D. & Mallery, M. (2003). Using SPSS for Windows step by step: A simple guide and reference. Retrieved from https://wps.ablongman.com/wps/media/objects/385/394732/george4answers.pdf (Accessed on 22-02-2021). 61pp.
Gupta, V. K., Turban, D. B., Wasti, S. A., & Sikdar, A. (2009). The role of gender stereotypes in perceptions of entrepreneurs and intentions to become an entrepreneur. Entrepreneurship theory and practice. 33(2):397–417.
Hyder, S and Lussier, R. (2016). Businesses succeed or fail: A study of small businesses in Pakistan. Journal of Entrepreneurship in emerging economies. 8(1): 82- 100 Retrieved from https://doi.org/10.1108/JEEE (Accessed on 06-02-2021).
Itemba, A.J. (2014). Microfinance Institutions and Financing of micro and small enterprises: A case of Hai District. Dissertation for Award of M.A. Degree at Moshi Co-operative University, Tanzania.
Kasimu, O., Opoku, G., & Lambon, S. (2017). Factors affecting the performance of small and medium-scale enterprises in east Mamprusi District of the northern region of Ghana. International Journal of Engineering, Business and Enterprise Applications. 1(1): 11-17 Retrieved from https://www.researchgate.net/publication/321392189_ (Accessed on 5-02-2021).
Kige, M. (2013). Contribution of microfinance institutions to the growth of small and medium enterprises in Municipalities: A case of Bukoba Municipal council. Dissertation for Award of the Degree of Master of Business Administration (MBA) of Mzumbe University: Tanzania, 61pp.
Kyale, M.S. (2013). Impact of microfinance institutions on growth and development of small and medium enterprises: A survey of Marchakos. Dissertation for Award of the Degree of Masters in Project Planning and Management of the Nairobi University: Kenya, 60pp.
Leberman, I.W., Dileo, P., Kanze, A. and Watkins, T.A. (2020). The future of Microfinance. Brookings Institution Press: United States of America. 491pp.
Mallete, M.H. and Duke, N.K. (2020). Literacy research methodologies, 3rd edition. The Guilford Press: New York. 452pp.
Mashenene, R. (2015). Proceedings of the Second European Academic Research Conference on Global Business, Economics, Finance and Banking. In: EAR15Swiss Conference. Zurich-Switzerland: Global biz research. Retrieved from https://www.researchgate.net/publication/281065859_ (Accessed on 24-02-2021).
Mashenene, R. and Rumanyika, J. (2014). Business Constraints and Potential Growth of Small and Medium Enterprises in Tanzania: A Review. European Journal of Business and Management, 7(2): 72-79. Retrieved from https://www.researchgate.net/publication/281235547_ (Accessed on 24-02-2021).
Mbowe, W.J. (2020). Entrepreneurship training on market performance: evidence from SIDO supported micro and small enterprises in Arusha Municipality. Dissertation for Award of the Degree of Masters of Business Management (MBM) of the Moshi Co-operative University: Tanzania, 75pp.
Mmari, G.A. (2012). Performance of small and medium enterprises in Tanzania: Evidence from vehicle garages in Arusha and Moshi municipality. Thesis for the Award of Ph.D. Degree at Sokoine University of Agriculture. Tanzania. 122pp.
Mohanty, S., & Patel, N. (2015). Role of Financial Institutions in the growth of micro, small and medium enterprises. International Seminar on Management of SMEs in Global Era. Excel publishers: India. 34pp.
Mukulu, E. (2017). Role of Entrepreneurship Training in Growth of Micro and Small Enterprises in Kiambu County. Saudi Journal of Business and Management Studies. 2(1): 532–543.
Muriithi, S.M. (2017). African small and medium enterprises (SMEs) contribution, challenges and solutions. European Journal of Research and Reflection in management sciences, 5 (1) ISSN 2056-5992.
Nkwabi, J., & Mboya, L. (2019). A review of factors affecting the growth of small and medium enterprises (SMEs) in Tanzania. European Journal of business and management. 11 (8). Retrieved from https://www.researchgate.net/publications/337648899 (Accessed on 06-02-2021).
Organization for Economic Co-operation and Development-OECD (2020). SME performance and entrepreneurial dynamics in Brazil. Retrieved from https://www.oecd-library.org/sites//5b16cf2c-en/index on (Accessed on 5-02-2021).
Rotar, L.J., Pamic, K., & Bojnec, S. (2020). Contributions of small and medium enterprises to employment in the European Union countries. Economic Research, 32(1): 3302-3314, Doi: 10.1080/1331677X.2020.16585.
Salifu, K. (2020). Contribution of small and medium enterprises to economic developments in sub-Saharan Africa. International Journal of Accounting, Finance & Management Research (IJAAFMR), Vol 4 (1), 63 – 74. Retrieved from www.ijeais.org/ijaafmr on 24 Jan 2021.
Saunders, M., Lewis, P. & Thornhill, A. (2019). Research Methods for Business Students. Pearson: New York. 872pp.
Tsatsenko, N. (2020). SME development, economic growth, and structural change: Evidence from Ghana and South Africa. Journal of Agriculture and Environment, 2(14): 1-13. Retrieved from https://www.researchgate.net/publications/342702784 (Accessed on 06-02-2021).
URT. (2017). National Microfinance policy. Government printing house: Dar es Salaam. 51pp.
URT. (2018). Regional Investment Guide. Kilimanjaro. 88pp.
USAID (2019). Theories of Change: High-Growth Small and Medium Enterprise Development. Retrieved from https://f.hubspotusercontent20.net/hubfs/7126072/eBooks/ (Accessed on 20-02-2021). 41pp.
World Bank. (2020). World Bank East Asia and Pacific Economic Update. Retrieved from World Bank East Asia and Pacific Economic Update: World Bank Publications. 234pp.