The Effect of Credit on Growth of Smes in Katwe Trading Centre, Makindye Division, Kampala District

ABSTRACT This study was conducted to find out the relationship between credit and the growth of Small and Medium Enterprises in Katwe trading center. The study was set to address the following specific objectives: to examine the nature of credit facilities offered to the small and medium enterprises at Katwe treading center, to determine the level of growth of small and medium enterprises at Katwe trading center, to determine the relationship between credit facilities and growth of small and medium enterprises. The researcher use a descriptive and analytical research design to establish a relationship between the two variables and to exhaust all areas in the research. A sample size of 30 Small and Medium Enterprises from Katwe Trading center was used and sampled. Questionnaires and interviews were also be used to collect data which were processed by tabulation, and also narrations inform of description accounted was for easy understanding of the findings. The findings indicated that 70% respondents were in agreement that credit is very important for the growth of their businesses. The overall evaluation of the study was to find a relationship between credit and growth of Small and Medium Enterprises in Katwe trading center. The study recommended that among other things, there is need to revise the lending policies, terms and conditions for loans, so that they favor the Small and Medium Enterprises. In addition, the interest rates on loans need to be reduced.

 TABLE OF CONTENTS

DECLARATION

APPROVAL

DEDICATION

ACKNOWLEDGEMENT iv

TABLE OF CONTENTS v

LIST OF TABLES ix

LIST OF FIGURES x

ABSTRACT

CHAPTER ONE: INTRODUCTION 1

1.0 Introduction 1

1.1. Background of the study I

1.1.1. Historical Background 1

1.1.2. Theoretical background 3

1.1.3 Conceptual Background 3

1.2 Statement of the Problem 4

1.3 Purpose of the Study 5

1.4 Objectives 5

1.5 Research Questions 6

1.6. Scope 6

1.6.1 Geographical Scope 6

1.6.2 Content Scope 6

1.6.3 Time Scope 6

1.7 Significance 6

CHAPTER TWO:LITERATURE REVIEW 8

2.0 Introduction 8

2.1 Theoretical review 8

2.1.1. The micro credit theory 8

2.1.2. Trade~off Theory 8

2.2 Conceptual frame work 9

2.3. Operational definition of key terms 10

2.4. The concept of credi~ 11

2.5 Sources ofcredit 11

2.5.1 Bank loans 11

2.5.2 Types of bank loans .12

2.5.2.1 Secured loans 12

2.5.2.2 Unsecured loans 12

2.5.2.3 Transaction loans 13

2.5.3 Trade credit 13

2.5.4 Bank Overdraft facility 13

2.6. Business growth 14

2.6.1 Indicators of growth in SME’s 14

2.6.2 Business expansion 14

2.6.3 Sales volume increase 15

2.6.4 Increased profitability 15

2.6.5 Increase in the market share 16

2.7 Relationships between Credit and Growth of SMEs 16

2.7.1 Credit and growth of SMEs 16

2.7.2 Bank loans and growth of SMEs 17

2.7.3 Trade credit and growth of SMEs 17

2.7.4 Bank overdrafts and growth of SMES 18

2.8 Summary of Literature 18

CHAPTER THREE:METHODOLOGY 19

3.0 Introductions 19

3.1 Research design 19

3.2 The study population 19

3.2.1 Sample size 19

3.2.2 Sampling procedure 20

3.3 Data types, collection methods and analysis 20

3.3.1 Data types 20

3.3.1.1 Primary data 20

3.3.1.2 Secondary data 20

3.3.2 Data collection methods and Instruments 20

3.3.2.1 The questionnaire method 20

3.3.2.2 The interview method 21

3.3.2.3 The direct observation method 21

3.3.3 Data collection procedure 21

3.4 Measurement of variables 21

3.5 Data processing, analysis and presentation 22

3.5.1 Data processing 22

3.5.2 Data analysis 22

3.5.3 Data presentation 22

3.6 Limitations of the study and the anticipated solutions 22

3.6.1 Time 22

3.6.2 Funds 22

CHAPTER FOUR: PRESENTATION AND DISCUSSION OF THE FINDINGS 23

4.Olntroduction 23

4.1 Demographic Characteristics of Respondents 23

4.1.1 Age group (gender) 23

4.2.2 Respondents’ age group 24

4.2.3 Level of Education 25

4.2.4 Ownership of the SME 26

4.2.5 Line category of business 27

4.2.6 Duration the employees have been in the firm 28

4.3 Credit 29

4.3.1 Responses on credit facilities of Katwe SMEs 29

4.4. An evaluation of the growth of SMEs of the Katwe traders 46

4.5 Respondents’ rating on whether there is a relationship between credit facilities and

growth of selected SMEs of Katwe traders 49

4.6 The relationship between credit and growth of SMEs 52

CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND

RECOMMENDATION 53

5.0 Introduction 53

5.1 Summary of key findings 53

5.1.1 Credit facilities 53

5.1.2 Growth of SMEs in Katwe trading center 53

5.1.3 Relationship between micro finance activities and Growth of small scale businesses .. 54

5.2 Conclusion 54

5.3 Recommendations 55

5.4 Limitations of the study 55

5.5 Areas for frirther research 55

REFERENCES 57