The Microfinance Credit Services on the Performance of SMEs in Maictndye East Division A Case Study of United Bank of Africa Uba-Kansangabranch

ABSTRACT 

SMEs are the drivers of the Ugandan economy for they make up close to 90% of the businesses in Uganda. Despite their major role in the Ugandan economy, an SME is yet to list on the Uganda Securities Exchange (USE). All the companies currently listed on USE are large companies. There are many obstacles to SME pat1icipation on Uganda's capital markets major among which is a lack of informational disclosure. Information disclosure is a critical requirement of capital markets. This arises from not only the fear of disclosing sensitive information on the part of the business owners but also a lack of both human and institutional capacity to meet the disclosure requirements of the capital markets. However empirical evidence shows that private equity and debt capital which ranges from business angel to venture capital financing can provide a platfo1m upon which SMEs can tap into the potential of Uganda's capital markets. Private Equity and debt markets offer specialized mechanisms that address the difficulties associated with SMEs. The financial intermediaries that operate in these markets actively screen, contract with, and monitor the small businesses they invest in over the course of their relationships.

TABLE OF CONTENTS

DECLARATION .............................................................................................................................. i

APPROVAL ................................................................................................................................... ii

DEDICATION ............................................................................................................................... iii

ACKNOWLEDGEMENT ............................................................................................................. .iv

LIST OF ABBREVIATION ............................................................................................................ v

ABSTRACT ................................................................................................................................... vi

TABLE OF CONTENTS ............................................................................................................. vii

LIST OF TABLES ............................................................................•............................................. xi

LIST OF FIGURES ...................................................................................................................... xii

CHAPTER ONE ............................................................................................................................ 1

1.0. Introduction .............................................................................................................................. 1

1.1. Background to the study ........................................................................................................... 1

1.1.1. Historical perspective: ........................................................................................................... 1

1.1.2. Theoretical perspective .......................................................................................................... 2

1.1.3. Conceptual perspective: ......................................................................................................... 2

1.2. Statement of the problem .......................................................... , ............................................... 4

1.3. General objective ..................................................................................................................... .4

1.3.1. Specific objectives ................................................................................................................. 5

I .4. Research questions/hypothesis ................................................................................................. 5

1.5. Scope of the study ..................................................................................................................... 5

1.6. Significance of the study .......................................................................................................... 6

1.7. Conceptual Framework ............................................................................................................. 6

1.8. Definition of some terms .......................................................................................................... 7

1.9. Limitation of the study ............................................................................................................. 8

CHAPTER TWO ........................................................................................................................... 9

LITERATURE REVIEW ............................................................................................................. 9

2.0. Introduction .............................................................................................................................. 9

2.1. Theoretical Review ................................................................................................................... 9

2.2. Conceptual Review ................................................................................................................... 9

2.3. The loan funds on performance of SMEs ............................................................................... 10

2.4The money transfers services on performance ofSMEs .......................................................... 12

2.5 Savings accounts on the perfo1mance SMEs Market .............................................................. 15

2.6 The Role of Microcredit services in SME development ......................................................... I 6

2. 7Credit services, MFI-SME relationship and perfonnance ........................................................ 17

2.8 Model guiding business financing ........................................................................................... 18

2.8.1 The Pecking order model ...................................................................................................... 19

2.9. Problems faced by Micro Entrepreneurs ................................................................................ 19

2.9.1 The MSE's inability to offer marketable collateral for loans ............................................... 19

2.9.2 Poor Institutional viability of micro enterprises ................................................................... 20

2.9.3 Lack of knowledge about microfinance services ................................................................. 20

2.10 Problems faced by Micro finance providers: ......................................................................... 20

2.10.1 Inability to exploit growth opportunity .............................................................................. 20

2. I 0.2 Few organizational resources and poor governance ........................................................... 20

2.10.3 Low bargaining power ........................................................................................................ 20

2.11 Review of Past Studies .......................................................................................................... 21

CHAPTER THREE ..................................................................................................................... 23

RESEARCH METHODOLOGY ............................................................................................... 23

3 .0 Introduction ............................................................................................................................. 23

3. I Research design ....................................................................................................................... 23

3.2 Description of the study area ................................................................................................... 23

3.3 Sampling method ..................................................................................................................... 23

3.3.1 Target population .................................................................................................................. 23

3 .3 .2 Sample size ........................................................................................................................... 23

3.4 Sampling techniques ................................................................................................................ 24

3 .4.1 Simple random Sampling Technique ................................................................................... 24

3.4.2 Purposive Sampling Technique ............................................................................................ 24

3.5 Data Collection Methods ......................................................................................................... 25

3.5.1 Primary Data Collection Methods ........................................................................................ 25

3.5.1.1 Questionnaires .................................................................................................................... 25

3.5.1. 2 Interviews ......................................................................................................................... 25

3.5.1.3 Observation ........................................................................................................................ 25

3.5.2 Secondary Data Collection ................................................................................................... 25

3.6 Data processing and Analysis .................................................................................................. 26

3. 7 Validity and reliability ............................................................................................................. 26

3.8 Ethical considerations .............................................................................................................. 27

CHAPTER FOUR ....................................................................................................................... 28

DATA ANALYSIS AND DISCUSSION ................................................................................... 28

4.0 Introduction ............................................................................................................................. 28

4.1 Socio-economic Characteristics of Respondents ..................................................................... 28

4.1.3 Level of education ................................................................................................................ 29

4.2 Uses of Bank loans .................................................................................................................. 30

4.3. The relationship between loan funds on perfonnance of SMES ............................................ 31

4.3.3. Loan provided when needed by the clients ......................................................................... 32

4.3.4. Loans provided when with affordable interest rates ............................................................ 34

4.3.5 Are trading license asked when processing for a loan .......................................................... 34

4.3.6 Do clients make returns in time ............................................................................................ 35

4.3.7 Satisfaction of the clients by UBA employees ..................................................................... 36

' 4.4. The relationship between money transfers on performance ofSMES ................................... 36

4.4.3. Money transfers provided when needed by the clients ........................................................ 38

4.4.4. Money transfers services provided when with affordable charge rates ............................... 39

4.4.5 Clients using a Money transfers services in UBA ................................................................ 39

4.4.6 Do clients make returns in time ........................................................................................... .40

4.4.7 Satisfaction of the clients by UBA employees .................................................................... .41

6.1 The relationship between savings account on perfonnance of SMES ................................... .42

6.1.3 Savings account provided when needed by the clients ........................................................ .43

6.1.4. Savings account provided when with affordable charges .................................................. .43

6.1.5 Clients getting savings account and satisfied ...................................................................... .44

6.1.6 Do clients usually use savings account.. .............................................................................. .45

6.1.7 Satisfaction of the clients by UBA employees .................................................................... .45

CHAPTER FIVE ......................................................................................................................... 47

SUMMARY, CONCLUSION AND RECOMMENDATIONS .............................................. .47

5.0 Introduction ............................................................................................................................ .47

5.1.l Findings on loan funds on performance ofSMES .............................................................. .47

5.1.2 Findings on money transfers on performance of SMES ...................................................... .48

5 .1.3 Findings on savings account on performance of SMES ...................................................... .48

5.2 Conclusion ................................................................................................................................ 48

5.2.1 Conclusion on loans and the perfonnance ofSMES ........................................................... .48

5.2.2 Conclusion on money transfers and the performance of SMES .......................................... .49

5.2.3 Conclusion on savings account and the perfomrnnce of SMES ........................................... 50

5.3 Recommendations ................................................................................................................... 50

5.3.1 Recommendations on Loans and the Performance ofSMES ............................................... 50

5 .3 .2 Recommendations on money transfers services and the Performance of SMES ................. 51

5.3.3 Recommendations on savings account services and the Performance of SMES ................. 52

BIBLIOGRAPHY ......................................................................................................................... 54

APPENDIX 1 ................................................................................................................................ 56

APPENDIX II: ............................................................................................................................... 60

APPENDIX III: BUDGET ESTIMATE ....................................................................................... 61