The Role Of Microfinance Institutions In Poverty Alleviation In Market Vendors Of Kabalagala

ABSTRACT

The Small and Medium size enterprises present the most dynamic economic foundation for

growth, income and employment creation. However, this vital sector has been greatly affected by

the high interest rates being charged by financial institutions on borrowed capital in Uganda. The

main objective of the study is to assess the impact of high interest rates on growth and financial

performance of Small and Medium Enterprises. The researcher not only employed cross

sectional research and descriptive but analytical research design also. Data was collected based

on the objectives and questionnaires were distributed to 50 respondents. We established that high

interest rates charged on borrowings has greatly affected the financial performance as well as

investment levels in SMEs forcing investors and potential investors to depend on own savings

and funds from friends and relatives. Also it is well established that long term borrowings was

expensive as it was perceived to be riskier than short term borrowings and the issue of ' held

funds' . All in all we established that the interest rate charged on borrowings play a vital role in

obtaining the finances for SMEs thus determining the growth, financial performance and investment habits in SMEs.