Microfinance Credit Terms on the Performance of Small and Medium Enterprises (Smes): A Case of Dar -Es- Salaam Region -Tanzania

ABSTRACT The study focused on the assessment of the impact of Microfinance credit terms on the performance of SMEs in Dar es Salaam Region, Tanzania. With three objectives namely: To analyze the effect of microloan interest rate, to examine the effect of microloan repayment period and to establish the effect of microloan repayment amount on the performance of SME’s in Dar es Salaam region. This study used cross-sectional and survey research designs. The sample size used in the study constituted registered small and medium enterprises (SME’s) operating in Dar es Salaam region as well as, 392 respondents were selected. Data were collected by questionnaire, interview and documentary review and analyzed by descriptive statistics (percentage distributions, mean, and standard deviations). The study revealed that 65% of respondents denied the existence of positive experience by SMEs with microloan interest rate. On the other hand, about 49% indicated unsatisfied with loan repayment periods, In addition, 64% of respondents rejected the contention that microloan repayment amounts posed by microfinance lenders were fair enough to positively contribute to their performance. Thus, credit terms namely microloan interest rate, microloan repayment period, and microloan repayment amount significantly affected the performance of SMEs in Dar es Salaam. The study recommended that there is a need to establish SMEs credit bureau to provide credit rates ceiling and floor of SMEs and provide financial institutions and other lenders with easy access to credit information timely, accurate and reliable. Also, financial institutions should careful understand the SMEs nature of businesses in order to offer reasonable loan sizes and the booming seasons of SMEs business so that they can give reasonable loan period which in turn leads to their better Performance.

 TABLE OF CONTENTS 

DECLARATION A .............................................................................................................................. i 

DECLARATION B ............................................................................................................................. ii 

APPROVAL....................................................................................................................................... iii 

DEDICATION ................................................................................................................................... iv 

ACKNOWLEGMENT ........................................................................................................................ v 

TABLE OF CONTENTS .................................................................................................................... vi 

LIST OF TABLES .............................................................................................................................. x 

LIST OF FIGURES ............................................................................................................................ xi 

LIST OF ACRONYMS ..................................................................................................................... xii 

ABSTRACT ...................................................................................................................................... xiii 

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

OVERVIEW OF THE STUDY ........................................................................................................... 1 

1.1 Introduction ................................................................................................................................... 1 

1.2 Background of the Study ................................................................................................................ 1 

1.2.1 Historical Perspective ................................................................................................................. 1 

1.2.2 Conceptual Perspective ............................................................................................................... 3 

1.2.3 Contextual Perspective ................................................................................................................ 4 

1.3 Statement of the Problem ............................................................................................................... 5 

1.4 Purpose of the Study ...................................................................................................................... 6 

1.5 Objectives of the Study .................................................................................................................. 6 

1.5.1General Objective ........................................................................................................................ 6 

1.5.2 Specific Objectives ..................................................................................................................... 6 

1.6 Research Questions ........................................................................................................................ 6 

1.7 Scope of the Study ......................................................................................................................... 6 

1.7.1Geographical Scope ..................................................................................................................... 7 

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1.7.2 Content Scope ............................................................................................................................. 7 

1.7.3 Theoretical Scope ....................................................................................................................... 7 

1.7.4 Time Scope ................................................................................................................................. 7 

1.8 Significance of the Study ............................................................................................................... 8 

1.9 Definitions of Key Terms ............................................................................................................... 8 

CHAPTER TWO ............................................................................................................................... 10 

LITERATURE REVIEW .................................................................................................................. 10 

2.1 Introduction ................................................................................................................................. 10 

2.2 Theoretical Literature Review ...................................................................................................... 10 

2.2.1 Resource-Based View (RBV) Theory ........................................................................................ 10 

2.2.2 Classical Theory of Interest Rates ............................................................................................. 12 

2.3 Conceptual Framework ................................................................................................................ 15 

2.4 Empirical Literature Review ........................................................................................................ 17 

CHAPTER THREE ........................................................................................................................... 22 

METHODOLOGY ............................................................................................................................ 22 

3.1 Introduction ................................................................................................................................. 22 

3.2 Research Design .......................................................................................................................... 22 

3.3 Population of the Study ................................................................................................................ 22 

3.4 Sample Size ................................................................................................................................. 22 

3.4 Sampling Procedure ..................................................................................................................... 23 

3.5 Research Instruments ................................................................................................................... 24 

3.6 Validity and Reliability of Instruments ......................................................................................... 24 

3.6.1 Validity ..................................................................................................................................... 24 

3.6.2 Reliability ................................................................................................................................. 24 

3.8 Data Analysis .............................................................................................................................. 25 

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3.9 Ethical Considerations ................................................................................................................. 25 

3.10 Limitations of the Study ............................................................................................................. 26 

CHAPTER FOUR ............................................................................................................................. 27 

PRESENTATION, ANALYSIS, AND INTERPRETATION OF DATA............................................ 27 

4.1 Introduction ................................................................................................................................. 27 

4.2 SMEs’ Members Background Information ................................................................................... 27 

4.2.1 Characteristics of Sample Respondents.................................................................................. 27 

4.3 SMEs’ Background Information................................................................................................... 30 

4.3.1 Type of SMEs’ Business Ventures ........................................................................................ 30 

4.3.2 The number of members the respondents firm has at the present time .................................... 31 

4.3.4 SMEs’ Level of Increase in Assets and/or Facilities ............................................................... 33 

4.3.5 Frequency of Microloan Applications made to Microfinance Institutions and Rate of Success 35 

4.4 The eventual outcomes of microloan interest rate on the performance of SMEs ............................ 35 

4.6 The outcome of microloan repayment period on the performance of SMEs................................... 38 

4.7 The effect of microloan repayment amount on the performance of SMEs ..................................... 41 

CHAPTER FIVE ............................................................................................................................... 51 

SUMMARY OF FINDINGS, RECOMMENDATIONS, AND CONCLUSION ................................. 51 

5.1 Introduction ................................................................................................................................. 51 

5.2 Summary of Findings ................................................................................................................... 51 

5.2.1 SMEs’ Members Background Information ............................................................................ 51 

5.2.2 SMEs’ Background Information ............................................................................................ 51 

5.2.3 The eventual outcomes of microloan interest rate on the performance of SMEs ..................... 53 

5.2.4 The outcome of microloan repayment period on the performance of SMEs ............................ 53 

5.2.5 The effect of microloan repayment amount on the performance of SMEs ............................... 54 

5.3 Conclusion................................................................................................................................... 54 

5.4 Recommendations........................................................................................................................ 56 

5.5 Areas for further study ............................................................................................................. 56 

REFERENCES .................................................................................................................................. 57 

APPENDICES................................................................................................................................... 68 

APPENDIX A: QUESTIONNAIRE............................................................................................... 68 

APPENDIX B: INTERVIEW GUIDE FOR FIRM’S MANAGERS AND LEADERS .................... 70 

APPENDIX C: TIME FRAME ...................................................................................................... 73 

APPENDIX D: ESTIMETAD FINANCIAL BUDGET .................................................................. 74