Title: The Effect of Microfinance Institutions on the Growth of Small and Medium Enterprises (SMEs) in Uganda. Case of Kampala District
Authors: Asiimwe Isaac Kazaara, Dr Arinaitwe Julius
Volume: 9
Issue: 2
Pages: 30-35
Publication Date: 2025/02/28
Abstract:
This study assessed the effect of microfinance institutions (MFIs) on the growth of small and medium enterprises (SMEs) in Kampala District, Uganda. The study adopted a cross-sectional research design and involved a sample of 117 respondents, including 100 SMEs owners, 26 administrators, and 40 lecturers. Data was collected using structured questionnaires and analyzed using SPSS and STATA for multiple logistic regression to evaluate the relationship between microfinance access, financial performance, and operational efficiency of SMEs. The results from the logistic regression analysis revealed significant findings. Specifically, the odds of SMEs reporting increased revenue growth were 2.5 times higher for those with access to microfinance loans (p = 0.032), compared to those without access. Additionally, access to microfinance was found to significantly increase the likelihood of business expansion, with SMEs receiving microfinance loans being 3.1 times more likely to expand operations than those without (p = 0.025). The study also found that microfinance institutions contributed positively to the enhancement of managerial capacity and operational efficiency, with a 1.7 times higher likelihood of improved efficiency for businesses with microfinance support (p = 0.045). The study also found that microfinance support enhanced managerial capacity and efficiency, positively affecting business sustainability. The results indicated that microfinance loans played a crucial role in enabling SMEs to scale their operations and improve financial performance, particularly by increasing visibility and access to markets. However, managerial training and financial literacy emerged as critical factors in optimizing the use of financial resources. The study recommended that MFIs should enhance loan flexibility, focus on capacity-building programs for SME owners, and develop sector-specific financial products. Furthermore, collaboration with local media outlets and development partners was suggested to increase financial inclusion and business visibility.