Download - CREDIT FINANCING AND GROWTH OF SMES
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CREDIT FINANCING AND THE GROWTH OF SMALL AND
MEDIUM ENTERPRISES
A case of selected Small and Medium Enterprises in Mengo trading center
BY
SIMON PETER KYOMUHENDO
Reg No. 11/2/330/E/1366
A RESEARCH REPORT SUBMITTED TO THE FACULTY OF BUSINESS ADMINISTRATION
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF A
BACHELOR OF SCIENCE IN ACCOUNTING AND FINANCE DEGREE OF NDEJJE
UNIVERSITY
APRIL 2014
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DECLARATION
I SIMON PETER KYOMUHENDO Registration Number 11/2/330/E/1366,
declare that this is my original work and has never been presented to any university
or higher institution of learning
Signature; ………………….
Simon Peter Kyomuhendo
Date; ……………………
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APPROVAL
I confirm that the work reported in this research was carried out by the candidate
Mr. Simon Peter Kyomuhendo under my supervision
Signature………………………. Date………………………………
Dr. Henry Buwule Musoke
Senior Lecturer, Ndejje University
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DEDICATION
I would like to dedicate this research report to my dear mother Nakibuka Mary
Gorretti Mwesigwa, my beautiful sisters Rachael Sebowa Tumusiime, Asiimwe
Lydia, Katushabe Oliver, Kyakuhaire Hellen, Mirembe Jacinta, as well as my
brothers Mwesigwa Steven Junior and Muhumuza David. Who tirelessly
encouraged and supported me financially, spiritually and materially throughout the
entire course of study.
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ACKNOWLEDGEMENT
I would like to extend my sincere gratitude to my research supervisor, Dr Henry
Buwule Musoke, for the tireless support, assistance and encouragement that has
helped me to come up with this study.
Special thanks goes to my fellow students especially members of family 28,
lecturers, Staffs and the entire management of Ndejje University, for the positive
critiquing and driving motivation.
Furthermore, I thank my family most especially my mother Mary Gorretti
Nakibuka, my sisters Rachael Sebowa Tumusiime and Asiimwe Sarah Lydia as
well as my Brother Mwesigwa Steven Junior, all of who has supported me
financially, emotionally and materially through this study
Finally, I thank the Almighty God for His grace, love, peace and guidance, because
without Him, I would not have done anything.
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ABSTRACT
This study was conducted to find out the relationship between credit financing and the growth of
Small and Medium Enterprises in Mengo trading center.
The study was set to address the following specific objectives: to examine the nature of credit
financing facilities offered to the small and medium enterprises at Mengo treading centre, to
determine the level of growth of small and medium enterprises at Mengo trading centre, to
determine the relationship between credit financing facilities and growth of small and medium
enterprises.
The researcher used 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 Mengo Trading center was used and
sampled. Questionnaires and interviews were used to collect data which were processed by
tabulation, and also narrations inform of description were accounted for easy understanding of
the findings.
The findings indicated that 70% respondents were in agreement that credit financing is very
important for the growth of their businesses.
The overall evaluation of the study found out a positive relationship between credit financing and
growth of Small and Medium Enterprises in Mengo trading center.
The study concludes that credit financing facilities are very paramount for the growth of Small
and Medium Enterprises.
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.
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LIST OF TABLES
Table 4.1; Respondents’ gender ………………………………………………………………28
Table 4.2; Respondents’ age ………………………………………………………………….33
Table 4.3; Respondents’ education levels ……………………………………………………34
Table 4.4 Respondents’ years of working with the SME ……………………………………31
Table 4.5 credit financing ……………………………………………………………………32
Table 4.6; Response on growth of SMEs ……………………………………………………37
Table 4.7 Response on the relationship between credit financing and growth of SMEs ……40
Table 4.8; Correlation ………………………………………………………………………..43
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LIST OF FIGURES
Figure 1; Conceptual framework …………………………………………………………….7
Figure 4.1; Respondent’s gender …………………………………………………………..28
Figure 4.2; Respondent’s age ………………………………………………………………29
Figure 4.3; Respondents’ education level ………………………………………………….34
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TABLE OF CONTENTS
DECLARATION ................................................................................................................................... ii
APPROVAL ......................................................................................................................................... iii
DEDICATION ...................................................................................................................................... iv
ACKNOWLEDGEMENT ..................................................................................................................... v
ABSTRACT .......................................................................................................................................... vi
LIST OF TABLES ................................................................................................................................ vii
LIST OF FIGURES ...............................................................................................................................viii
CHAPTER ONE .................................................................................................................................... 1
INTRODUCTION. ................................................................................................................................ 1
Back ground to the study ......................................................................................................................... 1
Statement of the problem ....................................................................................................................... 3
Objectives of the study ........................................................................................................................... 4
General objective..................................................................................................................................... 4
Specific objectives .................................................................................................................................. 4
Research questions ................................................................................................................................. 5
Scope of the study ................................................................................................................................... 5
Time scope ............................................................................................................................................. 5
Geographical scope ................................................................................................................................. 5
Subject scope ......................................................................................................................................... 6
Significance of the study ......................................................................................................................... 6
Conceptual frame work ........................................................................................................................... 7
Operational definition of key terms .......................................................................................................... 8
CHAPTER TWO................................................................................................................................. 10
LITERATURE REVIEW ...................................................................................................................... 10
2.1Introduction ...................................................................................................................................... 10
Small and medium enterprises in Uganda .............................................................................................. 10
The concept of credit financing. ............................................................................................................. 11
Sources of credit .................................................................................................................................... 13
Bank loans............................................................................................................................................ 14
Types of bank loans ............................................................................................................................... 14
Secured loans ....................................................................................................................................... 14
Unsecured loans ................................................................................................................................... 15
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Transaction loans.................................................................................................................................. 15
Trade credit ........................................................................................................................................... 16
Bank Overdraft facility ......................................................................................................................... 16
Business growth .................................................................................................................................... 17
Indicators of growth in SME’s ............................................................................................................... 17
Business expansion............................................................................................................................... 18
Sales volume increase ............................................................................................................................ 18
Increased profitability ........................................................................................................................... 19
Increase in the market share ................................................................................................................... 20
Relationships between Credit Financing and Growth of SMEs. .............................................................. 20
Credit financing and growth of SMEs ................................................................................................... 20
Bank loans and growth of SMEs ............................................................................................................ 20
Trade credit and growth of SMEs .......................................................................................................... 23
Bank overdrafts and growth of SMES ................................................................................................... 24
Summary of Literature. .......................................................................................................................... 24
CHAPTER THREE............................................................................................................................. 26
METHODOLOGY ................................................................................................................................ 26
Introduction ........................................................................................................................................... 26
Research design ..................................................................................................................................... 26
Survey population ................................................................................................................................. 26
Sample size, sampling procedures and Sampling design ......................................................................... 27
Sample size ........................................................................................................................................... 27
Sampling design .................................................................................................................................... 27
Data collection procedures ..................................................................................................................... 28
Data Methods collection, Methods, sources, and Instruments ............................................................... 28
Data sources .......................................................................................................................................... 28
Primary data ......................................................................................................................................... 28
Secondary data ..................................................................................................................................... 28
Data collection method ......................................................................................................................... 29
Administering Questionnaires ............................................................................................................... 29
Data collection instruments ................................................................................................................... 29
Self-administered questionnaires ........................................................................................................... 29
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Interview guides .................................................................................................................................... 29
Limitations of the study ......................................................................................................................... 31
CHAPTER FOUR ............................................................................................................................... 32
PRESENTATION AND DISCUSSION OF THE FINDINGS ........................................................... 32
Introduction .......................................................................................................................................... 32
Demographic Characteristics of Respondents ........................................................................................ 32
Age group (gender) ............................................................................................................................... 33
Respondents’ age group ........................................................................................................................ 34
Level of Education ................................................................................................................................. 36
Ownership of the SME ........................................................................................................................... 37
Line category of business ....................................................................................................................... 38
Duration the employees have been in the firm ...................................................................................... 39
Credit financing ..................................................................................................................................... 40
The relationship between credit financing and growth of SMEs. ............................................................ 53
CHAPTER FIVE ................................................................................................................................. 54
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION .................................. 54
5.0 Introduction ................................................................................................................................... 54
Summary of key findings ....................................................................................................................... 54
Credit financing facilities. ...................................................................................................................... 54
Growth of SMEs in Mengo trading center .............................................................................................. 55
Relationship between micro finance activities and performance of small scale businesses ...................... 55
Recommendations ................................................................................................................................. 56
Areas for further research ...................................................................................................................... 57
REFERENCES .................................................................................................................................... 58
APPENDIX A; INTRODUCTORY LETTER .................................................................................... 60
APPENDIX B; QUESTIONNAIRE .................................................................................................... 61
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CHAPTER ONE
1.0INTRODUCTION.
This chapter gives the background of the study, statement of the problem, purpose of the study,
objectives, research questions, scope of the study, significance of the study and the conceptual
framework. In the recent years, many authors have emphasized on the role of credit facilities on
the growth and the general performance of Small and Medium Enterprises (SMEs).
Many Non-Government organizations and other government organizations have struggled to
make sure that small and Medium Enterprises (SMEs) flourish. Despite their efforts and the
different political campaigns to end the poverty endemic, these efforts have realized both
positive and negative impacts. This study therefore will explore the relationship between credit
financing and the growth of small and Medium Enterprises (SMEs).
1.1Back ground to the study
Credit financing is a strategy that involves borrowing money from a lender with the
understanding that the full amount will be paid in future usually with an interest (Stearns, 1997).
He further says that credit financing involves any money or financial instrument extended to the
borrower by the lender from which the later expects a refund of both principal and interest. The
interest rate charged on the borrowed funds reflects the level of the risk that the lender
undertakes when securing the loan. Kakuru (2000) argues that credit financing includes both
secured and unsecured loans. He further says that security for the loans involves a form of
collateral as an assurance for the loan. Therefore if the debtor defaults on the loan, that collateral
is forfeited to satisfy payment of the debt.
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Growth of small and medium enterprises SMEs involves increased level of output, increased
number of employee performance, increased level of creativity and innovation, industrial
restructuring and wealth generation in both developing and developed economies Uganda
Investment Report (UIA, 2008). According to Matly and Westhead (2005), healthy and growing
SMEs are perceived to be crucial for sustainable competitive and economic development at local,
regional and national levels.
In Uganda, SME’s are enterprises employing more than 5 but mot exceeding a maximum of
50employees, with the value of assets, including land, building and working capital of less than
Ug.shs 50 million (US$ 30,000) and annual income turnover of between Ug.shs10-50 million
(US$ 6,000-30,000) (Kasekende and Opondo, 2003).
Small and medium enterprises are businesses which are independently owned and operated by a
few individuals. They can be defined in terms of sales volume and number of employees in the
business indicated by structural development, profitability and employment levels. They mainly
engage in buying produce, market vending, catering and confectionery, shop keeping, second
hand clothing, health/herbal services, secretarial services, telephone services, handicraft,
transport and many others Uganda Bureau of Statistics report (UBOS, 2004).
Mengo traders finance their businesses with commercial banks loans, overdrafts, leasing
facilities, trade financing and loans from money lenders. These loans are taken in different loan
sizes and their repayment period differs depending on the lending authority. Although traders are
exposed to all these credit financing options, most of them have failed to grow and expand and
profitability has remained low meaning credit financing has not made a positive impact on the
businesses in that area. It has been attributed that poor credit financing caused by lack of
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collateral security, low rate of repayment, high deficiency rates, and poor business plans might
be discouraging the financial institutions to offer them credit services (UIA report, 2008).
1.2Statement of the problem
Credit financing directly affects the growth of small and medium enterprises (Padey, 2000).
Proper management of debts lead to growth and smooth operation of businesses and poor
management of debts will not only cripple the ability of commercial banks and other lending
institutions to offer credit facilities to small and medium enterprises but threatens their
profitability and survival (UIA Report, 2008).
Traders in Mengo trading center finance their businesses with loans from commercial banks,
overdrafts, leasing facilities, trade financing and money lenders. These loans are taken in
different loan sizes and their repayment period differs depending on the lending authority.
Traders either take group or individual loans depending on the size of the loans and the purpose
to which these loans are to be put and the progress of each group or individual in the lending
cycle. The loan sizes also depend on the collateral security and the capacity of the group or
individual to pay (UIA report, 2008).
Despite the fact that a lot of efforts have been put in providing Mengo traders with bank loans
and trade credit as a form of credit financing to promote their growth, this has not been the case
as majority lack collateral security, many are offered small loan sizes with high interest rates,
short loan periods, the rapidly growing inflation rate and high deficiency. This discourages the
financial institutions to offer them credit services thus threatening their profitability survival and
ability to grow. As a failure to perform their operations, many traders have lost their businesses
since they cannot be sustained with their own equity.
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It is likely that the cause of low growth of small and medium enterprises could be due to
inadequate funding, planning, limited credit financing (UIA Report, 2008).
The study therefore sought to investigate the effect of credit financing on the growth of small and
medium enterprises.
1.3 Objectives of the study
1.3.1 General objective
The general objective of the study was to investigate the relationship between credit financing
and the growth of selected small and medium enterprises in Mengo, Lubaga division, Kampala
district.
1.3.2 Specific objectives
The study was guided by the following specific objectives:
1. To examine the nature of credit financing facilities offered to the small and medium
enterprises at Mengo treading centre
2. To determine the level of growth of small and medium enterprises at Mengo trading
centre
3. To determine the relationship between credit financing facilities and growth of small
and medium enterprises.
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1.4 Research questions
What is the nature of credit financing facilities offered to the small and medium enterprises at
Mengo treading centre?
What is the effect of credit financing on growth of small and medium enterprises at Mengo treading
centre?
What is the relationship between credit financing facilities and growth of small and medium
enterprises?
1.5 Scope of the study
1.5.1 Time scope
The study covered a period of two years starting from 2012 - 2014. This period was chosen
because it was long enough to enable the researcher to analyse the relationship between credit
financing and growth of Small and Medium Enterprises.
1.5.2 Geographical scope
The study was carried out from Mengo trading centre, Rubaga Division Kampala District of
Uganda. This area was considered because it was within the researchers’ area of location, that is
between the location of the university and the area of residence of the researcher thus being
convenient in terms of data collection.
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1.5.3 Subject scope
The study covered the concept of credit facilities as the independent variable and the dependent
variable was growth of Small and Medium Enterprises (SME’s). It examined credit financing
components which were conceptualized as; bank loans, trade credits and bank overdrafts. The
dependent variable which was the growth of small and medium enterprises was conceptualized
through indicators like profitability, sales volume increase, increased product range and
expansion of small and medium enterprises
1.6 Significance of the study
1. The study was to help provide an up-to-date literature on the relationship between access
to credit facilities and the growth of small and medium enterprises to future researchers.
2. The result of the study could assist policy makers to determine whether provision of
micro credit by credit institutions can foster the growth of SMEs.
3. The research findings if published would provide necessary guide lines to government
and financial institutions hence leading to the improvement in service delivery
4. The study could also help small and medium enterprises to learn how to improve their
conditions in order to overcome the challenges in the credit market so as to achieve
sustainable development.
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1.7.1Conceptual frame work
Credit financing (independent variable) Growth of SME’s (dependent variable)
Moderating variables
Figure 1.1: Conceptual framework
From the diagram above, we can infer that the study examined the relationship between credit
financing and the growth of SME’s
Credit financing which is the independent variable comprises of elements like bank loans which
are subdivided into secured loans, unsecured loans and Transaction loans, Trade credit,
Overdraft facility.
On the other hand, the dependent variable which is growth of SMEs can be seen through the
business expansion, sales volume increase, profitability increase, as well as increased market
share.
Bank loans
Secured loans
Unsecured loans
Transactional loans
Trade credit,
Bank overdrafts
Business Expansion
Sales volume increase,
Increased profitability
Increase in market share
Employee skills and motivation
Government policies
Natural factors
State of the economy
Location of the business
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Furthermore, the intervening variables in the relationship between independent variable and
dependent variable included, employee motivation and skills, government policies, natural
factors, state of the economy, location of the business, among others
1.7.2 Operational definition of key terms
Credit financing: For the purpose of this study, credit financing refers to type of loan or any
financial assistance made to a business or corporate finance context. Specific types of credit
facilities are: revolving credit, term loans, committed facilities, letters of credit and most retail
credit accounts.
Small and Medium Enterprises (SME’s)In Uganda, SME’s are enterprises employing not
more than maximum of 50employees, with the value of assets, including land, building and
working capital of less than Ug.shs 50 million (US$ 30,000) and annual income turnover of
between Ug.shs10-50 million (US$ 6,000-30,000) (Kasekende and Opondo, 2003). Small
enterprises outnumber large companies by a wide margin and also employ many more people.
SMEs are also said to be responsible for driving innovation and competition in many economic
sectors.
Uganda Investment Authority (UIA). The Uganda Investment Authority (UIA) is a semi-
autonomous government agency operating in partnership with the private sector and Government
of Uganda to drive national economic growth and development.
Business growth- For the purpose of this study, growth as the ability of an organization to meet
required standards in its operations, increase its market share, improve its facilities, increase its
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profitability and ensure return on investments to its shareholders, and also witness total waste
reduction through optimal capacity utilization and operational efficiency.
Micro finance institutions (MFIs) Bank of Uganda defines MFIs as non-government
institutions, saving and credit corporations that provide savings and micro loans not exceeding us
$1000 to poor individuals, enterprises or groups for purpose of engaging in viable economic
activities where there are difficulties in accessing financial services from the formal banking
sector.
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CHAPTER TWO
LITERATURE REVIEW
2.1Introduction
In this chapter a theoretical and practical relationship between credit financing and growth of
small and medium enterprises was looked at as studied by different authors. In so doing the
subject of inquiry was extracted in light with the previous conducted research and scholarly
work.
2.2 Small and medium enterprises in Uganda
SMEs are widely defined in terms of their characteristics, which include the size of the capital
investment, the number of employees, the turnover, the management style, the location and the
market share (Okello et al, 2007). There is no generally agreed definition of SMEs globally.
Different researchers and policy makers (Kasekende, 2001; Mwenda and Muuka, 2004; MOF,
2001) have used different definitions for SMEs. The number of persons employed, investment in
plant and machinery and sales turnover are all used to define SMEs (Najjemba, 2000)
However, international organizations such as the World Bank and the International Finance
Corporations (2002), define SMEs as enterprises that require small amounts of capita to
establish, small number of employees or in most cases personally handled by the owner, and
referred to as micro-businesses hence to them, they are “mini businesses” or “Bop businesses”
Country context plays a major role in determining the nature of these characteristics, especially,
the size of investment in capital accumulation and the number of employees. For developing
countries, SMEs would generally mean enterprises with less than 50 workers.
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In Uganda, SME’s are enterprises employing not more than maximum of 50employees, with the
value of assets, including land, building and working capital of less than Ug.shs 50 million (US$
30,000) and annual income turnover of between Ug.shs10-50 million (US$ 6,000-30,000)
(Kasekende and Opondo, 2003). These SMEs are in farming, buying produce, market vending,
catering and confectionary, shop keeping, second hand clothes and shoes, health services,
stationary among others. Majority of these businesses operate in shared premises and start
operations before acquiring licenses (Byaruhanga, 2012)
2.3The concept of credit financing.
A credit is borrowing money from an outside source with a promise to return the principal in
addition to an agreed upon level of interest. The most popular source of credit financing is the
bank, but can also be issued by a private company or even a friend or a family member (Richard,
2009).
Ledger wood, 1999 and Wright, 1999: Micro finance is the provision of financial services to low
income clients or solidarity lending groups including consumers and the self-employed who
traditionally lack access to banking and related services from most formal financial institutions
because of their business savings level and credit needs are small. These financial services
commonly take the form of loans (microcredit) and micro-savings, though some microfinance
institutions will offer other services such as micro-insurance and payment services, deposit
taking, retail financing services, consultancy and training in business management to catch up
with competition. Others are money transfer, safe custody of valuable items, health care schemes
and salary based loan products. They lend to the poor who have few assets that cannot be secured
by a bank as collateral (Hernando de Soto polar, 1989). MFIs in Uganda include money lenders,
micro finance agencies, NGOs, rural farmers schemes and savings societies.
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Credit financing is a strategy that involves borrowing money from a lender with an
understanding that full amount will be paid in future with an interest (Stearns, 1997). He
emphasizes that credit financing is basically money that you borrow to run your business being
divided into two categories based on the type of loan you are seeking either long term or short
term credit financing. Long term credit financing usually applies to assets your business is
purchasing such as equipment, buildings, land, or machinery. With long term credit financing,
the scheduled repayment of the loan and the estimated useful life of the assets extends over more
than one year. Short term credit financing usually applies to money needed for the day-to-day
operations of the business such as purchasing inventory, supplies or paying the wages of
employees. Short term credit financing is referred to as an operating loan or short term loan
because the scheduled repayment takes place in less than one year.
Hansen, 2000 said that MFIs could act as an efficient vehicle for the intermediation of finance
institutions and the small scale enterprises. Micro finance provides the needed opportunity for
entrepreneurs to start or improve business in order to make profit and improve their lives (Allan
et al., 2008; Brana, 2008; Lans et al., 2008; Majumdar, 2008; Roslan and Mohd, 2009; Salman,
2009; Shane 2003; Tata and Prasad 2008)
According to Enterprise Uganda report, 2003, credit financing is a useful strategy particularly for
small and medium enterprises with good credit history. However, the report further states that
small businesses should think carefully before committing their businesses to credit financing
options to avoid cash problems and reduced flexibility.
Women entrepreneurs mostly in developing countries have no easy access to credit for their
entrepreneurial activity and are the most vulnerable to poverty (Ibru, 2009; Iganiga, 2008;
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Iheduru, 2002; Kuzilwa, 2005; Lakwo, 2007; May, 2007; Okpukpara, 2009). Majority of
Uganda’s MFIs clients are women; loans to female clients constitute around 75% of the loan
portfolio and 80% of the savings portfolio, MFPED 2000. This is because Women are thought to
benefit the whole family and strengthen role of women in society and women are proven to be
better loan payers (Wright et al 1999; Mutesasira et al 1999; Barnes et al., 1998). They are the
most beneficiaries from products offered by MFIs. They enhance their status financially socially
and even politically. Equip them with skills through training. Despite of this, micro finance
activities have shown little potential to thoroughly change existing inequalities in power relations
or the role of women in society (Buckley 1996; Goetz and Gupta 1996; Hulme and Mosley
1996).
MFIs advice small scale entrepreneurs on the viable business venture to undertake and on how
best to go about the operation of the business, this helps boost efficiency and their performance
thus enabling growth (Ledger wood, 1999).
2.4 Sources of credit
Any business regardless of its size may at one time or the other develops the need for credit
services in order for it to have sufficient capital in order to finance its operations. Such credit
may be short-term and long-term capital. Long term capital is normally required by businesses
for making long term investments such as buildings, machinery. Short term capital on the other
hand, is required essentially for financing the daily operations of the business (Kakuru, 2001).
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2.4.1 Bank loans
In finance, a bank loan is a debt evidenced by a note which specifies, among other things, the
principal amount, interest rate, and date of repayment. A loan entails the reallocation of the
subject asset(s) for a period of time, between the lender and the borrower.
In a loan, the borrower initially receives or borrows an amount of money, called the principal,
from the lender, and is obligated to pay back or repay an equal amount of money to the lender at
a later time. Typically, the money is paid back in regular installments, or partial repayments; in
an annuity, each installment is the same amount.
The loan is generally provided at a cost, referred to as interest on the debt, which provides an
incentive for the lender to engage in the loan. In a legal loan, each of these obligations and
restrictions is enforced by contract, which can also place the borrower under additional
restrictions known as loan covenants. Although this article focuses on monetary loans, in
practice any material object might be lent (Vincent J. 1991).
2.4.2 Types of bank loans
2.4.2.1 Secured loans
A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as
collateral. A mortgage loan is a very common type of debt instrument, used by many individuals
to purchase housing. In this arrangement, the money is used to purchase the property. The
financial institution, however, is given security, a lien on the title to the house, until the mortgage
is paid off in full. If the borrower defaults on the loan, the bank would have the legal right to
repossess the house and sell it, to recover sums owing to it.
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2.4.2.2 Unsecured loans
Unsecured loans are monetary loans that are not secured against the borrower's assets. These
may be available from financial institutions under many different guises or marketing packages
which include but not limited to: credit card debt, personal loans, bank overdrafts, credit
facilities or lines of credit, corporate bonds (may be secured or unsecured)
The interest rates applicable to these different forms may vary depending on the lender and the
borrower. These may or may not be regulated by law. Interest rates on unsecured loans are nearly
always higher than for secured loans, because an unsecured lender's options for recourse against
the borrower in the event of default are severely limited. An unsecured lender must sue the
borrower, obtain a money judgment for breach of contract, and then pursue execution of the
judgment against the borrower's unencumbered assets (that is, the ones not already pledged to
secured lenders). In insolvency proceedings, secured lenders traditionally have priority over
unsecured lenders when a court divides up the borrower's assets. Thus, a higher interest rate
reflects the additional risk that in the event of insolvency, the debt may be uncollectible.
2.4.2.3 Transaction loans
According to Kakuru (2001), a transaction loan refers to a business dealing that is closed for a
particular period of time. There are some loans that can be obtained by the businessman for
general purpose and these can be referred to as general loans. Some of the costs that are
associated with these types of loans include interest, commitment fee, and compensatory
balance.
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2.4.3 Trade credit
Trade credit arises in situations where the supplier do not require immediate payments for
whatever batches of goods and services that have been supplied to a business until the given
credit period. In other words, this is a short term source of credit and in most cases it is less than
one year and because it gives the firm the time to invest in the money it would have otherwise
use to pay the supplier and possibly pay more pressing expenses (Kakuru, 2001).
Trade credit contract terms as well as the volume of trade credit are important parts of trade
credit since they determine the implicit interest rate on trade credit, in other words the price of
trade credit. Contract terms include discounts for early payment, size of the discount, length of
the discount period, final payment due date, and late payment penalty fee. When the delivery and
payment do not occur at the same time, payment arrangements define credit terms (Ng. et al.
1999). The seller may require the payment before the delivery (CBD-cash before delivery) or
cash on delivery (COD), where the buyer bears most of the risk.
2.4.4 Bank Overdraft facility
This is a situation where owners of business ventures are allowed to overdraw their accounts. For
instance if a firm has something like 60 million shillings on its account, a financial institution to
which that businessman is a client may allow him or her to overdraw a maximum of 20m such
that at any one time, the firm can be able to tap a total of 40m from its account (Kakuru, 2001).
An overdraft can also be defined as an agreement where a customer can purchase goods on
account (without paying cash), paying the supplier at a later date. Usually when the goods are
delivered, a trade credit is given for a specific amount of days for example 30, 60 or 90 days.
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Jewelry businesses sometimes extend credit to 180 days or longer. Basically, this is a credit a
company gives to another for the purchase of goods and services
The amount of days for which a credit is given is determined by the company allowing the credit,
and is agreed upon by both the company allowing the credit and the company receiving it. With
the extension of the payment date, the company receiving the credit essentially could sell the
goods and use the net proceeds to pay back the debt. This type of credit is sometimes given to
encourage sales. At times, a supplier may give a discount, if the customer pays within a certain
period of time.
2.5 Business growth
Ronstadt (2000) defined business growth as a company’s increase in its product sales, market
share, brand recognition, customer loyalty, opening of new branches through expansions and
acquisitions, an optimal capital structure and increased profitability and return on investments.
Balunywa (1998) looks at business growth as the ability of an organization to meet required
standards in its operations, increase its market share, improve its facilities, increase its
profitability and ensure return on investments to its shareholders, and also witness total waste
reduction through optimal capacity utilization and operational efficiency.
2.5.1 Indicators of growth in SME’s
The indictors of business growth include the following; increased sales and revenues. Increasing
sales and revenues should be experienced by the enterprise in the goods or services such a
company offers. For example, a company should be able to see a difference in production output
of one month from another and also increased output should be corresponding with increasing
18
demand for such products which results into increasing sales and revenues, month by month,
translating into year by year increases in production and sales (Ronstadt, 2000).
2.5.2 Business expansion
This is where a company expands its activities and not only occupies a large position of the
physical existing markets but also the biggest part of the consumers’ minds with what is being
offered by that company. Increasing market share may take the form of increasing sales by being
able to sell at lower prices than the competitors, increasing the range of products and product
lines, increasing distribution channels and sales outlets, boosting various marketing drives such
as vigorous advertising in all media available to essentially place an organization’s products in
the minds of the consumers among other significant activities (Balunywa, 1998).
2.5.3 Sales volume increase
Sales volume refers to the amount or number of units that are sold of a particular product or
service. Profits depend on growing sales and managing costs, which include variable and fixed
costs. Variable costs depend on sales volumes because they involve direct raw materials and
labor costs. Small and large businesses incur fixed costs, even if they have no sales. Fixed costs
are constant at certain levels of production and sales. Outside of these levels, fixed costs may
vary with sales volumes. Sales are the lifeblood of any successful business. An increase in sales,
all other things equal, usually translates into higher profitability (Byaruhanga, 2012). Sales
volume refers to the number or quantity of products sold and can be expressed in either shillings
or percentage terms.
19
2.5.4 Increased profitability
A financially stable enterprise applies optimal use of both debt and owner’s equity and a
company which is no longer struggling with financial problems as most companies do is seen to
be setting off from its starting feet to greater business horizons thus looked at as a growing
company. Such a company will never lack funding since financial Institutions will start looking
at it as a potential client and they are ready to lend it money as need may be. On the other hand,
if the company does not want to employ so much debt in its business, it is easy to sale off its
shares and gets the required capital or funds and potential shareholders will come panting for the
offer (Sekajja, 1997). Growth in profitability is also one of the indicators of economic activity.
Such growth should be reflected in profitable enterprises, and conversion into medium or large
enterprises. In addition, SMEs growth can be measured in terms of profits. Profit making
organisations look at the rate of return on the resources of the firm (Pandey, 1996)
If the level of profits of the firm is high, then the company can retain some of the profits for
reinvestment (Yaron, Benjamin and Piprek, 1996). These are referred to as retained earnings
which are undistributed portions of the company that are regarded as a source of owned capital.
These profits are converted into reserves and used for the financing requirements of the
company. This process of re-investing a portion of the profits of the company is called pouching
back of profits or internal financing (Kakuru, 2001). Sandee (1999), Rural people do not make
enough profits that can be ploughed back for re/investment thus creating a barrier in financing
their business.
20
2.5.5 Increase in the market share
Growth of an SME can also be measured basing on the increase in the market share. According
to Kotler (2000), the company’s growth will be determined by the increase in rate of growth of
its market share. The increase in the market share will be reflected in the increased sales volume
and establishment of distributional channels for the goods and services to the target segment
2.6 Relationships between Credit Financing and Growth of SMEs.
2.6.1 Credit financing and growth of SMEs
Lack of access to credit financing may in one way or the other deter the growth and development
of small and medium enterprises simply because these proprietors may lack the ability to acquire
sufficient funds in order to finance their activities. Such phenomenon is most prevalent in areas
where there are no or sufficient bank outlets as compared to other businessmen in urban centers.
Even the few financial institutions that are available impose high interest rates on their loans
hence affecting the proper functioning of these SMEs.
2.6.2 Bank loans and growth of SMEs
The financing of small and medium enterprises (SMEs) has been a topic of keen interest in
recent years because of the key role that SMEs play in economic development and their
potentially important contribution to economic diversification and employment (Ayyagari et
al.,2007; Beck et al., 2005a). In developing economies including Sub-Saharan Africa, SMEs are
typically more credit-constrained than large firms, severely affecting their possibilities to grow
(Beck et al, 2005b; Beck and Demirguc-Kunt, 2006; Beck et al, 2006; Ayyagari et al, 2008; Beck
et al, 2008a; Ayyagari et al, 2012). As regards extending financing to SMEs, banks have an
important role to play in Sub-Saharan Africa due to their dominance in the financial systems and
21
the limitations of informal finance, especially as regards serving the higher end of the SME
market (Ayyagari et al, 2012). The evidence suggests that competition, especially as introduced
by innovators, is important to encourage banks to venture into the SME space and to move them
out of their comfort zone in countries like Uganda where high interest rates on Government
securities area disincentive to intensify lending to SMEs. Providing a conducive lending
environment and encouraging competition through allowing banks to innovate, for instance
through agency or mobile banking, seems to be an important role to play for Government.
Equally important is to ensure that an effective credit bureau is in operation, and that the
securitization and realization of (movable) collateral is efficient. Nevertheless, while a conducive
legal and regulatory framework is necessary to support SME lending over time, it is not
sufficient and growth can happen even if the enabling environment is still developing, as is the
case in Kenya. The extent to which commercial banks lend to SMEs depends on a range of
country- and bank-specific factors. Among the main factors impacting bank financing for SMEs
are inter alia the macroeconomic environment, the legal and regulatory framework, the state of
the financial sector infrastructure, bank-internal limitations in terms of capacity and technology,
and SME specific factors, particularly the SME landscape in terms of number, size, and focus of
operation, as well as the opaqueness of information (Berger and Udell, 1998; Beck et al, 2008b;
De la Torre et al, 2010; Beck et al, 2011). Due to the opaqueness of SMEs, i.e. the challenges
associated with ascertaining the reliability of information provided, it has conventionally been
assumed that small and domestic banks applying relationship lending are better equipped to lend
to SMEs (Berger and Udell, 1995; Berger et al, 2001; Mian 2006; among others). Recently,
however, this view has been challenged with the argument that large and foreign banks are also
22
able to lend to SMEs effectively by using arms-length technology and centralized organizational
structures (Berger and Udell, 2006; Berger et al, 2007; de la Torre et al, 2010; Beck et al, 2011).
Professor Dean Karlan of Yale University stated that many of the benefits from micro credit are
in fact loaned to people with existing businesses and not to those seeking to establish new
businesses, and to those who want to supplement the family income. Thus concludes that micro
finance was not necessarily bad and can generate some positive benefits, despite some lenders
charge a high interest (40- 60%). To further the point stated by Professor Karlan, micro financing
begets the general tendency of a small business initially supported on credit to gain profits with
time and generate micro savings. In his latest study, the famous two time Pulitzer Prize winner,
Nicholas Dona bet Kristof states that there is no evidence of any negative influence of micro
financing but countless examples of people now looking at the bigger picture and saving for
better things have surfaced.
Micro finance activities have capacity to reduce poverty, contribution to food security, change
social relations for the better and reduce vulnerability. Ishengoma, 2004 and Kimuyu, 2004
confirm the importance of SSB‟s access to productive resources (micro finance). They help poor
diversify their income sources, build up physical , human and social assets, focus on good money
management, rebuild household’s base of income and assets after economic shocks have
occurred and to smooth consumption (Sebstad and Chen, 1996; Hulme ,1998; Ito,1998; Cohen
,1997; Cohen, 1999). However most criticism of micro finance have actually been criticism of
micro credit, being delivered in the absence of other micro finance services such as savings,
remittances, payments and insurance. They charge high interest rates. For instance Mohammed
Yunus, 2008 argue that MFIs that charge more than 15% above their long-term operating costs
should face penalties and poor should be the beneficiaries of micro finance. Milford Bateman,
23
the author of Why doesn’t micro finance work? , argues that micro credit offers only an illusion
of poverty reduction and concludes that it is a development policy blunder of quite historic
proportions.
Micro credit can be used to acquire financial assets to expand business capital and generate more
profits, working capital, attain productive assets. Savings as a micro finance factor enable people
with few assets to save, since they could make weekly savings as well as contribute to group
savings, and such savings are mobilized by the MFIs for further lending to other clients and
finance small emergencies through holding small amounts held in highly liquid form (Mkpado
and Arene, 2007).
2.6.3 Trade credit and growth of SMEs
In a model without bank loans, Bougheas et al. (2009) show that, for a given liquidity, an
increase in production will require an increase in trade credit. A higher production is associated
with a higher production cost which, for a given (insufficient) amount of liquidity, implies that
these SMEs will need to take more trade credit. So trade credit works as an alternative mean to
finance production. Also Cu~nat (2007) argues that fast growing SMEs may finance themselves
with trade credit when other types of finance are not sufficiently available. Fisman and Love
(2003) extend the analysis to link trade credit substitutability for institutional financing and the
overall development of the financial sector. They find evidence that industries that use more
trade credit grow relatively faster in countries with poorly developed financial markets. More
empirical support of a link between trade credit and SME performance comes from Boissay and
Gropp (2007), who show that SMEs that are confronted with a liquidity shortage (shock) try to
overcome this distressed situation by passing on one fourth of the shock to their suppliers by
taking more trade credit.
24
2.6.4 Bank overdrafts and growth of SMES
Overdrafts have traditionally been a basic building block for small businesses, allowing them
some breathing space in their cash flow. Banks are being forced to hold more capital against the
loans they write, and that capital has to come from somewhere. Small business overdrafts are an
easy target for banks, as they can be withdrawn with little or no notice. In addition to reducing
the value of overdrafts being used by small businesses, banks have also been decreasing SMEs'
agreed overdraft facilities - the short-term credit lines available to businesses if needed. Says
Philip W (2002), "We have frequently heard from our customers in recent months that their
banks are lowering agreed overdraft limits, and creating situations where costs like VAT bills
can create an unnecessary cash flow crisis." This show how crucial it can be for businesses to
explore alternative forms of funding that can provide the flexibility they need. If businesses find
that their overdrafts disappear just when they need them most, it can unnecessarily threaten the
viability of otherwise healthy businesses. Philip White explains: "An overdraft can be withdrawn
by a bank at any time, meaning that any capital investment programme that relies upon one
doesn't have a solid foundation." "Asset finance, on the other hand, remains in place so long as
the business is able to keep up repayments on it. As the economy begins to recover and more
businesses look to invest in growth, it's important that they look beyond banks for the lending
they need."
2.5 Summary of Literature.
In final analysis, the role played by financial institutions in providing credit facilities has greatly
fostered the growth of small and medium enterprises and it cannot be under estimated as the
literature above reveals. However given the high level of inaccessibility of these business
25
enterprises mostly in developing countries, MFIs have made it difficult for the owners of small
and medium enterprises to access credit facilities and therefore this study is aimed at making a
clear analysis of the roles and contribution of these credit financing facilities towards the growth
of SMEs. Therefore, the two variables have a relationship.
26
CHAPTER THREE
METHODOLOGY
3.1 Introduction
This chapter contains the different methods that were used in data collection and it outlines the
research design, the survey population, the sampling design, sample size, data collection sources,
methods and instruments, data collection procedures that were used in selecting the sample, and
the methods of analyzing and disseminating the data.
3.2 Research design
A correlational, cross-sectional survey design which was analytical and descriptive in nature was
used. The study utilized a cross-sectional survey design because it is flexible in both quantitative
and qualitative data collection. This design enabled the study to be carried out at a particular time
and the notion of combining quantitative and qualitative data in a case study research offered the
promise of getting closer to the whole of a case in a way that a single method study cannot be
achieved. Quantitative data analysis was used to describe the statistics of the scores using indices
that describe the current situation and investigate the associations between the study variables
using information gained from the questionnaires. The researcher used both qualitative and
quantitative methods in order to enable all stakeholders and involved parties to understand the
study findings and recommendations.
3.3 Survey population
The study examined Small and Medium Enterprises in Mengo trading center. Then the survey
design consisted of manufacturing SMEs, restaurants, retail shops and boutiques. Different
respondents constituting business proprietors, employees of small and medium enterprises and
27
officials of the financial institutions that are operating in Mengo trading centre in Rubaga
division, Kampala district will constitute the study population.
3.4 Sample size, sampling procedures and Sampling design
3.4.1Sample size
Collecting the data from the entire population may not be possible because of the cost and time
that will be involved in collecting and analyzing it. The researcher therefore purposefully selected
respondents who own, manage, or run small and medium enterprises. The researcher employed a
sample size of 28 respondents from Mengo Sub County, which was the area of study. This
sample size was determined scientifically using the Krejcie and Morgan’s 1970 table because of
its simplicity in determining the sample size not forgetting the time factor.
3.4.2 Sampling procedure:
The study included only small scale businesses. These were numerous in number and found in
the informal sector that is everywhere in the country. For study purposes, Mengo trading center
was chosen. However the study was unable to reach the entire population in the named center.
The researcher stratified the population into five strata that is retail shops, manufacturing SMEs,
restaurant business, tailoring and boutiques. Random sampling was used to select the sampling
frame, they were allocated numbers that were written on papers shuffled and respondents where
got by picking a paper randomly until the required respondents were got.
3.4.3 Sampling design
The researcher purposely selected business owners due to the vital information they possess. He
further stratified the population into two strata, that is to say, managerial and non-managerial
staff to avoid any bias. Simple random sampling was used to select the respondents in each
28
stratum because of its simplicity. A list of managers with their subordinates was used to select
the sampling frame; they were allocated numbers written on small pieces of paper, mixed up and
respondents were selected by picking on a paper randomly until all the required number of
respondents are obtained.
3.5 Data collection procedures
The researcher will obtain an introductory letter from the Ndejje University which will be
presented to the Rubaga Division headquarters for permission to conduct this study. This will
assist in the pre-test. The Questionnaires will be administered to the respondents and they will
fill at their time of convenience and then collected after three weeks. During data collection, the
rights of individuals will be respected. . The pilot test will be carried out to ensure the validity
and reliability of the research instruments.
3.6 Data Methods collection, Methods, sources, and Instruments
3.6.1 Data sources
3.6.1.1 Primary data
This is data which is original that is it has not been worked on that is processed and analyzed,
still so fresh from the field. This was collected from owners of small and medium enterprises in
Mengo Sub County.
3.6.1.2 Secondary data
This is data which is already collected by other researchers. It is data which is not fresh from the
field; that is it has already been analyzed and processed and in most cases it is just referred to.
This data was got from textbooks, journals, internet and dissertations of Ndejje University.
29
3.6.2 Data collection method
The researcher used collected data through administering questionnaires, and interviews to
obtain up-to-date information.
3.6.2.2 Administering Questionnaires
The researcher collected data by administering questionnaires were the respondents filled them
and the researcher used responses to make conclusion.
3.6.2.2 Interviews
These involved face-to-face interactions with the respondents where the interviewer asked
questions that respondents answered.
3.6.3 Data collection instruments
Data will be collected using different instruments which include;
Self-administered questionnaires
Questionnaires were prepared and sent to selected respondents. The researcher comprehensively
explained to the respondents the purpose of the study within the questionnaire. The
questionnaires comprised of both structured and unstructured questions. Information was
gathered through the use of self- administered questionnaires using a 5 linkert scale of strongly
agree (5)-strongly disagree (1). Respondents were given questionnaires and guided on how to fill
the questions independently. The forms were returned after completion.
Interview guides
The researcher also used interview guides to collect data from the field. The respondents who
were interviewed included managers and non-managerial staff of small and medium enterprises
30
so as to get a general picture on the role of credit finance to the growth of small and medium
enterprises.
3.7.1 Data analysis
After collection of data, the researcher studied the responses from the questionnaires so as to
make sure that the information obtained is complete, consistent, accurate and reliable. Analysis
of the data was done using both qualitative and quantitative methods in order to make the
findings easy to understand and make conclusion to the stakeholders. Descriptive analysis was
done using MS- Excel. This is because Ms Excel could easily generated charts and graphs.
Quantitative data processed by coding and sorting it to ensure that they matched with study
objectives. After this, it was analyzed using SPSS and later interpretation derived using mean
scores which were later used to interpret the findings. SPSS was used because of its accuracy in
statistical data analysis and presentation A higher mean score for a positive statement meant that
majority of the respondents tended to agree with such a statement and vice versa. For negative
statements a lower mean score meant that majority of the respondents agreed to the statement
and vice versa. The researcher used Statistical Package for Social Scientists (SPSS) to establish
the relationship between the study variables. The data was tabulated and collected into
percentages, deriving frequency tables afterwards.
3.8 Ethical issues and considerations
Respondents who required for anonymity were granted it but were requested to sign a consent
form that was to be distributed with the questionnaires because the study was carried out in their
work place and sources to earn a living at times assistants were used to limit suspicious and
beliefs that the research was to cover up for competitors strategy. The introduction letter from the
31
university was used to reduce suspicions from MFIs officers and the traders and ease access to
information. The researcher was subject to the ethics approval of Ndejje University
3.9.1 Limitations of the study
The researcher was faced with a number of problems and challenges that included;
Time; Since the researcher was not on a full time programme, time was a limiting factor. Much
time was spent while carrying out interviews and many respondents were too busy while others
had limited time for the study.
Funds; Since the project was privately sponsored, funds to support activities like transport,
typing, printing, photocopy, binding, stationary, surfing on the internet and other activities were
not readily available. As a solution to this problem, the researcher mobilized some of his savings
and sought for some funds from friends and relatives so as to finish this study.
Limited literature; The researcher was faced with a problem of limited literature specific to the
subject under study. The researcher had to use Internet to access more data. Some of the
available data was old and outdated. Current data was obtained from traders, business owners
(entrepreneurs) and workers. Access to new material on Internet was not easy since some files
require one to had to have password and username in order to access them and they were at times
not easy to understand
32
CHAPTER FOUR
PRESENTATION AND DISCUSSION OF THE FINDINGS
4.1 Introduction
This Chapter is about presentation and discussion of the findings.
This presentation and discussion of the findings were done in relation to the study objectives.
The general objective was to identify the relationship between credit financing and the growth of
SMEs. The specific objectives included; to establish the nature of credit financing facilities
offered to the small and medium enterprises at Mengo trading centre, to determine the level of
growth of small and medium enterprises at Mengo trading centre and to determine the
relationship between credit financing facilities and growth of small and medium enterprises.
4.2 Demographic Characteristics of Respondents
The respondent’s basic information was looked at in terms of gender, group (age), number of
years working with the SME and level of education.
33
4.2.1 Age group (gender)
The age group of the respondents was revealed as shown below:
Figure 4.1 shows respondent’s gender
Respondents’ gender
Source: Primary data 2014
Table 4.1: Shows respondents’ Gender
Gender Total Percentage
Male 13 43
Female 17 57
Total 30 100
Source: Primary data 2014
34
From table 4.1, 43% of the respondents were males while 57% of them were females. This
implies that the data obtained was gender unbiased because the employees of small and medium
enterprises are more of females than males.
4.2.2 Respondents’ age group
The respondents were categorised into various age groups as illustrated below;
Figure 4.2 shows the groups (age) of responents
Source: Primary data 2014
35
Table 4.2 show the number of respondents
Group Number of Respondents Percentage of respondents
Below 25yrs 7 23%
26-30yrs 15 50%
31-35yrs 5 17%
Above 36yrs 3 10%
Total 30 100%
Source: Primary data 2014
From table4.2, 7 respondents (23%) were below 25 years of age, 15 respondents were between
26-30 years, 5 respondents (17%) were between 31-35 years and 3 respondents (10%) were
above 36 years of age. Majority of the respondents were therefore aged between 26-30 years
which is a very active and productive age bracket.
36
4.2.3 Level of Education
The response about the education level of the respondents was presented below:
Figure 4.3; Respondents’ level of education
Source: Primary data 2014
37
Table 4.3: Shows level of education of respondents
Education level No. of respondents Percentage (%)
Primary 5 17
Secondary 7 23
Diploma 10 33
Degree 6 20
Others 2 7
Total 30 100
Source: Primary data 2014
The findings in the table above show that 17% have primary education qualification, 23% have
secondary educationqualification,33% of the respondents are diploma holders, 20% are degree
holders, and only7% have other qualification. This implies that data for the study was obtained
from all levels of academic qualification respondents.
4.2.4 Ownership of the SME
The response about ownership of the SMEs can be summarized as shown below
Table 4.4: Description of respondents by ownership of business
Ownership No. of respondents Percentage
Owner 21 70
Employee 9 30
Total 30 100
Source: Primary data
38
Table 4.4 shows that majority of the respondents 21(70%) were business owners as compared to
9(30%) who were employees. This implies that the respondents were valid and reliable since the
owners of the business had key information regarding their business and contribution of credit
facilities towards the growth of SMEs as compared to having real information about these
dynamics
4.2.5 Line category of business
Businesses were categorized into 5 categories as illustrated below
Table 4.5; Description of respondents according to the line category of business dealt in
Business category No. of respondents Percentage
Retail shop 8 27
Hair Salon 7 23
Restaurant 5 17
Food/beverage processing 4 13
Furniture workshop 6 20
Total 30 100
Source: Primary data
Table 4.5 shows that 8(27%) of the respondents were running retail shops, 7(23%) were running
hair salons, 5(17%) were operating restaurant business, 4(13%) were dealing in food or beverage
processing business while 6(20%) were having furniture workshops. Majority respondents
8(27%) were therefore running retail shops as compared to food or beverage processing business
4(13%).
39
4.2.6 Duration the employees have been in the firm
The respondents were asked for how long they have been working in the firm. However, the
responses to the question were tabulated as indicated below:
Table 4.6: Shows duration the employees have worked with the SMEs
Duration No. of respondents Percentage (%)
1- 2 years 2 6
3-4 years 7 23
5-7 years 18 60
Above 7 years 3 10
Total 30 100
Source: Primary data 2014
The findings in the table above show that 60% of employees have worked in the SME for a
period of 5-7 years which therefore is an indication of low labour turnover, 23% have worked for
the period between 3-4 years 10% have been working for over 7 years and only 6% have been in
the firm for a period between1-2 years. This implies that the data was obtained from respondents
who had gotten experience in working with SMEs and were also more familiar with different
operations of SMEs.
40
4.3 Credit financing
According to the conceptual framework in chapter 1, the independent variable was Credit
financing conceptualized as Bank loans, Trade credit and Bank overdraft as illustrated below
4.3.1 Responses on credit financing facilities of Mengo traders
Table 4.5 Responses on credit financing facilities of Mengo traders
Statement Strongly
disagree
Disagre
e
Not
sure
Agree Strongly
agree
A Bank loan
A1.1 I use bank loans to supplement my
capital in operating the business
3 (10%) 2 (6%) 1 (3%) 6 (20%) 18 (60%)
A1.2 I can afford the terms and conditions
given to me by the bank
10 (30%) 5 (17%) 0 (0%) 4 (13%) 10 (33%)
A1.3 The loan size I get is adequate 10 (33%) 7 (23%) 5
(17%)
5 (17%) 3 (10%)
A1.4 The loan period given to me is
enough
10 (33%) 5 (17%) 2 (6%) 4 (13%) 9 (30%)
A1.5 The credit officers have enough skills
and experience to handle delinquent
clients
5 (17%) 3 (10%) 1 (3%) 15 (50%) 11 (37%)
A1.6 I am always briefed about the bank
loan terms and conditions before I get
a loan.
15 (50%) 2 (7%) 0 (0%) 4 (13%) 9 (30%)
Overall evaluation of bank loan 9 (30%) 4 (13%) 1 (3%) 6 (20%) 10 (33%)
41
B Trade credit
B1.1 I always use trade credit 1 (3%) 2 (7%) 0 (0%) 10 (33%) 17 (57%)
B1.2 I am aware of the terms and
conditions attached to trade credit
1 (3%) 2 (7%) 1 (3%) 11(37%) 15 (50%)
B1.3 I always pay back in the stipulated
time
3 (3%) 5 (17%) 5(17%) 7 (23%) 10 (33%)
B1.4 I always qualify for more trade credit
facilities
4 (13%) 5 (17%) 3(10%) 9 (30%) 9 (30%)
B1.5 Without trade credit facilities, my
capital would be too small to operate
my business
3 (10%) 5 (17%) 2 (7%) 12 (40%) 8 (27%)
Overall on trade credit 2 (7%) 4 (13%) 2 (7%) 10 (33%) 12 (40%)
C Bank overdraft
C1.1 I use bank overdraft to finance my
business
8 (27%) 2 (7%) 2 (7%) 10 (33%) 8 (27%)
C1.2 I am aware of the terms and
conditions attached on bank overdraft
3 (10%) 3 (10%) 2 (7%) 8 (27%) 14 (47%)
C1.3 I have all the qualifications to be
given a bank overdraft
5 (17%) 3 (10%) 2 (7%) 10(33%) 10 (33%)
Overall on bank overdraft 5 (17%) 3 (10%) 2 (7%) 9(30%) 11 (37%)
Overall on credit financing facilities 5 (17%) 4 (13%) 2 (7%) 8 (27%) 10 (33%)
Source: Primary data 2014
42
Evaluation of bank loans
Table4.5 shows that, 10% of the respondents strongly disagreed that they do not use bank loans
to supplement their capital in operating the business, 6% disagreed, 3% were not sure, 20%
agreed while 60% strongly agreed. This implies that the majority of the respondents 18 (60%)
strongly agree that they use bank loans to supplement their capital.
From table 4.5 shows that 30% of the respondents strongly disagreed, 17% disagreed, 0% was
not sure, 13% agreed and 33% strongly agreed that they can afford the terms and conditions
given to them by the bank. It means that majority of the respondents, 14 (47%) disagreed that
they can afford the terms and conditions given to them by the bank.
From the table 4.5 shows that, 33% of the respondents strongly disagreed, 23% disagreed, 17%
were not sure, 17 agreed while 10% strongly agreed that the loan size they get is adequate. In all,
majority of the respondents (56%) respondents disagreed that the loan size thy get is adequate.
From table 4.5 shows that, 33% strongly disagreed, 17% disagreed, 6% were not sure, 33%
agreed yet 13% strongly agreed that the loan period given to them is enough. The implication
from this is, 15 respondents (50%) disagreed that the loan period given to them is enough.
Table shows that, 17% strongly disagreed, 10% disagreed, 3% were not sure, 50% agreed while
33% strongly agreed that the credit officers have enough skills and experience to handle
delinquent clients. In all, 15 of the respondent (50%) agreed that the credit officers have enough
skills and experience to handle delinquent clients.
From table4.5 shows that, 3% strongly disagreed, 7% disagreed, none of the respondents were
not sure, 60% agreed while 30% strongly agreed that they are always briefed about the bank loan
43
terms and conditions before they get a loan. A clear implication is that, 18 respondents (60%)
agreed that, they are always briefed about the bank loan terms and conditions before they get a
loan.
The overall evaluation of bank loan from table 4.5 indicated that, 30% strongly disagreed, 13%
disagreed, 1% of the respondents were not sure, 20% agreed while 33% strongly agreed with the
overall evaluation of bank loan. This clearly implies that 53% of the respondents agreed with the
overall evaluation of bank loans.
Evaluation of trade credit
From table 4.5 shows that, 3% strongly disagreed, 7% disagreed, none of the respondents was
not sure, 33% agreed while 57% strongly agreed that they always use trade credit. A clear
implication is that majority of the respondents (57%) strongly agreed that, they I always use
trade credit always use trade credit.
From table 4.5 shows that, 3% strongly disagreed, 7% disagreed, 3% of the respondents were not
sure, 37% agreed while 50% strongly agreed that they were always aware of the terms and
conditions attached to trade credit. A clear implication is that, majority of the respondents (50%)
strongly agreed that, they are always aware of the terms and conditions attached to trade credit.
From table 4.5 shows that 3% strongly disagreed, 17% disagreed, 17% of the respondents are not
sure, 23% agreed while 33% strongly agreed that they always pay back in the stipulated time. A
clear implication is that, majority of the respondents (33%) strongly agreed that, they always pay
back in the stipulated time.
44
From table 4.5 shows that, 13% strongly disagreed, 17% disagreed, 10% of the respondents were
not sure, 30% agreed while 30% strongly agreed that they always qualify for more trade credit
facilities. This implies that, majority of the respondents both agree and strongly agree that, they I
always qualify for more trade credit facilities.
From table 4.5 shows that, 10% strongly disagreed, 17% disagreed 7% of the respondents were
not sure, 40% agreed while 27% strongly agreed that without trade credit facilities, their capital
would be too small to operate their business. A clear implication is that, majority of the
respondents (40%) agreed that, without trade credit facilities, their capital would be too small to
operate their business.
The overall evaluation of trade credit from table 4.5 indicated that, 2 respondents (7%) strongly
disagreed, 4 respondents (13%) disagreed, 2 respondents (7%) were not sure, 10 respondents
33% agreed while 12 respondents (40%) strongly agreed with the overall evaluation of bank
loan. This clearly implies that majority of the respondents (73%) of the respondents agreed with
the overall evaluation of credit financing.
Evaluation of bank over drafts
From table 4.5 shows that, 27% strongly disagreed, 7% disagreed, 7% of the respondents are not
sure, 33% agreed while 27% strongly agreed that they use bank overdraft to finance their
business. A clear implication is that, majority of the respondents (33%) agree that, they use bank
overdraft to finance their business.
From table 4.5 shows that, 10% strongly disagreed, 10% disagreed, 7% of the respondents are
not sure, 27% agreed while 47% strongly agreed that they are aware of the terms and conditions
45
attached on bank overdraft. A clear implication is that, majority of the respondents (47%)
strongly agreed that, they are aware of the terms and conditions attached on bank overdraft.
From table 4.5 shows that, 17% of the respondents strongly disagree, 10% disagree, 7% are not
sure, 33 agreed while 33% strongly agreed that they have all the qualifications to be given a bank
overdraft. In all, 10 (33%) respondents agreed as well as strongly agreed that they have all the
qualifications to be given a bank overdraft.
The overall evaluation of bank overdraft results from table 4.5 indicated that, 5 respondents
(17%) strongly disagreed, 4 respondents (13%) disagreed, 2 respondents (7%) are not sure, 9
respondents 30% agreed while 11 respondents (37%) strongly agreed with the overall evaluation
of bank loan. This clearly implies that majority of the respondents (67%) of the respondents
agree with the overall evaluation of bank overdraft.
Overall evaluation of trade credit from table 4.5 indicated that, 5 respondents (17%) strongly
disagreed, 4 respondents (13%) disagreed, 2 respondents (7%) are not sure, 8 respondents 27%
agreed while 10 respondents (33%) strongly agreed with the overall evaluation of bank loan.
This clearly implies that majority of the respondents (60%) of the respondents agreed with the
overall evaluation of credit financing
46
4.4 An evaluation of the growth of small and medium enterprises of the Mengo traders
Table 4.6 Responses on the growth of SMEs in Mengo trading center
# Statement Strongly
disagree
Disagre
e
Not
sure
Agree Strongly
agree
1 My business continues to expand 1 (3%) 2 (7%) 1 (3%) 15 (50%) 11 (37%)
2 Sales volumes of my business are
always increasing
3 (10%) 6 (20%) 2 (7%) 12 (40%) 9 (30%)
3 The profit levels of my business are
always increasing
0 (0%) 3 (10%) 2 (7%) 10 (33%) 10 (33%)
4 I have been able to open more branches
for this business
3 (10%) 5 (17%) 2 (7%) 8 (27%) 12 (40%)
5 There is always excess of income over
expenditure
8 (27%) 5 (17%) 5
(17%)
5 (17%) 7 (23%)
6 I have acquired more assets in my
business
5 (17%) 6 (20%) 0 (0%) 10 (33%) 9 (30%)
7 I have added more working capital 2 (7%) 1 (3%) 0 (0%) 15 (50%) 12 (40%)
8 I compete favourably with people in the
same business
5 (17%) 3 (10%) 0 (0%) 10 (33%) 12 (40%)
9 I take and make simple records in my
business
3 (10%) 7 (23%) 0 (0%) 8 (27%) 11 (37%)
1
0
I employ now more people in the
business compared to when I started it.
3 (10%) 3 (10%) 0 (0%) 10 (33%) 14 (47%)
Overall evaluation of growth of SMEs 3 (10%) 4 (13%) 1 (3%) 11 (37%) 11 (37%)
Source: Primary data 2014
47
From table 4.6 shows that, 3% of the respondents strongly disagree, 7% disagree, 3% are not
sure, 50% agree while 37% strongly agree that their business continues to expand. This implies
that majority of the respondents (15 respondents) agree that their business continues to expand.
From table 4.6 shows that, out of the 30 respondents, 10% strongly disagree that sales volumes
of my business are always increasing, 20% disagree, 7 % are not sure, 40% agree while 30%
strongly agree that sales volumes of my business are always increasing. From the above
information, it implies that, 12 respondents (40%) which is the majority of the respondents agree
that sales volumes of my business are always increasing.
From table 4.6 shows that, none of the respondents strongly disagree, 7% disagree, 3% are not
sure, 40% agree whereas 33% strongly agree that the profit levels of their business are always
increasing. It means that, majority of the respondents (40%) agree that the profit levels of their
business are always increasing.
table 4.6 shows that, 10% strongly disagree, 17% disagree, 7% are not sure, 27% agree while
40% strongly agree that they have been able to open more branches for this business. In all,
12out of the 30 respondents agree that they have been able to open more branches for their
business
Table4.6 show that, 17% strongly disagree, 17% disagree, 7% are not sure, 23% agree while
33% strongly agree that there is always excess of income over expenditure in their businesses.
From this information, it means that majority of the respondents (33%) strongly agree that there
is always excess of income over expenditure in their businesses
Table 4.6shows that, 17% of the respondents strongly disagree that they have acquired more
assets in their businesses, 20% disagree, none of them is not sure, 33% agree whereas 30
48
strongly agree that they have acquired more assets in their business. It therefore implies that,
majority of the respondents agree that, they have acquired more assets in their businesses.
Table 4.6shows that, 7% of the respondents strongly disagree, 3% disagree, none of the
respondents is not sure, 50% agree while 40% strongly agree that they have added more working
capital to their SMEs. This means that, 50% of the respondents agree that they have added more
working capital to their businesses
Table 4.6 illustrates that 17% of the respondents strongly disagree that they can compete
favourably with people in the same business, 10% disagree, no one is not sure, 10% agree while
40% strongly agree. This implies that the latter are the majority
Table 4.6shows that, 10% of the respondents strongly disagree, 20% disagree, none of them is
not sure, 27% agree while 37% strongly agree that they take and make simple records in their
business. It implies that, 37% of all the respondents can make simple records of their businesses
Table 4.6shows that, 10% strongly disagree, 10% disagree, 0% are not sure, 33% agree while
47% strongly agree that they employ now more people in the business compared to when they
started it. All in all, 47% of the respondents strongly agree that they employ now more people in
the business compared to when they started it.
The overall evaluation of the growth of SMEs from table 4.5 indicated that, 3 respondents (10%)
strongly disagree, 4 respondents (13%) disagree, 1 respondent (3%) is not sure, 11 respondents
37% agree while 11 respondents (37%) strongly agree with the overall evaluation of bank loan.
This clearly implies that majority of the respondents (74%) of the respondents agree with the
overall evaluation of the growth of SMEs.
49
Finding of the study support the literature of Kotler 2000, according to Kotler (2000), “the
company’s growth will be determined by the increase in rate of growth of its market share”. The
study also proved growth of SMEs in relation to increase in market share among other factors
50
4.5 Respondents’ rating on whether there is a relationship between credit facilities and
growth of selected small and medium enterprises of Mengo traders
Table 4.7 Responses on the relationship between credit facilities and growth of SMEs
# Statement Strongly
disagree
Disagre
e
Not sure Agree Strongly
agree
1 Credit facilities have assisted me to
expand my business
3 (10%) 5 (17%) 0 (0%) 12 (40%) 10 (33%)
2 Trade Credit has been influencial in
increasing the sales volume of my
business
4 (13%) 4 (13%) 2 (7%) 10 (33%) 10 (33%)
3 Bank overdrafts have assisted me to
increase the profitability of this business
5 (17%) 3 (10%) 2 (7%) 8 (27%) 12 (40%)
4 Bank loans have helped me to establish
new branches
3 (10%) 6 (20%) 1 (3%) 10 (33%) 10 (33%)
5 Trade credit have helped me to increase
the profitability of this business
2 (7%) 2 (7%) 0 (0%0 10 (33%) 16 (53%)
6 Trade credit has helped me to operate
even if I do not have enough money
5 (17%) 5 (17%) 2 (7%) 10 (33%) 13 (43%)
7 Bank loans are important in my business
growth
1 (3%) 2 (7%) 1 (3%) 12 (40%) 14 (47%)
Overall evaluation on the relationship
between credit financing and growth of
SMEs
3 (10%) 4 (13%) 1 (3%) 10 (33%) 12 (40%)
Source: primary data 2014
51
From table 4.7 shows that, 10% of the respondents strongly disagree, 17% disagree, 0% are not
sure, 40% agree while 33% strongly agree that credit facilities have assisted them to expand their
business. This means that majority of the respondents (40%) agree that credit facilities have
assisted them to expand their business.
Table 4.7 shows that, 13% of the respondents strongly disagree, 13% disagree, 7% are not sure,
while those who agree and those who strongly agree are 33% that trade credit has been
influencial in increasing the sales volume of their business. This in all implies that, majority of
the respondents both agree and strongly agree that trade credit has been influencial in increasing
the sales volume of their business.
Table 4.7 shows that, 17% strongly disagree, 10% disagree, 7% are not sure, 27% agree yet 40%
strongly agree that bank overdrafts have assisted them to increase the profitability of their
business. All in all, 40% (majority) strongly agree that bank overdrafts have assisted them to
increase the profitability of their business.
Table 4.7 shows that 10% of the respondents strongly disagree, 20% disagree, 3% are not sure,
33% agree while 33% also strongly agree that bank loans have helped them to establish new
branches. From the above information, it means that, majority of the respondents both agree and
strongly agree that bank loans have helped them to establish new branches.
Table 4.7 shows that, 7% of the respondents both disagree and strongly disagree, none of the
respondents is not sure, 33% agree while 53% strongly agree that trade credit have helped them
to increase the profitability of their business. It therefore implies that majority of the respondents
(53%) strongly agree that trade credit has helped them to increase the profitability of their
business.
52
Table 4.7 shows that, 17% of the respondents strongly disagree, 17% disagree, 7% are not sure,
33% agree while 43% strongly agree that trade credit has helped them to operate even if they do
not have enough money. This clearly implies that majority of the respondents (43%) strongly
agree that trade credit has helped them to operate even if they do not have enough money.
Table 4.7 shows that, 3% of the respondents strongly disagree, 7% disagree, 3% are not sure,
40% agree while 47% strongly agree that bank loans are important in their business growth. This
clearly implies that majority of the respondents (47%) strongly agree that bank loans are
important in their business growth.
The overall findings on the relationship between credit financing and growth of SMEs from table
4.7 indicated that, 3 respondents (10%) strongly disagree, 4 respondents (13%) disagree, 1
respondent (3%) is not sure, 10 respondents 33% agree while 12 respondents (40%) strongly
agree with the overall evaluation of bank loan. This clearly implies that majority of the
respondents (73%) of the respondents agree with the overall evaluation of bank overdraft.
The findings on the relationship between credit financing and growth of SMEs agree with the
study of Professor Karlan (2003), of Yale University which stated that, micro financing begets
the general tendency of a small business initially supported on credit to gain profits with time
and generate micro savings. In his latest study, the famous two time Pulitzer Prize winner,
Nicholas Dona bet Kristof also stated that there is no evidence of any negative influence of micro
financing but countless examples of people now looking at the bigger picture and saving for
better things have surfaced.
53
4.6 The relationship between credit financing and growth of SMEs.
This section addresses the third objective of the study which was to analyse the relationship
between credit financing and growth of SMEs. The results are presented as below;
Table 4.8: Correlations
credit financing Growth of SMEs
Spearman's rho Credit financing Correlation
Coefficient
1.000 .669*
Sig. (2-tailed) . .035
N 30 30
Growth of SMEs Correlation
Coefficient
.669* 1.000
Sig. (2-tailed) .035 .
N 30 30
*. Correlation is significant at the 0.05 level (2-tailed).
From the above findings, it shows that there is a strong relationship between credit financing and
the growth of Small and Medium Enterprises. At Pearson correlation coefficient r =0.669
The results as depicted from the table above (r2=0.669, P=0.035) suggest a positive and
significant effect on credit financing on the growth of Small and Medium Enterprises in Mengo
trading center. The positive relationship means that when credit financing increases, Small and
Medium Enterprises also grow.
54
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION
5.0 Introduction
This is the last chapter of the study. It presents the summary of findings in line with the study
objectives, and the researcher derives conclusions and makes recommendations.
5.1 Summary of key findings
5.1.1 Credit financing facilities.
Majority of the respondents agreed that they use credit facilities to finance their businesses and
that the credit officers have always briefed them before they acquire such loans. This implies that
their business operations have been boosted by these credit facilities. Majority respondents
disagreed with time to pay back the loans, the terms and conditions of the loans as well as the
size of the loan. Majority of the traders in Mengo trading centre agreed that their businesses
cannot have sufficient capital thus emphasizing the vital role of credit facilities to SMEs. They
agreed with the significance of all the credit financing facilities offered to enhance growth of
their businesses. All in all, they agreed that Credit financing facilities and terms of MFIs were
favorable.
55
5.1.2 Growth of SMEs in Mengo trading center
Majority agreed that most businesses were owned and operated by their founders and that credit
financing facilities help in maintaining business, improving their performance ,and that they
provided liquidity to the business. Their businesses served as their sole source of employment
and business returns can sustain the business and the family. All in all, they agreed that
Performance SMEs in Mengo trading center was not so bad due to the presence of MFIs in the
area and the activities they perform. They continue to reveal that they have acquired new assets,
increased sales, added working capital as well as increased profitability due to credit facilities
5.1.3 Relationship between micro finance activities and performance of small scale
businesses
From the above finding, it implies that there is a strong relationship between credit financing
facilities and growth of SMEs, the researcher measured a positive effect of credit financing on
the growth of small and medium enterprises.
A good number of respondents agreed that credit facilities have helped their businesses to
expand while others said that trade credits have enabled them to increase their sales volumes. In
addition, the agreed that bank overdrafts have helped in increasing the profitability of their
businesses. Sales volumes increase, smooth running of business, to mention but a few have been
made possible by credit facilities. Bank loans among other credit facilities have helped them
create and open up new branches. The overall assessment of the researcher measured a positive
effect of credit financing on the growth of small and medium enterprises, that is, a strong
positive relationship (r2=0.669, P=0.035) was established. This implies that SMEs should utilize
56
the credit facilities in order to improve on their performance and yield more return on their
capital and make expansions
This implies that small and medium enterprises should utilize the services offered by MFIs in
order to improve on their performance and yield more return on their capital and make
expansions.
5.2 Conclusion
The study discovered a strong relationship between credit financing and growth of SMEs. This
analysis of credit financing facilities and the growth of small and medium enterprises is an
important contribution to the literature of evaluating micro finance activities. The study findings
showed that credit financing facilities enable small and medium enterprises improve on
performance thus overall growth. From the rank correlation considered in the study, there is a
positive relationship between the variables.
5.3 Recommendations
From the study findings, the researcher recommends the following;
MFIs should devise means they deliver credit financing facilities, improve terms and conditions
under which financial institutions offer various credit facilities to SMEs.
The government of the republic of Uganda should partner with other financial institutions to
provide subsidized financial/credit assistance to SMEs with little interest rates
57
There should be assessment of the needs of SMEs so as financial institutions develop credit
facilities that best suit the small and medium enterprises.
Financial institutions should put in a provision of loan repayment periods extension for Small
and Medium Enterprises.
More credit need to be availed to the Small and Medium Enterprises given their significant role
in the economic growth and development.
5.4 Areas for further research
More research needs to be carried out on the other aspects of credit financing facilities affecting
the growth of Small and Medium Enterprises.
In addition broader research should be carried out on the factors affecting the growth of Small
and Medium Enterprises in rural areas.
More so, there is need for further research on other credit facilities needed by Small and Medium
Enterprises in Uganda.
I recommend further research on other aspects of growth of Small and Medium Enterprises apart
from those discussed in the study.
58
REFERENCES.
Akanji, O. O. (2006). Microfinance as a strategy for poverty reduction Central Bank of Nigeria
Economic and Financial Review, 39 (4)
Allen, I. E; Elam, A; Langowitz, N and Dean M (2008) 2007 Global Entrepreneurship monitor
report on women and entrepreneurship Babson college. The center for women’s leadership
Arimah, B.C. (2001): Nature and Determinants of Linkages between Formal and Informal Sector
in Nigeria, in: African Development Review, 13, 1: 114-144
Arinaitwe, J.K. (2006), "Factors constraining the growth and survival of small scale businesses: a
developing countries analysis", Journal of American Academy of Business, Cambridge, Vol.
8No.2, pp.167-78.
Badagawa G (2000). Proceeding of the symposium on modalities for financing SMEs in Uganda,
UN-New York and Geneva 2002
Balswin, (2005).Relationship lending and lines of credit in small firm finance. Prentice
Publishers India.
Bank of Uganda November Report 2006
Bategeka, L. (1999): Uganda’s Achievements and Challenges in the Financial Sector: Whose
Interests Count? In: The Ugandan Banker“, Vol. 7, No. 4, Uganda Institute of Bankers, Kampala
Biryabarema, F. (1998): Small Scale Businesses and Commercial Banks in Uganda, by
Lancashire Enterprises Plc and John Short Economic Services, Presto, UK.
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Byaruhanga, J.K and Musaazi, M.K. (1999): “Improvement of Profitability in Small Scale
Country – specific Experiences from Sub – Saharan Africa,” Journal of African Dec 1999/ Jan.
2000.
http://www.bizfilings.com/toolkit/sbg/finance/getting-financing/bank-loans-common-types.aspx
Krejcie, R.V., & Morgan, D.W., (1970). Educational and Psychological Measurement
Determining Sample Size for Research Activities.
Matly and West head (2005). Commercial bank financing of white and black-owned small
business start ups. Quarterly Review of Economics and Business
Mike, (2006).Carters Advanced Accounts, 6th Edition, Pitman Publishing Company London
Miller.(1963). Black capitalism. A Quantitative Analysis. Luthern Publishers London
Ministry of Finance, Planning and Economic Development (2000).‘ Poverty Eradication Action
Plan’ Publishing House Entebbe- Uganda.
Mirero (2004).The economics of small business finance. New York Press.
Modigiliani and Miller (1963).Credit accessibility and Investment Decisions in Uganda’s
manufacturing Sector. An Empirical Investigation
Signoriello, Vincent J. (1991), Commercial Loan Practices and Operations, ISBN 978-1-55520
Washington, D.C. Barnes, C.; Sebstad, J. (1999): “Guidelines for Microfinance Impact
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Meeting October 18-29
61
APPENDIX B; QUESTIONNAIRE
A SELF ADMINISTERED QUESTIONNAIRE ON CREDIT FINANCING AND THE
GROWTH OF SMALL AND MEDIUM ENTERPRISES
A CASE OF SELECTED SMALL AND MEDIUM ENTERPRISES IN MENGO
TRADING CENTRE
Dear respondent, I am a student of NDEJJE University undertaking a Bachelor of Accounting
and finance degree carrying out a research on the role of credit facilities to the growth of small
and medium enterprises among the Mengo traders. This research questionnaire is prepared for
the sole purpose of obtaining information about the role of credit facilities to the growth of small
and medium enterprises. It’s purely academic in nature and the information obtained will be
treated with the highest degree of confidentiality.
SECTION A: RESPONDANT’S PERSONAL DATA
Please tick in the appropriate box
1: Gender: Male
Female:
2: Group: Below 25 years
26 – 30 years
31-35 years
Above 36 years
62
3: Highest Level of Education qualification attained
Primary
Secondary
Diploma
Degree
Other (please specify) …………………………………
4: State whether you are an employee or owner of the business
Employee Owner
5: What category of business do you deal in?
Retail shops Agricultural
products
Restaurant
business
Tailoring Garments
6: How long have you been in this business?
1-2 years
3-4 years
5-7 years
7 and above
63
5. SECTION B: AN EVALUATION OF CREDIT FACILITIES OF MENGO TRADERS
You are requested to show the extent to which you agree or disagree on matters relating to the
role of credit facilities in your business.
(Please tick most appropriate of: strongly disagree=1, Disagree=2, Not sure=3, Agree=4 and
strongly agree =5)
Statement 1 2 3 4 5
A Bank loan
A1.1 I use bank loans to supplement my capital in operating the business
A1.2 I can afford the terms and conditions given to me by the bank
A1.3 The loan size I get is adequate
A1.4 The loan period given to me is enough
A1.5 The credit officers have enough skills and experience to handle
delinquent clients
A1.6 I am always briefed about the bank loan terms and conditions before
I get a loan.
B Trade credit
B1.1 I always use trade credit
B1.2 I am aware of the terms and conditions attached to trade credit
64
B1.3 I always pay back in the stipulated time
B1.4 I always qualify for more trade credit facilities
B1.5 Without trade credit facilities, my capital would be too small to
operate my business
C Bank overdraft
C1.1 I use bank overdraft to finance my business
C1.2 I am aware of the terms and conditions attached on bank overdraft
C1.3 I have all the qualifications to be given a bank overdraft
65
6. SECTION C: AN EVALUATION OF THE GROWTH OF SMALL AND MEDIUM
ENTERPRISES OF THE MENGO TRADERS
The table below relates to statements that will enable the researcher to assess the growth of small
and medium enterprises.
(Please tick most appropriate of: Strongly disagree=1, Disagree=2,Not sure=3 Agree=4, and
Strongly agree =5)
Statement 1 2 3 4 5
My business continues to expand
Sales volumes of my business are always increasing
The profit levels of my business are always increasing
I have been able to open more branches for this business
There is always excess of income over expenditure
I have acquired more assets in my business
I have added more working capital
I compete favourably with people in the same business
I take and make simple records in my business
I employ now more people in the business compared to when I
started it.
66
7. SECTION D: AN EVALUATION OF THE RELATIONSHIP BETWEEN CREDIT
FACILITIES AND GROWTH OF SELECETED SMALL AND MEDIUM
ENTERPRISES OF MENGO TRADERS
The statements here below are to help in assessing the relationship between credit facilities and
growth of small and medium
(Please tick most appropriate of: strongly disagree=1, Disagree=2, Not sure=3, Agree=4 and
strongly agree =5)
Statement 1 2 3 4 5
Credit facilities have assisted me to expand my business
Trade Credit has been influencial in increasing the sales volume
of my business
Bank overdrafts have assisted me to increase the profitability of
this business
Bank loans have helped me to establish new branches
Trade credit have helped me to increase the profitability of this
business
Trade credit has helped me to operate even if I do not have
enough money
Bank loans are important in my business growth
Thank you for your cooperation
67
APPENDIX C; WORK PLAN
The following table shows the time spent while carrying out this research
Time Activity
One week Introduction and background
One week Statement of the problem
Three weeks Literature review
One week Methodology
Four weeks Presentation and interpretation of findings
One week Summary of findings
Two week References and Appendices
Total time; thirteen weeks