The Effect Of Microfinance Institution Lending On The Growth Of Small And Medium Enterprise In Somalia
Siyad, Abdinor D
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Microfinance provides a wide range of financial services to low-income clients, including self-employed and low earning individuals who are working in informal sectors. The study objective is to establish the effect of microfinance institutions lending on the growth of Small and Medium Enterprise in Somalia. The descriptive design was selected in this study because it would allow the researcher to gather numerical and descriptive data to assess the relationship between the variables. The study used probability sampling techniques to create a sampling frame for Small and meduim enterprises. Stratified random sampling technique was used to select a total of 60 SMEs that constituted our sample size from infinite population of small and medium sized enterprise. Data collected from the questionnaire was analyzed, summarized, and interpreted accordingly with the aid of descriptive statistical techniques such as total score and simple percentages. In the process of data analysis the researcher used SPSS computer package to analyze the data. It was find out that MFIs lending effect to the growth of small and medium enterprise in Somalia and have positive relationship. The study findings show that only a small percentage of the SMEs in Somalia are beneficiaries of the MFI lending services and has an effect on their growth. It was also accomplished that most of the requirements as collateral for loan application cannot be afforded by most SMEs, hence opting for cheaper sources of capital hence the low adoption of the loan services by MFIs. Other challenges causing low acceptance of the loans include: the long time taken processing loans, stringent repayment terms and the high transaction costs. MFI loans can be said to lead to the improvement in productivity among the beneficiary SMEs, as well as profitability and the high number of entrepreneurs starting up new ventures. There exists a positive relationship between ROA and accessibility of credit in MFI, a negative one between ROA and the collateral of MFI lending and a positive one between ROA and group lending and individual lending. The study recommends that there is a need for the government and other partners to facilitate the accessibility of credit in Small and Medium Enterprises to the Microfinance Institutions and minimize the collateral conditions. SMEs should be encouraged also to adopt group financing so as to avert loan defaulting. In order to reduce the rate of default, MFIs can research into very profitable business lines and offer credit to clients who have the capacity to exploit such business lines.
CitationSiyad,Abdinor D.;November,2013.The Effect Of Microfinance Institution Lending On The Growth Of Small And Medium Enterprise In Somalia.
University of NairobiSchool of Business