Firm and Borrower Characteristics for Performance of Micro and Small Enterprises (MSEs): Evidence from Micro Finance Institutions (MFIs) in Uganda

Abstract

Most SMEs lack collateral security which is required by commercial banks to access credit and as a result, they end up borrowing from MFIs. The study aimed to identify to what extent firm and borrower characteristics influence business performance of Micro and Small Enterprises (MSEs), with evidence from MFIs in Uganda. Ex-facto design was used, where 174 MSEs were included in the sample which was drawn randomly from the lists of borrowers collected from MFIs in the districts of Soroti and Kumi in Eastern Uganda. Using a self-administrated questionnaire the data was collected from owners of MSEs with 100% response rate. Data was analyzed using the (SPSS), and a number of statistical techniques through descriptive statistics, arithmetic means, standard deviations and percentages. Correlation analysis was used to test the hypothesis, while regression analysis was use to assess the influence of the predictors on the outcome. The study found that there was a significant positive relation between borrower’s characteristics and performance, and similarly, there existed a significant positive relationship between business characteristics and performance. The study concluded that for Micro Finance Institutions (MFIs) to realize reasonable profits, great efforts need to be channeled towards efficient and effective consideration of loan terms, borrower’s characteristics and business characteristics.