The contribution of Microfinance Institutions (MFIs) services to poverty reduction among micro and small entrepreneurs in Iringa Municipality, Tanzania

Abstract

Purpose: The major purpose of this study was to assess the contribution of Microfinance Institutions (MFIs) to poverty alleviation among micro and  small entrepreneurs of Iringa municipality, Tanzania.

Design/Methodology/Approach: The study involved 333 micro and small entrepreneurs who own/manage micro and small enterprises and had  accessed MFIs services. The study applied a cross-sectional survey design under a mixed research approach. The data were solicited from micro and  small entrepreneurs using a structured questionnaire, and from key informants using an interviews guide. Among 333 questionnaires that were  distributed, 320 questionnaires were used for data analysis as the rest were not usable because they contained incomplete data. Data analysis was  done using correlation analysis: Chi-square, Kendall taub, Phi, and Cramer’s V.

Findings: The study revealed that micro and small enterprises were involved in manufacturing, agriculture, service, and commerce. The study found  that most MFIs services have not improved micro and small entrepreneurs’ income. However, the result shows that MFIs services have  contributed to the reduction of poverty among micro and small entrepreneurs in Iringa municipality.

Implications/Research Limitations: This study  was a cross-sectional study, it is therefore impossible to draw any conclusions about the underlying  contributions or impacts of MFIs  services on poverty reduction among micro and small entrepreneurs over time. In addition, because  all of the data in this study was collected from a single source ‘micro and small entrepreneurs, there is a likelihood of common bias.

Practical  Implications: The findings of this paper would be useful for micro and small enterprises as it will be an eye-opener regarding the ability of MFIs to provide them with the capital they need and not just cash for consumption purposes. Also, institutions involved in the facilitation and  regulation of microfinance services will gain from the results of this study since they promote policy review and encourage the use of MFIs services  by micro and small entrepreneurs.

Originality/Value: Due to mixed results from different scholars about the impact of MFIs on the alleviation of extreme poverty among micro and  small entrepreneurs, this suggests that the contribution of MFIs in the eradication of extreme poverty has not been established. Therefore, this  study intended to fill the gap by investigating the extent to which microfinance institutions' services contribute to the reduction of extreme poverty  among entrepreneurs in micro and small enterprises with particular regard to Iringa Municipal, Tanzania.