Contribution of microfinance institutions in the growth of small and medium enterprises in Tanzania: evidence from trade enterprises in Moshi municipality

Abstract

Small and Medium Enterprises (SMEs) in developing and developed countries play a vital role in economic development. Despite their crucial role in the economy, SMEs continue failing in large numbers due to various problems that Microfinance Institutions (MFIs) claim to offer solutions such as access to finance. This study intended to assess microfinance institutions' contribution to SMEs' growth. Precisely, the study aimed at examining the contribution of credit to SMEs, determining the extent to which entrepreneurial training contributes to the growth of SMEs, and examining the contribution of MFIs technological innovations to the growth of SMEs. The study used a cross-sectional research design with a sample size of 231 respondents to collect the information required. Multiple Regression Analysis (MRA) and descriptive statistics were used in data analysis, whereas graphs and tables were used to present the results. It was found that MFIs play an important role in providing services to SMEs. With access to credit, the adjusted R² was 50.3%, indicating a highly positive relationship between access to credit and SMEs’ growth. The results of entrepreneurial training also showed an adjusted R² of 38.8%, implying a normal positive relationship between entrepreneurial training and SMEs’ growth. It can, therefore, be concluded that MFIs play an important role in facilitating the growth of SMEs. However, it was also revealed that the SMEs were still struggling to have a high pace of growth due to unfavorable credit terms, less entrepreneurial training, and low awareness of technological innovations. The study recommended that the MFIs improve the credit terms, and the government should also intervene in the activities of MFIs by creating policies aiming to favor the SMEs to improve the sector.