The impact of microfinance institutions on performance of microenterprises and house hold welfare: a case of Mufindi community bank, Iringa region
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Date
2005
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Publisher
Sokoine University of Agriculture
Abstract
Recently, development practitioners have come to realize that the poor of the poorest
can indeed make effective use of credit to raise their income and get access to many
welfare indicators such as food and other necessities. But knowledge about the
achievements of such initiatives, though are of interest to many stakeholders, remains
undocumented in many parts of the world. This study, therefore, was an attempt to
assess the impact of credits administered by Mufindi Community Bank (MuCoBa)
on performance of micro enterprises and improvement of the household welfare.
Specific objectives were to: (i) establish micro enterprises profile in the District, (ii)
evaluate the impact of credits on micro-enterprises performance and market
participation, (iii) assess the impact of credits on household welfare, and (iv) assess
factors that would enhance impact of Mufindi Community Bank’s credit on
beneficiaries. Cross-sectional surveys were conducted to collect primary data from
151 respondents of whom 88 were credit participants, 35 had qualified to get credit
but had yet to start and 28 had secured credits for farm activities. Semi-structured
and structured questionnaires were used. Secondary data were secured from the bank
and government offices. The bank provides credit to support legally existing
economic enterprises that should have been in operation more than a year. For easy
interpretation of data, descriptive and quantitative analytical techniques were
employed. Common types of enterprises identified are petty trade/utility services,
agro marketing and manufacturing/artisans. The findings indicate a statistically
significant difference (p<0.0001) between credit participants and non-participants in
terms of average annual profit, available working capital arid value of selected
durables of household assets. It is noteworthy report here that start up capital, initialiii
credit, available working capital, family size, type of enterprise and monthly turnover
affected positively the performances (profit) of the enterprises. Also, credit
beneficiaries were able to employ (40%), access distant markets (18%), acquire high
value household assets and improved their diets (14.4%) comparatively to non
beneficiaries. The differences in enterprise performance observed suggest that credits
are important to improve performance of micro-enterprises and hence household
welfare. However, nature of collaterals, high borrowing transaction costs and interest
rates suggest that the bank has replaced the commercial ones referring to the
objectives of the bank. Hence, its impact on welfare indicators is very marginal, and
equally important, the rural poor of the poorest have been excluded from borrowing.
It is evident from the findings that flexibility of the bank through revising of their
policies would be necessary to reach more farmers and small entrepreneurs by
encouraging saving and attracting borrowers. The government should continue to
support micro-finance institutions such as Mufmdi Community Bank through
capitation and maintained rural roads for comprehensive outreach.
Description
Thesis
Keywords
Microfinance institutions, Microenterprises, House hold welfare