Hamdi Jama Warsame1 and Warda Mohamed Hussein2
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 was to establish the effect of microfinance institutions on the development of Small and Medium Enterprise in Somalia. The descriptive design was selected in this study because it would allow the researcher to gather numerical. The 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 researchers used SPSS computer package to analyze the data. It was found 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 development. 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.
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