Credibility of Microfinance Institutions Loans to Financial Sustainability of Small and Medium Enterprises in Tanzania: A Case of Selected Enterprises in Arusha

Abstract

In evolution of global business, entrepreneurs have faced a number of new dares as they get into rivalries in their respective industries. Small and Medium Enterprises (SMEs) financing by Micro Financing Institutions (MFIs) has been one of the areas of interest to establish the credibility of loans provided by the said funding institutions. The purpose of this study was to determine MFIs loans credibility for the sustainability of SMEs in Tanzania. The specific objectives of the study were two, namely: to analyze the MFIs loans credibility on financial sustainability of the SMEs in Arusha City; and, to establish the effective supportive mechanisms for MFIs loans sustainability to SMEs in Arusha City. The study was a mixed quantitative and qualitative in approach, adopted a multiple case study design; involving few selected SMEs in Arusha – Tanzania. The study used qualitative and quantitative data gathered by the use of research schedules. The collected data were analyzed by the aid of Statistical Package for Social Sciences (SPSS) v.16 software. Descriptive statistics such as: frequencies, percentages, and mean were tabulated for giving gist to data; and hence, drawing the conclusion. The results in this study meant to help the stakeholders to ascertain whether MFIs’ loans provided by the said institutions are credible enough to ensure the sustainability of the funded SMEs or not. The study revealed that, the credibility of MFIs loans is impaired by; borrowers lack of collateral; lack of trainings; institutional corruptions; high interests attached to loans and inadequate grace periods provided to borrowers, among others. The study recommends the link between SMEs success and MFI’s group landing model be an area for future studies; in assessing its effectiveness for the said parties’ mutual growths.