Influence of Group Based Micro-financial Services on Business Performance of Rural Based Micro, Small and Medium Enterprises (MSMEs) in Kagera Region Tanzania

Abstract

As a result of on-going debate among scholars and researchers all over the world on actual influence of group based micro-financial services on rural based borrowers’ businesses some people in Kagera region Tanzania have become afraid of applying for such loans from financial institutions. Their worry is hinged on the thinking that such loans might impact negatively on their businesses leading to failure to repay the same loans. The objective of this study was to determine influence of group based micro-financial services (credit) on business performance of rural based MSMEs in Kagera region Tanzania. The Study was guided by the theory of Group Based Micro-financing (GBM) model. It was undertaken in four districts of Kagera region Tanzania. Data were collected using a structured questionnaire from 279 group based borrowers of two commercial banks and two microfinance institutions (MFIs). Multiple Linear Regression Analysis (MLRA) was conducted to estimate the influence of group based micro-financial services on business performance of rural based MSMEs. The study found out that some determinants of micro-financial services variable such as loan disbursement and loan repayment policy had positive and significant influence on business performance of rural based MSMEs. However, loan usage despite that had positive influence its influence was insignificant on business performance of rural based MSMEs. Conclusively, this finding implies that an increase/ improvement in loan disbursement and loan repayment policy are essential for increased business performance and hence compliance to loan repayments. It is thus recommended that because most rural borrowers invest their loans in agriculture micro-financial service providers (lenders) should improve their loan repayment policies and also make timely disbursement of loans so as make them marry with agricultural sessions in rural areas.