Abstract:
This study discusses the impact of Microfinance Institution (MFIs) on the growth of
Small and Medium Scale Enterprises (SMEs) in Mwanza City. The study examined the
detailed profile of SMEs in Mwanza City, the contribution of MFIs to entrepreneurial
growth, the challenges encountered by SMEs in accessing credit and the rate of credit
utilization by SMEs. An analysis of the profile of SMEs show that most SMEs are at
their Micro stages since they employ less than six people and the sector is hugely
dominated by the commerce sub-sector. The research also indicates that MFIs have had
a positive effect on the growth of SMEs. Some of the critical contributions of MFIs
include; greater access to credit, savings enhancement and provision of business,
financial and managerial training. Irrespective of the contributions of MFIs to SMEs,
there are challenges that affect their operations of both SMEs and MFIs. The major
challenge faced by SMEs is the cumbersome process associated with accessing credit of
which collateral security and high interest rate are major setback. The MFIs on the other
hand, face some challenges relating to credit misappropriation and non-disclosure of the
relevant facts of their businesses. In the final analysis, the research clearly reveals that
MFIs have a positive effect on the growth SMEs. In other to enhance a sustained and
accelerated growth in the operations of SMEs credits should be client-oriented and not
product- oriented. Proper and extensive monitoring activities should be provided for
clients who are granted loans.
