A RESEARCH PROPOSAL SUBMITTED TO THE SCH

 
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MICROFINANCE SERVICES AND GROWTH OF SMALL ENTERPRISESCASE STUDY:
MAKINDYE KAMAPALA

 
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MICROFINANCE SERVICES AND GROWTH OF SMALL ENTERPRISESCASE STUDY:
MAKINDYE KAMAPALABYTUMALU MATILDA02/00315/124291A RESEARCH PROPOSAL
SUBMITTED TO THE SCHOOL OF BUSINESSAND MANAGEMENT IN PARTIAL
FULFILMENT OF THEREQUIREMENTS FOR THE AWARD OF BACHELORSDEGREE
IN BUSINESS ADMINISTRATIONAT CAVENDISH UNIVERSITY UGANDA

DECLARATION
I declare that this research proposal is my original work and has not been presented forexamination in any
other University.
TUMALU MATILDA02/00315/124291
Signature…………………….
 
Date …………………..............
 

 
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ACKNOWLEDGMENT
My gratitude first goes to God who has given me the strength to undertake this research.I would like to
express my sincere thanks to my parents for the financial support and care,accorded to me throughout this
success in which without
them I wouldn’t be what I am.
 I also owe a lot of appreciation to all those who assisted me in carrying out this research. I amgrateful to
my supervisor who helped me through giving me the right guidance, advice andassistance concerning the
best way of doing and completing my research.Thanks also go to all those lecturers who imparted
professionalism into my work.

 
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CHAPTER ONEINTRODUCTION1.0 Introduction
This chapter presents the background of the study; statement of the problem; purpose of thestudy, specific
objectives, research questions, research hypotheses, scope of the study,significance of the study, and the
operational definitions of the study.
1.1 Background of the study
It is the dream of every country to have an economy that is self sustaining; with yet in
Africa poverty is the heart of its problems especially in sub-Saharan Africa. In Uganda
poverty has been increasing at the rate of 2.5% every year since 2004 due to higher increase in population
, Corruption of some big members of government, lack of social services liketransports and
communication to some part of the country etc. Increase in poverty has causedmany problems like
increase in environmental destructions, low income to the peopleespecially central part of the country and
poor economic-social empowerment. (PEAP; 2007)
Beginning in the late 1970’s some highly inventive non
- profit making agencies and banks pioneered techniques to issue loans to the self-employed who
know their trade well, but lackconventional means to secure a loan. Micro-
finance institutions (MFI’s) as these innovations
are now called, have prospered in some of the poorest countries of Africa, Latin America andAsia.The
financial system in Uganda is composed of formal, semiformal and informalinstitutions. The
formal institutions include banks, Microfinance Deposit-taking institutions,Credit Institutions, Insurance
companies, Development Banks, Pension Funds and CapitalMarkets. The semi informal institutions
include Savings and Credit CooperativeAssociations (SACCO) and other Microfinance institutions,
whereas the informal ones aremostly village savings and loans associations (B O U, 2005). Formal
institutions are
less prominent in rural areas than urban areas and they only serve 14% of the rural population.Informal
institutions play an important role in the rural service provisions and serveapproximately 12% of the rural
population.In Uganda, micro-finance institutions started early 1986 aiming at provisions of micro
creditand savings services to low income earners but economically active poor. Generally the
 
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focuses on the group already engaged in one or several small scale activities, clients borrowand invest in
their activities, repay their loans and borrow again. There are so manymicrofinance institutions operating
in Uganda, the most prevailing are PRIDE and FINCAwhich provide credit and savings to the poor
people without collateral (Kaplan & Norton,1992)By early the 1990s, the banking sector was comprised
mainly of four foreign banks (StandardChartered, Standard Bank, Barclays and Baroda), and the two
large indigenous banks (UCBand Co-op) that controlled 70 percent of the banking assets and liabilities
but wereinsolvent. By the end of 2005, the system had substantially grown and was made up of aformal
and an informal sector. The number of commercial banks increased to 20 in 1996,when a moratorium on
banking licenses was imposed and after the closure of some banks andconsolidation, fell to 15 (B O U,
2005).Microfinance is the provision of finance services to low income clients including consumersand the
self employed that traditionally lack access to banks and related services (Nuwagaba,1997). Microfinance
institutions are therefore institutions that provide finance services to lowincome earners who lack access
to banks and banks related services (Georgina, 2001).According to Garner(1996) the object of
microfinance institutions is a world in which asmany poor and near poor households as possible have
permanent access to an appropriate rateof high quality services,
including not just credit but also savings, insurance and fundtransfers, those who promote microfinance
institutions have believed that such access of poor or near poor people to an appropriate rate of high
quality financial services of credit andsavings will help poor people out of poverty and lead to rural
development ( Agarwal, 1990).This study is based on Theory of Change (TOC)-based approach to M&E,
impact assessment by Weiss, C.H. (1995).
The classic microfinance theory of change is simple: poor persongoes to a microfinance provider and
takes a loan (or saves the same amount) to start orexpand a micro enterprise which yields enough net
revenue to repay the loan with majorinterest and still have sufficient profit to increase personal or house
hold income enough to
raise the person’s
standard of living.The theory of change provides a model of how a program or business can be supported
andled to growth through proper financial support that increases performance of small business

 
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In other words it provides a road map of the development of a small business to a large productive
business.The study will also be guided by the principal agent / cooperate social responsible theory(P/A
Theory & CSR) in global value chains. In this theory, practitioners and are increasinglyaware that doing
the right things is not just a matter of being profitable. The ethics
of business activities are becoming increasingly important, and more and more companies are
evaluated on their ability to meet not only the customers’ needs but also the various needs
ofemployees, NGOs, representatives of the local community and other interest groups. Theglobalization
of economic activities has undoubtly affected this development. When part ofthe value chain is in
different geographic, cultural and institutional settings, differences insocial and environmental standards
are uncovered.The major concepts that will appear in this work will be concerned with the
microfinanceservices and the level of growth of small scale enterprises. According to Georgina,
(2001)Microfinance is understood as small and adapted financial services for poor and low-
income populations and micro, small, and sometimes medium-sized enterprises. They may or maynot
have limited access to mainstream financial services. Microfinance institutions aretherefore institutions
that provide finance services to low income earners who lack access to banks and banks related
services.Small enterprises are one the other hand defined asnormally privately owned
corporations, partnerships, or sole proprietorships that are operating on a small scale.Small
businessowners are responsible for managing all aspects of their company and provide the
necessarycapital for the survival of such businesses (Ddumba Ssentamu, 2000). The growth of
smallenterprises is referred to as the quantitative increase in the size and level of productivity
oroperations of a business.Micro finance has been a major strategy adopted by many developing countries
as a way ofenhancing growth and development of small business. Developing countries have
always been challenged with the problem of unemployment caused as a result of having manydependants
chasing the few available jobs. Through following the need for reforms as statedin the world bank report
1996 regarding reforms in developing countries, many strategiessuch as expanding the informal sector
where most of the people are meant to create their ownsmall businesses as this will reduce unemployment
and also lead to development.

 
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The creation of the small businesses however require funding for expansion and increase inthe level of
productivity and growth, this therefore means that creation of micro financeinstitutions where people can
access small loans or funding to take their businesses to thenext level would be the best strategy of
expanding these businesses (Georgina, 2001).
1.2 Statement of the problem
Many critics of microfinance institutions had asserted that microfinance does not have
the power to simple handedly defeat poverty and enhance the growth and development of smallenterprise
s. The lack of documented evidence measuring and monitoring the impact ofmicrofinance institutions
towards small scale business growth and development had been thesource of considerable criticisms. This
is because many people in the developing countrieslike Uganda where micro finance institutions are
meant to effectively operate have not participated or used these institutions.The proposed study therefore
aims at examining the role of microfinance towards small scaleenterprise growth development taking
Makindye town in Kampala Uganda as the area ofstudy. It is hoped that the study results will shade some
light on the role of microfinanceinstitutions played towards small scale enterprise growth. Possible
solutions to improve therole microfinance institutions played towards small scale enterprise development
will besuggested whereby if implemented would cause greater small business developmentemanating
from microfinance institution.
1.3 Purpose of the study
To establish the impact micro finance institutions towards the growth and development ofsmall scale
enterprises in Makindye Kampala
1.4 Specific objectives
The following are the specific objectives of this studyI.
 
To examine the spread and performance of micro finance institutions in MakindyeTown in KampalaII.
 
To examine the level of growth of small enterprises in Makindye Town in KampalaIII.
 
To establish the impact of microfinance institutions towards the growth of smallenterprises in Makindye
Town in Kampala.
 
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1.5 Research questions
The study will seek to answer the following questionsI.
 
What is the level of spread and performance of micro finance institutions in MakindyeTown in Kampala?
II.
 
What is the level of growth of small scale enterprises in Makindye Town in Kampala?III.
 
What is the impact of microfinance institutions towards the growth of smallenterprises in Makindye
Town in Kampala?
1.6 Scope of the study1.6.1Geographical Scope
The proposed study area is Makindye Town in Kampala. The area is located in outside partsok Kampala
town with high population and easy accessibility with a lot of small scaleenterprises and microfinance.
1.6.2 Content Scope
The proposed study content is basically involved with finding out the roles of microfinanceinstitutions
towards the growth and development of small enterprises, the study will focus onfinding out the number
of micro finance institutions their performance correlated with thelevel of growth of small enterprises in
the selected area.
1.6.3Time Scope
The proposed study will be conducted with a period of five months (5) to effectively gatherthe
information that effectively meets the study objectives. The stud shall base on the datafrom 2005 to date
as the most relevant data for better analysis and comparison purposes.
1.7 Significance of the Study
With the study on small scale development through use of microfinance institutions, theresearcher hopes
that the study will form a basic material to the following beneficiaries:The information will be useful for
planners and decision makers in different institutionsdealing with microfinance program .The findings
and recommendations will also be useful to

 
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Small enterprise growth

Expansion of operations

Increased productivity

Increased profits

Increased decision makingefficiency
Intervening factors

Economic factors

Government intervention

taxationsmall scale enterprise managers in determining the usefulness of microfinance
towardsdevelopment and growth of their enterprises.The
 
academicians will also use the findings of this study to embark on a related study. Inother terms, the study
findings in this research will act as reference for other futureresearchersThe researcher will also acquire
necessary skills of data collection, interpretation, analysisand discussion and this will help him in carrying
out similar research in future and to enablehim getting the award of other degrees related to accounting
and finance.
1.8 Conceptual frame workFigure 1:
Conceptual FrameworkIndependent Variable Dependent VariableMicrofinance institutions

 
Loans provision

 
Interest rates

 
Advisory services

 
TrainingThe above conceptual frame work describes the relationship between the independentvariable
and the dependent variable. The frame work further presents the intervening factorsthat can also impact or
determine the dependent variable.

 
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The performance of microfinance institutions is the independent variable and this involvesfactors such as
provision of loans, the interests rates, advisory services and training to peopleto enable to effectively use
these funds. The services provided by the microfinanceinstitutions determine the growth and development
of small enterprises. This therefore meansthat the growth of the small enterprises depend on the services
delivered by microfinanceinstitutions and the growth is expressed in terms of size of the enterprise, level
of profits,efficiency and increase in the level of productivity.According to the frame work, the small
enterprise is not only impacted on by the services ofmicrofinance institution but also impacted on by
other factors such as the government factorslike taxation and economic factors which are essential
determinants of the success ofactivities.