Microfinance Credit and Financial Performance of Small and Medium Enterprises in Wakiso Town Council, Wakiso District

Maureen Kantono; Frederick Kijjambu

doi:10.51168/sjhrafrica.v6i3.1697

Authors

Maureen Kantono Department of Business Administration, Faculty of Business and Management Sciences, Mbarara University of Science and Technology. P.O. Box 1410, Mbarara, Uganda.
Dr. Nsambu Kijjambu Frederick (PhD) Dean and Senior Lecturer, Faculty of Business and Management Sciences, Mbarara University of Science and Technology

DOI:

https://doi.org/10.51168/sjhrafrica.v6i3.1697

Keywords:

Microfinance credit, Financial performance, Small and Medium Enterprises (SMEs), Microloans, Loan terms, Borrowing frequency, Wakiso Town Council

Abstract

Background

Despite widespread access to microfinance services in Wakiso Town Council (WTC), over 73% of Small and Medium Enterprises (SMEs) report poor financial performance. This study investigated the relationship between microfinance credit and SME financial performance in WTC, Wakiso District, Uganda.

Methods

A cross-sectional design was used to collect primary data from 277 SMEs using structured questionnaires, supplemented with secondary data from WTC financial records. Financial performance was assessed through profitability (ROA), liquidity, and solvency indicators. Pearson correlation and regression analysis were conducted using SPSS v29.

Results

Most SMEs (57.8%) had been operational for less than 5 years, and 61.7% relied on microfinance institutions for funding. Correlation analysis showed a weak negative association between access to microloans and profitability (r = -0.128, p = 0.033), but a positive correlation between effective use of microloans and profitability (r = 0.181, p = 0.003). Satisfaction with loan terms showed a negative correlation with profitability (r = -0.124, p = 0.039). High borrowing frequency was positively associated with improved solvency (r = 0.122, p = 0.043). Regression analysis revealed that microfinance credit variables accounted for 7.7% of the variance in SME financial performance (R² = 0.077, F(8, 268) = 2.783, p = 0.006).

Conclusion

Access to microloans alone does not significantly enhance SME profitability in WTC. Overborrowing and rigid loan conditions may undermine benefits. Effective loan utilization and tailored financial literacy interventions are essential to strengthen SME financial performance.

Recommendations

Stakeholders should revise loan structures to include flexible terms, monitor credit use, and implement financial literacy programs to help SMEs maximize microfinance benefits.

Author Biographies

Maureen Kantono, Department of Business Administration, Faculty of Business and Management Sciences, Mbarara University of Science and Technology. P.O. Box 1410, Mbarara, Uganda.

is a wife, mother, accountant, and Chief Executive Officer at Mundeli Homes Ltd, Wakiso, Uganda. She is currently pursuing ACCA and soon will start her PhD.

Dr. Nsambu Kijjambu Frederick (PhD), Dean and Senior Lecturer, Faculty of Business and Management Sciences, Mbarara University of Science and Technology

is the Dean and Senior Lecturer at the Faculty of Business and Management Sciences, Mbarara University of Science and Technology.

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