The Role of Financial Institution in the Growth of Small and Medium Enterprises in Bonga Town

Abstract

The objective of this study was to investigate the role of financial institutions on the growth of small and medium enterprises. To achieve this objective the researcher was used mixed method (both quantitative and qualitative) approach. This study used both descriptive and explanatory research designs. The necessary data for this study was collected from primary sources. In this study, the target population was small and medium enterprises in the Bonga town on different economic activities such as, service, constructions, manufacturing, retailer and urban agriculture. The researcher was use stratified sampling techniques to select sample from the population. The researcher was use multiple OLS regression analysis was used the reason to use OLS the dependent variables of the study are continuous data The researcher was used annual sales as a measure of firm growth as dependent variable because of the difficulty of obtaining realistic information on profits earned. To measure dependent variables the researcher was used the following independent variables such as education level, firm age, firm size, borrowing cost, simplicity, and access to market. The finding, with respect to the relationship between SMEs growth and loans from financial institutions, banks and MFIs, the result of regression analysis showed that there was there was positive relationship between education level, age of business and firm with growth of SMEs and the influence of these variables was significant. SMEs have an obstacle in obtaining access to product and service from financial institutions. Inadequate collateral, difficulty of processes, fear of inability to repay, and high borrowing cost. The recommendation of author it is necessary to include educated person in the organizations to get technological advantage and finding alternative finance source and financial institutions assist SMEs without strict and unattainable criteria or make the criteria simple and attainable, also at a lower borrowing cost to make their products accessible and available