The effect of microfinance credit terms on the financial performance of small scale enterprises in Mukono municipality
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Date
2026-05-06
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Uganda Christian University
Abstract
The study looked at how microfinance credit terms affected Mukono Municipality's small businesses' financial performance. It particularly concentrated on establishing the connection between interest rates and small businesses' financial performance, figuring out the connection between collateral requirements and small businesses' financial performance, and investigating the connection between repayment terms and small businesses' financial performance in Mukono Municipality. A cross-sectional correlational research strategy was employed in the study, along with a quantitative research approach. Questionnaires were utilized to gather the data, and stratified sampling was employed throughout the process. Although 320 of the owners of the chosen small businesses in Mukono Municipality replied to the study, a sample size of 384 respondents was used. The results of the study showed that the financial performance of small businesses in Mukono Municipality is highly influenced by the terms of microfinance lending. The level of interest, requirement for collateral, and period of repayment have an influence on enterprise performance, such that the higher the interest rate, the stricter the collateral requirement, and the stiffer the period of repayment, the lower the profitability of the business. The correlation analysis revealed significant positive correlations between financial performance and interest rate (r = .723**, p < .05), collateral requirement (r = .677**, p < .05), and repayment period (r = .615**, p < .05). In conclusion, it was established that the terms of microfinance credit such as interest rates, requirements for collateral, and repayment periods significantly influence the financial performance of small scale enterprises in Mukono Municipality. Inappropriate terms make the operations of businesses less profitable and financially unsustainable, whereas flexible terms promote better financial performance.Finally, it was recommended that in order to improve the financial performance of small scale enterprises, the interest rate policies of microfinance institutions should be flexible and
consistent. Additionally, collateral requirements need to be flexible and repayments should be done based on the cash flows of businesses.ix
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Undergraduate