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This study aimed at assessing the effect of capital structure on performance of microfinance institutions in Shinyanga Municipal Council. The specific objectives for the study were to examine the relationship of cost of capital and profitability, also efficiency and effectiveness of SACCoSs in relation to their capital structure. The researcher used instruments such as questionnaires, documentary review and interview to collect the data from respondents who were 37 members, 11 accountants, 7 managers, 10 chairpersons and 4 (four) cooperative officers. The qualitative data collected were analyzed using thematic approach while quantitative data were analyzed using descriptive statistics.
Research findings reveled that, SACCoSs in Shinyanga municipal use debt in large proportion than equity to finance their activities. As a result cost of capital (Weighted Average Cost of Capital) is very high compared to the profit generated. The profit generated is low for debt/equity financed SACCoSs due to high cost of fund but is increasing for equity financed SACCoSs due to low cost. Results also show that debt financed SACCoSs provide various services to their members and in large quantity than equity financed SACCoSs. Debt repayment is on time although others fail to pay and collapse for debt financed SACCoSs but they are able to reach many people although excludes the very poor. However, results show that, management of SACCoSs (whether it is Debt/Equity financed or Equity only financed) determines the performance of SACCoSs especially in decision making.
It can be recommended from the findings that, government should set regulations which limit amount to be borrowed by the SACCoSs and interest rate charged by financers. Also SACCOSS’ members should assess benefits and challenges of different types of capital structure before choosing. But also management team selected should be good advisor for good performance of the SACCoSs. |
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