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This research report presents the findings of the study done in Morogoro Municipality, “influence of financial institutions to the development of SME’s.” Specifically, the research was undertaken to determine the existing financial institutions financing SMEs in Morogoro Municipality, determining the extent to which financial institutions have helped to finance SMEs in Morogoro Municipality as well as to determine constrains facing SMEs towards financial institution support.
The study draws on primary and secondary data. In primary data collection, interviews were conducted with SME’s owners whereby women, men, MFI’s officers of Morogoro municipality were purposely involved. Personal observations were also used to collect some of the data. Secondary data were collected from the government offices, MFI’s and other literatures.
By using the sample of 60 respondents in Morogoro SME’s owners, field survey shows that small and medium enterprises (SMEs) are constrained by financing and other institutional obstacles than large enterprises, exacerbated by the weaknesses in the financial systems of many developing countries. We use the concept of the access possibilities frontier to explain how difficulties in managing risk and transaction costs involved in SME lending make financial institutions and markets so reluctant to reach out to this group of enterprises, especially in developing countries.
We discuss different policies and reforms that can entice financial institutions and markets to lend to SMEs and comment on the role of the Government in institution building, providing the regulatory framework and undertake market-friendly activist policies. However, we also point to pitfalls in government's involvement in SME financing and suggest that restricted conditions in obtaining financial support should be reviewed. |
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