The Impact of Microfinance Institutions on the Development of Small-scale Businesses

Abstract

This thesis study examined the extent to which microfinance institutions (MFIs) contribute to the development and expansion of small-scale businesses in Barangay Imbatug, Baungon, Bukidnon. Since small firms are a staple pillar of economic activity in rural areas, it is crucial to know the actual contribution of microfinance services to their development. The thesis was done through a descriptive-correlational research design and had 45 respondents selected via total enumeration. The respondents were small business operators who have dealt with MFIs and accessed products and services like loans, savings, and trainings. The thesis sought mainly to establish the Impact of MFIs on the respondents’ business growth in terms of sales, growth, size, coverage, ownership, and profitability. It also sought to investigate how the respondents viewed the Impact of MFIs in terms of organizational structure and ownership, target market and client focus, and loan and financing service. Further, the thesis explored if there was a significant correlation between business development and microfinance, and if business results differed considerably when respondents were segmented based on demographic profiles, including age, sex, type of business, number of years in business, and average monthly sales. Results indicated that the respondents saw a “Very High Impact” of MFIs in regard to the institutional support, especially in the promotion of transparent governance, making loans accessible, and extending financial literacy and client-oriented services. Respondents indicated that MFIs helped them a great deal in being able to manage and expand their businesses. In spite of this positive attitude, inferential statistical analysis revealed that there was a weak positive relationship between microfinance services and actual business development results. This resulted in the null hypothesis that there is no significant relationship between microfinance institutions and the development of small-scale businesses. MFIs continue to be major business empowering facilitators in rural regions by providing financial access and support services. Microfinance alone is not adequate to sustainably or meaningfully develop small scale businesses. The more integrated strategy is to be adopted by incorporating microfinance with mentoring, entrepreneurial training, market access, and government support schemes. MFIs have a supporting role; other determinants, such as business experience, management practices, market forces, and support systems from outside, have a more significant contribution to long run growth. Such complementary approaches will help microfinance institutions to optimize their impact and make a greater contribution to the sustainable development of small enterprises in poor communities.