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CERTIFICATION
The undersigned certify that he has read and hereby recommend for acceptance by the INILAK the thesis entitled “The Contribution of Microfinance Institutions to the Growth of Small Business Enterprises in rural areas of Rwanda”, a case of Umurenge SACCO in Huye District”, inPartialFulfillmentofthe requirementsfor the Degree of Master of Business Administration, option of Entrepreneurship from the coordination/ Faculty.
Signature: …………………………………………………
Dr. Emmanuel HAFASHIMANA (Supervisor)
Date…………………………………………………………
DECLARATION AND COPYRIGHT
I ThéonesteRWAJEKARE, hereby declare that this thesis entitled “The Contribution of Microfinance Institutions to the Growth of Small Business Enterprises in rural areas of Rwanda” is my own original work. To the best of my knowledge it contains no materials previously published or written by another person, nor material which to a substantial extent has been accepted for the award of any other degree or diploma at the INILAK or any other institution, except where due acknowledgement is made in the thesis.
I also declare that the intellectual content of this thesis is the product of my own work, except the extent that assistance from others in thesis design and conceptions or in style presentation and linguistic expression is acknowledged.
Signature: ………………………………………….
Théoneste RWAJEKARE
Date………………………………………………..
No part of this thesis may be reproduced, stored in any retrieval system, or transmitted in any form or by any means without prior written permission of the author or the INILAK.
DEDICATION
To
The almighty God,
Our beloved county
My dearest family
My relatives, colleagues, and classmates
I whole heartily dedicate this thesis
ACKNOWLEDGEMENT
Many people helped us in the course of making this study a reality. Mentioning each person would be an endless task. It is however necessary to mention some who really need to be mentioned for the great work they did to me.
I take this opportunity to offer a deep sense of gratitude to the Highest God and heartyappreciations and sincere thanks to my beloved late parents. It’s for your love, sacrifices and efforts that I have made it to this level.
I am deeply indebted to Dr. Emmanuel HAFASHIMANA for his continued guidance and assistance throughout this long thesis work. His contribution to this work is most sincerely appreciated.
I express my heart thanks to my darling wife Marie Grace MUSENGIMANA, my daughter Aimee Clarisse UWIHIRWE, my son Belami Patrick RUGWIRO, my aunts,sisters, brothers and relatives for their considerable help during my Masters’ studies.
My gratitude should go to the Independent Institute of Lay Adventist of Kigali’s authorities, to the lecturers, particularly those of the MBA who helped me since the beginning of my studies.Many thanks to the managers, staff and members of Umurenge Sacco as well as the small business entrepreneurs in Huye district for providing this study with the required data.
Lastly, I acknowledge strong collaboration of my friends, colleagues and classmatesof MBA, especially those of entrepreneurship for their good collaboration during the whole period of my MBA studies.
ThéonesteRWAJEKARE
ABSTRACT
This work is untitled “The Contribution of Microfinance Institutions to the Growth of Small Business Enterprises in rural areas of Rwanda” with special focus on Umurenge Sacco in Huye District.
Microfinance institution is perceived as a sustainable instrument to fight poverty in the world. It has enabled the poor in many countries such as Bangladesh and Indonesia to overcome poverty. For this, the government of Rwanda facilitated and supported the creation of microfinance institutions, including Umurenge Sacco that was created mainly because other microfinance institutions were concentrated in towns.
However, it is not known whether these MFIs are contributing to the growth of SBEs in rural areas. This reason led us to conduct a study which aimed at answering this question: Are Microfinance Institutions contributing to the growth of Small Business Enterprises in rural areas of Rwanda? withUmurenge Sacco in Huye district as case study.
This was a descriptive and correlation study which collected views from the member of umurenge Sacco who are carrying out small businesses in four selected sectors from Huye district. It used questionnaire and interview as tools of data collection.
The results indicate that microfinance institutions contribute to the growth of small business enterprises through its services such as savings and credits, as the respondents revealed that after taking credit from Umurenge Sacco, their business enterprises expanded.
Through these results, we suggested recommendation to theUmurenge Sacco such as toorganize more field visits to the people who received credit and prevent them from using credit in non planned ways; the members should use credit in preplanned project rather than enjoying it with friends and family members.
TABLE OF CONTENT
CERTIFICATION
DECLARATION AND COPYRIGHT
DEDICATION
ACKNOWLEDGEMENT
ABSTRACT
TABLE OF CONTENT
LIST OF TABLES
LIST OF FIGURES
LIST OF ABBREVIATION
CHAPTER ONE: GENERAL INTRODUCTION
1.1. Background of the study
1.2. Problem statement
1.3. Research questions
1.4. Research objectives
1.4.1. General objective
1.4.2. Specific Objectives
1.5. Hypothesis
1.6. Significance of the study
1.7. Justification of the study
1.8. Theoretical/Conceptual framework
1.9. Scope and limitations
1.10. Definition of key terms
Microfinance
Categories of Microfinance Institutions
Umurenge Sacco
Growth
Small Business Enterprises
CHAPTER TWO: LITERATURE REVIEW
2.1. Literature related to MFIs
2.1.1. Services provided by MFIs
2.1.2. Saving and Growth of SBEs
2.1.3. Credit and Growth of SBEs
2.2. Literature related to the growth of SBEs
2.2.1. Growth by Size
2.2.2. Measurement of Business Growth
2.2.3. Stages in Growth of SBEs
2.2.3.1. Seven stages of Business life-cycle
2.2.3.2. Five stages of Business life-cycle
2.2.4. Factors for Growth of SBEs
2.2.5. Challenges faced by Small Business Enterprises
2.2.6. Possible ways for growth of SBE
2.2.6.1. Eight Must Dos for Small Businesses
2.3. Relationship between MFIs and SBEs
CHAPTER THREE: RESEARCH METHODOLOGY
3.1. Case study profile
3.2. Research designs
3.3. Population and sampling techniques
3.4. Research instruments
3.5. Data gathering procedures
3.6. Data analysis procedure
3.7. Ethical considerations
CHAPTER FOUR: DATA PRESENTATION, ANALYSIS AND INTERPRETATION OF FINDINGS
4.1. Identification of respondents
4.1.1. Distribution of respondents by Sex
4.1.2. Distribution of respondents by age groups
4.1.3. Respondents’ Marital Status distribution
4.1.4. Distribution of Respondents by educational levels
4.1.5. Occupational distribution of respondents
4.2. Services provided by umurenge Sacco
4.2.1. Savings in Umurenge Sacco
4.2.1.1. Participation of respondents in savings
4.2.1.2. Contribution of Savings to the growth of a business
4.2. 2. Credit from the Umurenge Sacco
4.2. 2.1. Whether respondents have get credit from the Sacco
4.2. 2.2. Amount of money received as credit
4.2. 2.3. Contribution of credit to the growth of a business
4.2. 2.4. Business situation before taking credit
4.2. 2.5. Situation of a business after taking credit
4.3. Umurenge Sacco and growth of small business
4.3.1. Contribution of Sacco services to the growth of SBE
4.4. Growth of small business enterprises
4.4.1. Indicators of the growth of a business
4.4.2. Problems that prevent a business from growing
4.5. Correlational relationship
4.6. Suggestions of respondents
4.7. Hypothesis test
CHAPTER FIVE: CONCLUSION AND RECOMMENDATIONS
5.1. Conclusion
5.2. Recommendations / suggestions for policy change
5.2.2. To the Umurenge Saccos
5.2.3. To the members of Umurenge Sacco
5 .3. Strengths and limitations of the study
5.4. Recommendations for further research
REFERENCES
APPENDICES
LIST OF TABLES
Table 1: Classification of Business Enterprises
Table 2: Characteristics of Huye District
Table 3: Population of the study
Table 4: Sample size of each sector
Table 5: Sex of Respondents
Table 6: Age groups of Respondents
Table 7: Marital Status
Table 8: Educational Levels
Table 9: Occupation of Respondents
Table 10: Importance of savings to the business
Table 11: Did you get any credit from Sacco?
Table 12: Amount received in credit
Table 13: Working capital before taking credit
Table 14: Working capital after taking credit
Table 17: Do the savings and credit contribute to the growth of SBEs?
Table 18: How these services contribute to the growth of small business?
Table 18: Is your business growing?
Table 19: Challenges faced by SBEs
Table 20: Correlation
Table 21: How contributions of MFIs to the growth of SBEs can be improved?
LIST OF FIGURES
Figure 1: Conceptual framework
Figure 2: Types of Business growth
Figure 3: Product-Market matrix
Figure 4: Influences on Growth
Figure 5: Services provided by Umurenge Sacco
Figure 6: Do you have any saving in Sacco?
Figure 10: Indicators for the growth of a business
Figure 11: Challenges faced SBEs
LIST OF ABBREVIATION
AMIR: Association of Microfinance Institutions in Rwanda
BDB: Bank Dagang Bali
BNR: Banque Nationale du Rwanda
BRI: Bank Rakyat Indonesia
IGA: Income Generating Activities
MFI: Micro Finance Institutions
MINECOFIN: Ministry of Economics and Finance
MINICOM: The Ministry of Trade and Industry
NMB: National Microfinance Bank
RIM SA: Réseau Interdiocésain de Micro-finance
ROI:Return on Investment
SACCOs: Savings and Credit Cooperative
SBE: Small Business Enterprise
SWOT: Strength, Weaknesses, Opportunities and Threats
UOB: Urwego Opportunity Bank
USBLS: U.S. Bureau of Labor Statistics
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CHAPTER ONE: GENERAL INTRODUCTION
1.1. Background of the study
Microfinance Institution is perceived as a sustainable instrument to fight poverty in the world. It concerns the process of giving low-income people access to financial services, by lending small amounts of money to people who usually would not be able to borrow from traditional financial institutions. Microfinance is defined as the provision of financial services (savings, loans, and insurance) to relatively lowincomeclients who typically lack access to normal commercial bank products. Microfinance loans are typicallygranted to groups or individuals backed by non-traditional collateral(Otero 1999).
The concept microfinance was born in Bangladesh from the Grameen Bank, founded by Muhammad Yunus in 1976, and it has enabled the poor population of Bangladesh which is up to six millions persons, to have access microcredit(Bamwesigye 2008).With the Grameen Bankasmodel for success in the microfinance industry, other such institutions gradually emerged around the world and helped the poor to save their little as well as providing with them credit so that they would start or expand their small business enterprises. The most known microfinance institutions in developing world include: ASA founded in 1978 in Bangladesh, Bank Dagang Bali (BDB) found in 1984 in Indonesia (Saloner 2007).
The success of theseMicrofinance Institutionsled various development approaches, international development agencies, non-governmental organizations, and others aimed at poverty reduction in developing countries to support the creation of Microfinance Institution.Consequently there were over 3,000 Microfinance Institutions serving more than 90 million of the world’s poor in 2004 as indicated by Microcredit Summit Campaign (2005).
The following Year, 2005 was called international year of microcredit by United Nations,since microfinance has proven to be an effective tool for poverty reduction, and during the launch of that International Year of Microcredit UN Secretary pointed out that sustainable access to microfinance helps alleviate poverty by generating income, creating jobs, allowing children to go to school, enabling families to obtain health care, and empowering people to make the choices that best serve their needs (Quaye 2011).
In Africa, the concept of microfinance is not new, as savings and credit groups that have operated for centuries include the "susus" of Ghana, and "tontines" in West Africa. Additionally, from the international year of microcredit most of the African countries have developed in their Poverty Reduction Strategy Paper some actions concerning microfinance, with the aim to improving financial services offered, in particular mobilizing people to save and provide credit to poor people which enable them to contribute in stimulating economic growth. The most known Microfinance Institutions in Africa include theAmhara Credit and Savings Institution in Ethiopia, Association Al Amana for the Promotion of Micro-Enterprises Morocco in Morocco, National Microfinance Bank (NMB) in Tanzania, and the Equity Building Society in Kenya (Tanoh 2012).
However, Microfinance Institutions in Africa are not enough. As indicated byCalgagovski et al (1991), Africa lags behind others regions of similar size and structure. Its gross domestic savings averaged 8 percent in the 1980s, while for the same period South East Asia, and especially Newly Industrialized Economies (Republic of South Korea, Taiwan, Singapore) reached respectively 23 and 35 percent. Lack of access to finance has been identified as one of the major constraints to small business growth as indicated by Anyawu and cited byBabajide (2012),the reason is that provision of financial services is an important means for mobilizing resources for more productive use, the extents to which small firms can save and accumulate own capital for further investment.
Moreover, Small enterprises and most of the poor population in sub-Saharan Africa have very limited access to deposit and credit facilities and other financial services provided by formal financial institutions. For example, in Ghana and Tanzania, only about 5–6 percent of the population has access to the banking sector. This lack of access to financial services from the formal financial system is quite striking, when one considers that in many African countries the poor represent the largest share of the population and that the microfinance sector is an important part of the economy (Anupam et al 2004).
In Rwanda, history of microfinance dates back in 1975 with the establishment of the first BanquePopulaire and collapsed like any other sector during 1994 genocide but with the support of all stakeholders, it resurrected and took shape until 2006 when poorly performing MFIs were closed that resulted into major shifts in paying strong attention to the sector. Key changes were made, including national microfinance policy and its implementation strategy, establishment of AMIR, and enactment of microfinance law(Kantengwa 2010).
From that time, many Microfinance Institutions were created. Such as Urwego microfinance created in 1997 and became Urwego Opportunity Bank (UOB), Duterimbere MFI was created in 2004; Zigama CSS in 2007, Le RéseauInterdiocésain de Micro-finance (RIM SA) was established in 2004. The Association of Microfinance Institutions in Rwanda (AMIR) was created in June 2007, recently Umurenge Sacco was created by the government of RwandaAfter seeing that most of the financial institutions are concentrated in towns(Murekezi2007).
1.2. Problem statement
The Rwanda is one of the small and poorcountries of Africa (Murekezi 2007). For dealing with poverty problem, the Government of Rwanda established different policies and initiatives that include facilitating the creation of Microfinance Institutions. After remaking that most of the Microfinance Institutions are concentrated in towns, the National Dialogue Meeting held in December 2008 recommended the creation of SACCO at the level of each Administrative Sector (Umurenge).
Today, the UmurengeSACCOs are functioning as local Microfinance Institutions in all Administrative sectors of Rwanda including those of rural areas. However,it is not known whether these Microfinance Institutions are contributingto the growth of small business enterprises in rural areas which would be the best way to alleviate poverty among Rwandans. This reason ledus toconduct a study which aimed at answering this question: Are Microfinance Institutionscontributing to the growth of Small Business Enterprises in rural areas of Rwanda?
1.3. Research questions
What are the services provided by Microfinance Institutions?
AreSmall Business Enterprisesgrowing in rural areas?
Does Microfinance Institutioncontribute to entrepreneurial activities that can lead to the growth of SBEs in rural areas?
1.4. Research objectives
1.4.1. General objective
The general objective of this study was to find out the contribution of Microfinance Institutionsto the growth of Small Business Enterprises in rural areas of Rwanda. Our focus was put on Umurenge Sacco in Huye district, which is located in southern province of Rwanda.
1.4.2. Specific Objectives
Identify the services provided by Microfinance Institutions
Evaluate the growth of Small Business Enterprises in rural areas
To determine the contribution of Sacco on the entrepreneurial activities that lead to growth of SBEs in rural areas.
1.5. Hypothesis
The present study was based on the following hypothesis:Microfinance Institutions contribute to the growth of Small Business Enterprises in rural areas of Rwanda.
1.6. Significance of the study
The study was conducted in order to assert the significance in different ways. It intends to assert personal interest, social interest and academic interest. The choice of this study is in the sense of identifying the role of MFIs in growth of Small Business Enterprises in rural areas of Rwanda. This study’s results will contribute to improve the people’s understanding on the importance of Microfinance Institutions on Small Business Enterprises.
Thus, it raised awareness of many people about services provided by Microfinance Institutions such as savings and credit as well as using them in starting Small Business Enterprises. Then, the findings and experience from research will be helpful to the future researchers in the same or related fields. In addition, the study will serve as a source of reference for other researcher or members of the general public who need information in the subject. More importantly, entrepreneurs of SBEs may find it useful in the successful operation of their enterprises as the study will show them how to collaborate with Microfinance Institutions in order to improve their businesses.
1.7. Justification of the study
The research study is relevant as it tries to make a good understanding of the roleplayed byMicrofinance Institutions in growth of Small Business Enterprises in rural areas of Rwanda. It will also enable the concerned parties to recognize whether Microfinance Institutionsin place are enough and relevant towards addressing the high rate of unemployment by supporting the growth and creation of Small Business Enterprisesin rural areas of Rwanda.
It will create a platform to initiate debates on problems facing the Microfinance Institutions toward the growth and creation of Small Business Enterprises in rural areas of Rwanda which might be useful in addressingpoverty and unemployment problem which has affected many people in Rwanda`s rural areas. Besides that, this research provides useful literature and knowledge for future reviews based on the theoretical views and opinions of several cited authors from the world of academia that are included in this research paper.This research study is also relevant especially when it seeks to make policy recommendations as an aspect that will help in building institutional capacities and as well as building human capabilities.
1.8. Theoretical/Conceptual framework
Conceptually, the Microfinance Institutionscontribute to the growth of the Small Business Enterprisesthrough their services asshown below on the conceptual framework figure: