The effect of micro-finance institutions

on the performance of small and

medium-sized enterprises in the
Democratic Republic of Congo

LN Kinimi
23179929

Mini-dissertation submitted in partial fulfilment of the

requirements for the degree Master of Business
Administration at the Potchefstroom Campus of the North-
West University

Supervisor: Prof Anet Smit

May 2014

i
 ABSTRACT

Micro-finance institutions are leading a revolution in the financial sector, particularly

in banking. This provides a renewed focus on the way financial credit is provided to
the marginalised society of the developing countries. In the Democratic Republic of
Congo, small and medium enterprises constitute almost 80% of the entrepreneurial
population. There is therefore, considerable urgency to advance the performance
and competitiveness of these small and medium enterprises.

The aim of this study is to establish the effect of micro-finance institutions, on the
performance of small and medium enterprises in the Democratic Republic of Congo.
Literature reviewed for this study provided insights into the effects of micro-finance
institutions on the performance of small and medium enterprises that accessed
micro-loans. This study comprises of 77 small and medium entrepreneurs that
participated in the empirical research.

The performance of small and medium enterprises was assessed through the use of
a questionnaire. The questionnaire consisted of statements on socio-demographics,
the functioning of micro-finance institutions and the performance of small and
medium enterprises.

The study revealed that the largest group of respondents were male entrepreneurs,
married, in the age group category of 30 to 50 years, have a household size of 1 to 5
people and have 1 to 5 years of experience in business.

Entrepreneurs mostly utilized financial services such as saving accounts, money

transfers and training and technology. Furthermore consulting services in the areas
of leadership finance and operations were mainly received from micro-finance
institutions. The study revealed that micro-finance institutions principally play the role
of facilitator of growth, tool for social change, provider of banking systems and
instrument for empowerment to SMEs.

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The two sources of financing utilized mostly by small and medium enterprises were
loans from micro-finance institutions and from commercial banks. The borrowed
finance was used principally to start a new business, expand an existing business
and for working capital. The amounts of money borrowed from micro- loans were as
follow: 5 000,00 (US $) or less, between 6 000 and 10 000,00 (US $) and 11 000,00
to 15 000, 00 (US $) The interest rates paid were from 11% to 20%, 21% to 30% and
51% and above. The collateral provided was in the form of physical assets such as a
car or a house.

The results of the mean score factor indicated that on average, responses for
questions 14 to 19 were above 2.5 on the scale of 1 to 4. The mean score above 2.5
was the indication that respondents agreed to a larger extend to these statements.

This leads to the conclusion that overall, the effect of micro-finance institutions on
the performance small and medium enterprises in the Democratic Republic of Congo
was positive, as proved by the mean score factor.

Keywords: effect, impact, micro-finance institution, small and medium enterprise,

Democratic Republic of Congo

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 ACKNOWLEDGEMENTS

This study was a result of many sacrifices in various ways. Therefore I would like to
express my profound appreciation to:

 My study leader Prof. Anet Smit, for her time, effort and exceptional
supervision. The direction and support provided by her, resulted in the
successful completion of this research. I have learned a lot throughout this
journey.
 All small and medium entrepreneurs who participated in the completion of the
questionnaire. Without your responses the empirical section of this study
would have been void.
 My wife, Christinah Kinimi for always being a loving, supportive and
understanding partner. Your consistent and unconditional endurance, support
and encouragement made this study a success.
 My boys, Kagiso, Caleb and Tychicus, I want you to find a place in your heart
to forgive me for not providing my undivided father love, care and support
during this study. However, your love and support sustained me during this
time.
 My late parents, my mother Alongo and father Jules, you remain alive in my
thoughts.
 My MBA syndicate group for their encouragement and support.

Above all, the almighty God, Jehovah, my creator and the source of my strength in
all I undertake in my life.

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 TABLE OF CONTENTS
ABSTRACT ........................................................................................................................................... ii
ACKNOWLEDGEMENTS .................................................................................................................. iv
TABLE OF CONTENTS ...................................................................................................................... v
LIST OF FIGURES............................................................................................................................ viii
LIST OF TABLES ................................................................................................................................ ix
CHAPTER 1 INTRODUCTION AND SCOPE OF THE STUDY ................................................... 1
1.1 INTRODUCTION .................................................................................................................. 1
1.2 PROBLEM STATEMENT .................................................................................................... 2
1.3 RESEARCH OBJECTIVES ................................................................................................. 7
1.3.1 General objective ............................................................................................................. 7
1.3.2 Specific objectives ........................................................................................................... 7
1.4 SCOPE OF THE STUDY ..................................................................................................... 9
1.4.1 Field of the study. ............................................................................................................ 9
1.4.2 DRC profile and geographical demarcation................................................................. 9
1.5 RESEARCH METHOD....................................................................................................... 11
1.5.1 Phase 1: Literature review............................................................................................ 11
1.5.2 Phase 2: Empirical study .............................................................................................. 12
1.5.2.1 Research design ....................................................................................................... 12
1.5.2.2 Participants and sampling ....................................................................................... 13
1.5.2.3 Data collection........................................................................................................... 14
1.5.2.4 Statistical analysis .................................................................................................... 14
1.5.2.5 Limitation of the study .............................................................................................. 15
1.5.2.6 Ethical consideration ................................................................................................ 15
1.6 CHAPTER DIVISION. ........................................................................................................ 16
1.7 CHAPTER SUMMARY....................................................................................................... 17
CHAPTER 2 LITERATURE REVIEW ............................................................................................. 19
2.1 INTRODUCTION ................................................................................................................ 19
2.2 THE DEFINITION OF MICRO-FINANCE........................................................................ 19
2.3 THE ORIGIN AND SPREAD OF MICRO-FINANCE ..................................................... 20
2.4 THE FUNCTIONS OF MICRO-FINANCE INSTITUTIONS .......................................... 23
2.5 THE COMMERCIAL BANKS IN THE MICRO-FINANCE MARKET ........................... 26

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2.6 THE PRACTITIONERS IN THE MICRO-FINANCE MARKET..................................... 28
2.7 THE PERFORMANCE OF MICRO-FINANCE IN SELECTED COUNTRIES ........... 30
2.8 THE PERFORMANCE OF MICRO-FINANCE IN THE DEMOCRATIC REPUBLIC
OF CONGO ......................................................................................................................................... 33
2.9 THE FUTURE PROSPECTS OF MICRO-CREDIT ....................................................... 34
2.10 CHAPTER SUMMARY....................................................................................................... 37
CHAPTER 3 THE EMPIRICAL STUDY AND RESULTS…………………………………………………………………………….39

3.1 INTRODUCTION ................................................................................................................ 39

3.2 GATHERING OF DATA ..................................................................................................... 39
3.2.1 Development and construction of the questionnaire ................................................ 39
3.2.2 Data collection ................................................................................................................ 41
3.3 THE RESULTS AND DISCUSIONS OF THE FINDINGS ............................................ 42
3.3.1 The Socio-demographic profile of the respondents ................................................. 42
3.3.1.1 Gender ....................................................................................................................... 42
3.3.1.2 Marital status ............................................................................................................. 43
3.3.1.3 Age group category .................................................................................................. 44
3.3.1.4 Household size (number of people). ...................................................................... 45
3.3.1.5 Years of experience in business ............................................................................ 46
3.3.2 The Functioning of micro-finance institutions ............................................................ 47
3.3.2.1 Utilisation of services offered by MFIs................................................................... 47
3.3.2.2 Areas of consulting received from MFIs ................................................................ 49
3.3.2.3 The roles micro-finance institutions played in small and medium enterprises 51
3.3.2.4 Most recent micro-credit utilized by entrepreneurs. ............................................ 53
3.3.2.5 Reasons to acquire micro-loans............................................................................. 54
3.3.2.6 Financing amounts received ................................................................................... 55
3.3.2.7 Interest rates charged. ............................................................................................. 56
3.3.2.8 Collateral required by the micro-finance institutions. .......................................... 57
3.3.2.9 Constraints to obtaining micro-loans ..................................................................... 59
3.3.2.10 Factors that influence the choice of MFIs ............................................................. 60
3.3.3 The Performance of small and medium enterprises ................................................ 61
3.3.3.1 Effect on the performance of small and medium enterprises ............................ 62
3.3.3.2 Changes experienced by individuals ..................................................................... 63

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 3.3.3.3 Factors that positively contributed to the performance of SMEs ....................... 64
3.3.3.4 Factors that negatively contributed to the performance of the businesses ..... 65
3.3.4 Reliability of the questionnaire measuring the constructs ....................................... 66
3.3.5 Mean of score factor. .................................................................................................... 67
3.1 CHAPTER SUMMARY....................................................................................................... 68
CHAPTER 4 CONCLUSION AND RECOMMENDATIONS ........................................................ 70
4.1 INTRODUCTION ................................................................................................................ 70
4.2 CONCLUSIONS OF THE EMPIRICAL STUDY ............................................................. 70
4.2.1 Socio-demographic profile of the respondents ......................................................... 70
4.2.2 The functioning of micro-finance institutions ............................................................. 70
4.2.3 Performance of small and medium enterprises ........................................................ 71
4.3 RECOMMENDATIONS...................................................................................................... 72
4.4 THE CRITICAL EVALUATION OF THE STUDY ........................................................... 73
4.4.1 Primary objectives revisited ......................................................................................... 73
4.2.2 Secondary objectives revisited. ................................................................................... 73
4.5 SUGGESTIONS FOR FUTURE RESEARCH ................................................................ 75
4.6 CHAPTER SUMMARY....................................................................................................... 75
BIBLIOGRAPHY ................................................................................................................................. 77
APPENDIX A: EMPIRICAL STUDY QUESTIONNAIRE .............................................................. 83

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 LIST OF FIGURES

Figure 1.1: Map of Democratic Republic of Congo 11

Figure 1.2: Chapter layout of the study 16
Figure 2.1: The different functions of micro-finance institutions 24
Figure 2.2: Reasons for MFIs to serve SMEs 26
Figure 2.3: Types of micro-finance institutions 29

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 LIST OF TABLES

Table 3.1: Gender of respondents 43

Table 3.2: Marital status of respondents 44
Table 3.3: Age group category of respondents 45
Table 3.4: Household size (number of people) of participating entrepreneurs 46
Table 3.5: Years of experience in business 47
Table 3.6: Utilization of services offered by MFIs 48
Table 3.7: Areas of consulting received by the entrepreneurs 50
Table 3.8: The roles played by micro-finance institutions 51
Table 3.9: Most recent source of micro-credit utilized by the entrepreneurs 53
Table 3.10: Reasons for acquiring micro-loans 54
Table 3.11 Financing amount granted to the entrepreneurs 56
Table 3.12: Interest rates charged to the entrepreneurs 57
Table 3.13: Collateral required obtaining micro-credit 58
Table 3.14: Constraint faced by the entrepreneurs 59
Table 3.15: Factors that influence the choice of micro-finance institution 61
Table 3.16: Performance of small and medium enterprises 62
Table 3.17: Changesindividuals experienced 63
Table 3.18: Factors that positively contributed to the performance 65
Table 3.19: Factors that negatively contributed to the performance 66
Table 3.20: Reliability and internal consistency of the constructs 67
Table 3.21: Mean of score factor 68

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 CHAPTER 1

INTRODUCTION AND SCOPE OF THE STUDY

1.1 INTRODUCTION

Micro-finance institutions (MFIs) are being recognised as one of the financial tools
that alleviate poverty, provide solutions to unemployment and stimulate economic
growth in developing countries. Small and medium entrepreneurs in these countries
are most of the time confronted with various challenges. One of those challenges is
access to micro-credit or micro-loans which is considered as an important part of
doing business.

According to Peprah and Muruka (2010:52), Brune (2009:6), Lindsay (2010:3), and
Nwigwe et al. (2012:34) micro-finance institutions aim at reducing poverty worldwide
among financially excluded people. Suberu et al. (2011:253) stated that micro-
finance institutions have a grass roots orientation and greater expertise in financing
smaller enterprises.

Perkowski (2012:1) said that access to finance is a challenge for businesses in any
country. Entrepreneurs in developing countries require micro-credit and other
services from micro-finance institutions for several reasons; to speedily expand their
operations, for start-up capital, for working capital or for other purposes. Providing
micro-credit and other services to small and medium enterprises has traditionally
been challenging for micro-finance institutions. On the one hand, the challenge may
be related to a lack or non-existence of financial history and the inability to provide
required collateral among small and medium enterprises. On the other hand the
absence of credit bureau data and regulatory bodies at national level is challenging.
In addition, Suberu et al. (2011:254) stated that a shortage of both debt and equity
financing is one of the major barriers to rapid development of the small and medium
enterprises.
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Ullo et al. (2009:33) referred to the study conducted by the Investment Climate
assessment, which concluded that access to finance is the second most constrictive
challenge for doing business in the Democratic Republic of Congo (DRC). In an
attempt to address this challenge, the micro-finance institutions in the DRC have
stepped in to provide micro-credit and related services to Small and medium
enterprises and people who required assistance.

These attempts by micro-finance institutions are in line with the Millennium

Development Goals centered on poverty eradication. These goals include among
others, poverty eradication, universal primary education, gender equality and
empowerment of women (Babandi, 2011:126). Mutengezanwa et al. (2011:162)
hoped that micro-finance institutions will assist in the achievement of these goals, as
they are a viable tool used in the eradication of poverty thus improving social and
economic welfare of the people.

Advocates of micro-finance institutions believe that micro-credit and related services

are essential tools to enhance competitiveness and the growth potential of small and
medium enterprises in developing countries such as the DRC. In light of the above, it
can be argued that the services provided by micro-finance institutions should have
an impact by creating wealth, assets, food security and reduced variance in income.
This research seeks to establish whether micro-finance institutions have had an
effect on the performance of small and medium enterprises in the DRC.

1.2 PROBLEM STATEMENT

Micro-lenders, banks and other lending institutions provide services that allow people
and small and medium enterprises to borrow, save and invest, which further support
and strengthen economic activity. Within emerging markets, the function of micro-
finance institutions is to provide credit and financial services such as saving,
insurance and other necessary amenities that develop income-earning in small and
medium enterprises (Simeyo et al. 2011: 8291).

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Emerging markets recognise small and medium enterprises as key drivers of growth
and their contribution to the economy is believed to be significant. Many small
business owners in developing countries such as the DRC maintain that the aspects
that constrain business growth are the absence of finance credit. Consequently,
micro-finance institutions fill an important gap within the financial services industry by
offering micro-loans and other services to individuals as well as small and medium
enterprises (Suberu et al. 2011:253).

These individuals as well as the small and medium enterprises were unable to
access loans and services from commercial banks or formal financial institutions.
These latter institutions failed to some extent to address the credit need of the real
sector of the economy of the developing countries (Suberu et al. 2011:253). The
Democratic Republic of Congo has reformed its financial sector in order to provide
financial institutions and businesses with an environment in which they can achieve
desirable growth (Opportunity International, 2011:1).

In pursuit of growth, the Democratic Republic of Congo Government, with the

assistance of various role players developed policies to make access to finance and
other financial services easier (Ullo et al. 2009:33). This was done in chase of an
increased gross domestic product for the country.

AThe adoption of the new policies has resulted in an influx of local and international
micro-finance institutions that lent to small and medium enterprises (Ullo et al.
2009:33). Despite this sudden increase of micro-finance institutions, one could not,
with confidence, point out signs of business growth among small and medium
enterprises. They still struggled and operated in an informal sector.

On the one hand, while these institutions have lent and provided services to small
and medium enterprises, the effect of these loans and services to small and medium
enterprises could not be argued without an empirical study. On the other hand, if the
effect of micro-finance institutions on the performance of small and medium
3
enterprises was visible in the Democratic Republic of Congo, why was the number of
small and medium enterprises served by these institutions so insignificant in
relationship to the vast need?

In spite of the emphasis on the role of micro-finance institutions, Olu (2009: 537)
revealed that the empirical evidence emerging from various studies about the effect
of micro-finance on entrepreneurial development have so far yielded mixed results
that are inconclusive and contradictory. Some of the failures are attributed to high
costs (high interest rates) in servicing loans to compensate for the risks (Simeyo et
al. 2011: 8291; Lindsay, 2010:14).

In a study conducted in Kenya among youth entrepreneurs, Simeyo et al. (2011:

8291) found that micro-entrepreneurs who secured funds from micro-finance
institutions spent the bulk of their returns on their investments in paying off the cost
of the capital, thus leaving them with none or little savings for reinvestment.

Although it is believed that micro-finance has a positive effect, it is also clear that
there are negative side effects (Kiweu, 2011:88). Overall, the effect of micro-finance
institutions on small and medium enterprises can be positive or negative (Simeyo et
al. (2011: 8292). Furthermore, the impact of micro-finance on small and medium
enterprises has not received adequate empirical research attention in the DRC.

Ullo et al. (2009:34) and Molly, (2012:13) indicated that the non-existence of financial
institutions in most parts of the country poses a challenge to small and medium
enterprises, who envisage access to financial services. The percentage of small and
medium enterprises and people that access micro-loans to develop small and
medium enterprises in the DRC is relatively insignificant in relationship to the vast
need. Overall, at a national level, lack of access to credit appears to be huge
problem.

However, micro-finance institutions who gain access to the media claim that the
micro-loans or micro-credit and other services they provide have made significant
4
impact in the lives of beneficiaries. Such claims were made on a variety of media
such as radio, written- and electronic publications, where inserts of stories of
success as a result of micro-finance institution interventions were marketed. These
opinion-based stories need to be scientifically tested by means of empirical research.

The reformation of policies to foster business growth indicates acknowledgement

that the economic success in the DRC depends largely on the growth of small and
medium enterprises. The DRC is a country where public enterprises are inefficient;
therefore, private-owned businesses, mainly small and medium enterprises
contribute greatly to the total value added. Brasey (2012:2) said that the Democratic
Republic of Congo's private-owned businesses made up almost 80 % of the total
capably employed.

The following research questions were formulated based the above-mentioned

description of the research problem. The research questions were clustered in three
categories:

 Firstly, what is the socio-demographic profile of small and medium

entrepreneurs in the Democratic Republic of Congo?
 Secondly, what is the function of micro-finance institutions in the Democratic
Republic of Congo? This led to additional questions such as:
o What are the services offered by micro-finance institutions, utilized by
small and medium enterprises?

o What are the consulting services that small and medium enterprises
receive from micro-finance institutions?

o Which roles do micro-finance institutions play in the performance of small

and medium enterprises?

o What are the most recent sources of micro-credit that small and medium
enterprises utilize to acquire micro-loans?

5
 o What are the reasons for small and medium enterprises to acquire micro
loans?

o Which amounts of finance do small and medium enterprises receive?

o What are the interest rates charged?

o What collateral is required for micro-loans?

o What are the constraints that face small and medium enterprises in
obtaining micro-loans?

o What are the factors that influence the choice of a micro-finance

institution?

 Thirdly, what is the performance of small and medium enterprises in the

Democratic Republic of Congo? This led to more questions:
o What are the changes that small and medium enterprises experience as
businesses after contracting micro-loans and other services?

o What are the changes that entrepreneurs experience as individuals after

contracting micro-loans and other services?

o What are the factors that positively contribute to the performance of the
businesses?

o What are the factors that contribute to a decline in the performance of the
businesses?

Unless a study of this nature is carried out, it is difficult to empirically establish the
effect or impact of micro-finance institutions on small and medium enterprises in the
Democratic Republic of Congo. Otherwise, the effect of micro-finance institutions on
small and medium enterprises in the Democratic Republic of Congo remains opinion
based, as claimed by micro-finance institutions. For that reason, this study was
intended at collecting applicable information to establish if micro-credit and other
services provided by micro-finance institutions to small and medium enterprises
improves or worsens their performance.
6
The following research objectives endeavoured to answer the research questions
above.

1.3 RESEARCH OBJECTIVES

1.3.1 General objective

The general objective of this study is to investigate the effect of micro-finance

institutions on the performance of small and medium enterprises in the Democratic
Republic of Congo.

1.3.2 Specific objectives

The specific objectives are to:

 Firstly, gain insights into the effect of micro-finance institutions on the

performance of small and medium enterprises;

 Secondly, establish the socio-demographic profile of small and medium

entrepreneurs who contracts micro-credit;

 Thirdly, assess the functioning of micro-finance institutions in the Democratic

Republic of Congo. The assessment of the functioning of micro-finance
institutions is to:

o Asses the services offered by micro-finance institutions that small and

medium enterprises utilize;

o Establish the consulting services that small and medium enterprises

receive from micro-finance institutions;

o Assess the roles that micro-finance institutions play to small and

medium enterprises;

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 o Establish the most recent sources of micro credit that small and
medium enterprises utilize to acquire microloans;

o Establish the reasons why small and medium enterprises require micro
loans;

o Determine the amounts of finance which small and medium enterprises

receive;

o Establish what interest rates are charged;

o Determine the collateral required for a micro-loan;

o Ascertain the constraints that affect small and medium enterprises in

obtaining micro-loans;

o Establish the factors that influence the choice of micro finance

institutions;

 Fourthly, assess the performance of small and medium enterprises. The

performance components are:

o Identify the changes that small and medium enterprises experienced as

businesses after contracting micro-loans and other services;

o Establish the changes that entrepreneurs experienced as individuals

after contracting micro-loans and other services;

o Ascertain the factors which positively influenced the performance of the

businesses; and

o Determine the factors that contributed to a decline of performance in

the businesses.

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1.4 SCOPE OF THE STUDY

The scope of this study is constituted by the field, geographical location and the
profile of the country.

1.4.1 Field of the study.

The study falls in the field of finance with specific reference to micro-finance.

1.4.2 DRC profile and geographical demarcation

This research focused on small and medium enterprises in the DRC. The DRC is
situated in the centre of Africa. Its nine neighbouring countries are Angola, Republic
of Congo, Central African Republic, South Sudan, Uganda, Rwanda, Burundi,
Tanzania and Zambia (British Broadcasting Corporation, 2012:1). The name of the
country has been changed several times. After independence it was known as the
Democratic Republic of Congo.

The name DRC was changed to Zaire and later changed back to the DRC. Currently,
the Democratic Republic of Congo has eleven provinces and it has been proposed to
subdivide bigger provinces. The capital city is Kinshasa where the central
Government is based. Each province has a provincial capital and runs its own
administration.

The country is well known on the one hand for its abundant agricultural and mineral
resources. On the other hand it is known for civil wars lead by rebel militias,
corruption, maladministration, weak infrastructure and other ill elements that
characterise the African continent, such as weak democratic institutions amongst
others (British Broadcasting Corporation, 2012:1).

9
The Democratic Republic of Congo covers 2,344,858 square kilometres of land,
making it the 12th largest country in the world which is equivalent to two-thirds of
Western Europe (British Broadcasting Corporation, 2012:1). The total population is
estimated around seventy (70) million inhabitants (no official census has taken place
for many years), 80% of which lives on less than US$ 1 a day (Opportunity
International 2011:1). The DRC‟s poverty reduction and development strategies
emphasise support for the private sector and in particular micro- and small
enterprises. With its immense potential, the DRC can become one of the drivers of
African growth, if a conducive business climate is practised.

Since its independence in 1960 from Belgium, the DRC experienced sporadic peace
during the Presidency of Joseph Mobutu until 1997. Thereafter it has been
characterised by civil wars until today. In 1997 Rwanda and Uganda, with the
backing of some Western Countries invaded the DRC and installed Laurent Kabila
as President. He renamed the country the DRC. Laurent Kabila was assassinated in
2001 and his son Joseph Kabila took over after him as President. The DRC‟s
troubles continued with Rwanda and Uganda providing support to various rebel
groups.

However, the country is making inroads into the global arena in many ways, through
democratisation of different institutions and improvement in different spheres of the
economy. The collapse of the economy, for many years created Congolese
entrepreneurs. Many in Congo survive by means of personal initiatives to earn a
living for their families. Economic activities are wide ranging in the DRC, with much
emphasis on the informal sector. Currently, only 1% of the Democratic Republic of
Congo‟s citizens have access to basic financial services (Opportunity International
2011:1). Figure 1.1 is a map of the Democratic Republic of Congo.

10
Figure 1.1: Map of Democratic Republic of Congo.

Source: www.mapsofworld.com

1.5 RESEARCH METHOD

In a bid to accomplish the set of specific objectives, this research was conducted by
utilizing two methods namely, a literature review and an empirical study.

1.5.1 Phase 1: Literature review

Literature reviews regarding the effects of micro-finance institutions on businesses

were sourced. These sources included:

 Textbooks on micro-finance;

11
  Published peer reviews and academic journals on micro-finance such as:
Harvard Business Review, African Journal of Business Management, Journal
of Research in International Business Management, The Journal of Business
and Enterprise Development, Australian Journal of Business and
Management Research;

 Publications and internet searches: United Nations Development Fund

(UNDP), Reserve Bank of Congo, World Bank, International Monetary Fund
(IMF), Master and doctoral theses; and

 Newspapers such as Le Potentiel, L‟Observateur, Uhuru, La Colombe, Elima,

and others.

1.5.2 Phase 2: Empirical study

The empirical study consisted of the research design, participant- and sample data
collection, statistical analysis and ethical considerations when selecting respondents
from small and medium enterprises.

1.5.2.1 Research design

The aim of the research design was to facilitate the collection of information and data
without disruption during the study. This study employed a quantitative method to
examine the effect or performance of small and medium enterprises. The empirical
study used one source of information mainly: a structured questionnaire to gather
statistical data or information. The questionnaire consisted of three sections (see
Appendix A: Questionnaire for empirical study).

Section A gathered general data from respondents regarding their socio-

demographic profiles. Respondents were requested to answer questions on gender,
age group, marital status, household size and experience in business. Respondents

12
were required to select only one appropriate answer by marking an X in the relevant
box for each statement.

Section B assessed the functioning of micro-finance institutions. Participants

responded by answering either yes or no to questions six, seven and eight in the
questionnaire, marking an X in the relevant box for each statement. Questions nine
to thirteen provided respondents with the option to select an answer by marking an X
in the appropriate section. Questions fourteen and fifteen allowed respondents to
express the extent to which they agreed with the claim of the statement. In total four
options were provided on a Likert scale.

Section C measured the performance of small and medium enterprises. It provided

respondents with questions to establish the effect of micro-finance institutions on the
performance of small and medium enterprises. This section comprised of questions
sixteen, seventeen, eighteen and nineteen. Questions in this section followed the
same principles as indicated in section B for questions fourteen and fifteen.

1.5.2.2 Participants and sampling

According to Onwuegbuzie and Collins (2007: 288) the size of the sample is
influenced primarily by the research objectives, research questions, and,
subsequently, the research design. The target participants for this study were small
and medium enterprises (beneficiaries of micro-finance loans). Due to the study
emphasis on the effect of micro-finance on small and medium enterprises,
participants were selected from those who received funds for business purposes. In
total seventy-seven (77) entrepreneurs who made use of micro-finance institutions in
the Oriental Province area participated in the study.

The study employed the purposive sampling technique to overcome significant

challenges for attaining an analysable sample. Extreme (or deviant) case sampling
of purposive sampling was used because this research focused on notable
13
outcomes that typically highlighted, the negative or positive (failures or successes)
effects of micro-finance institutions on small and medium enterprises in the DRC.

The choice of purposive sampling was influenced by the fact that the population was
described as hidden, because a complete sampling frame could not be constructed
due the absence of a central database of beneficiaries of micro-loans and other
services in the area. Even though random sampling could not be done, the effects of
micro-finance lenders on small and medium enterprises needed to be researched
using non-random sampling techniques.

1.5.2.3 Data collection

Participants were requested to complete the questionnaire that was personally

distributed during the small and medium enterprise forum. The rationale of the study
was explained to the participants and they were assured that information they
provided would be treated with confidentiality. Permission was obtained from the
respondents to participate in the study. Each question was thoroughly explained due
to the fact that some respondents have a low literacy level. After completion,
questionnaires were collected from the respondents on the same day. In total 80
questionnaires were distributed, but only 77 were collected, which resulted in
96.25% response rate.

1.5.2.4 Statistical analysis

Data collected was analysed using the Statistical Consultation Services of the North-
West University. Statistical analysis provided insights to determine the performance
of small and medium enterprises. These outputs served to draw conclusions and
provide recommendations on the effect of micro-finance institutions on the
performance of small and medium enterprises in the DRC.

14
1.5.2.5 Limitation of the study

This study was done from the perspective of small and medium enterprises to
assess the impact of the micro-finance on their businesses.
 The DRC is a vast country with an inadequate transportation system, which
makes it difficult to reach respondents;

 Travelling costs to reach targeted small and medium enterprises for the
completion of the questionnaire posed a challenge;

 Some of the small and medium entrepreneurs were only semi-literate and
were unable to complete the questionnaire on their own. They had to be
assisted with the completion of their questionnaires;

 Reaching respondents through electronic means were not an option, due to

old technology or the absence thereof among small and medium enterprises.
The questionnaire was handed only to small and medium enterprises that
were accessible to the researcher during the small and medium enterprise
forum;

 The sample size might not be representative of the entire DRC. Even so, the
quality of the responses was satisfactory;

 Limited information is available on the effect of micro-finance institutions on

SMEs in the DRC;

1.5.2.6 Ethical consideration

Information and data provided by participants was used for research purposes.
Assurance was given to participants that the information they provided would be
treated as confidential and that the outcome will be used for research purposes only.

15
1.6 CHAPTER DIVISION.

Figure 1.2 summarises the chapters' layout. This was the guideline the research
followed during the course of the investigation.

Figure 1.2: Chapter layout of the study

Chapter Content
Chapter 1: Introduction and Chapter 1 consists of the opening and the scope of the
scope of the study study which provides the problem statement, research
objectives, scope of the study and research method.
Chapter 2: Literature Chapter 2 focuses on the literature review of the study
review which provides information on the origin and spread of
micro-finance/ the function of micro-finance institutions.
Focus is also placed on commercial banks in the micro-
finance market. Different practitioners of micro-finance are
described. Furthermore, findings of the effects of micro-
finance institutions in different countries and in context of
the Democratic Republic of Congo are addressed in the
literature review.
Chapter 3: Results and Chapter 3 of the study contains the results and the
discussions of the empirical discussions of the empirical investigation. It enfolds data
study gathering which includes the development and
construction of the questionnaire as well as the data
collection of the employed method in the research.
Chapter 4: Conclusion and Chapter 4 ponders on conclusions, recommendations,
recommendations attainment of the study objectives and concludes with
suggestions for future research.

16
1.7 CHAPTER SUMMARY

This chapter begins with an introduction, which provides the background and scope
of the study on the effects of micro-finance institutions on the performance of small
and medium enterprises in the DRC. The introduction consists of an opportunity that
micro-finance institutions fulfil in developing countries. It is about the leverage of
entrepreneurial drive on the emerging market and the role micro-finance institutions
plays in many spheres of small and medium enterprises. It mainly draws from
research on micro-finance institutions in other parts of the world. This previous
research has indicated that the dual effects of micro-finance on small and medium
enterprises have either improved or worsened business performance.

The problem statement indicates that some small and medium enterprises in the
DRC are making use of services provided by micro-finance institutions, while others
do not even attempt to approach micro-finance institutions, and continues their work
in the informal sector. However, a study has not yet been carried out to determine
the effect of micro-finance on small and medium enterprise performance in the DRC.
Therefore the effects of micro-finance institutions on small and medium enterprises
require investigation.

The study set out a general objective: The investigation of the effect of micro-finance
institutions on the performance of small and medium enterprises. Additional specific
objectives are pursued in section 1.3.2 in line with the research questions stated in
section 1.2 of the research problem.

The study employs two methods, namely a literature review and an empirical study.
The literature review consists of approved publications on the subject of the effect of
micro-finance on small and medium enterprises. The empirical study briefly
describes the research design, participants and samples, data collection, statistical
analysis, limitations and ethical considerations of the field study.

17
The following chapter consists of the literature review. This literature review was
derived from approved publications. The literature review was undertaken to
highlight different views on the origin, definition, function, commercial banks'
provisions of micro-credit, the future of micro-finance and empirical studies carried
out elsewhere in different parts of the world.

18
 CHAPTER 2

LITERATURE REVIEW

2.1 INTRODUCTION

The effect of micro-finance throughout the world is well recognised and documented.
According to Kiweu (2011:88) the literature on micro-finance is abundant, but the
majority of the studies tend to be descriptive with little evidence and tentative
research findings due to inadequate data. Academic analysis of micro-lending has
been sporadic, as most developmental research in the period from the 1950s
through the 1990s concentrated on subsidised credit, with little to no repayment
incentives (Cooke, 2011:70).

Nevertheless, in the last few decades, it has been acknowledged that some studies
have begun to offer in-depth analysis on the topic. Dimensions that are based on an
empirical approach are being investigated with increased public outline on this
particular poverty reducing tool. These studies have contributed to a better
understanding of issues and emerging trends in the field of micro-finance (Kiweu,
2011:88).

2.2 THE DEFINITION OF MICRO-FINANCE

There are numerous definitions of micro-finance, some of which evolved using the
new delivery methodologies developed during the last twenty five years, they were
well summarised by Roodman (2010:1):

 Micro-finance is the provision of financial services to low-income clients,

including consumers and the self-employed, who traditionally lack access to
banking- and related services;
 Micro-finance refers to institutions that specialise in making very small loans
to very poor people in developing countries. Instead of using collateral to

19
 assure repayment, these lenders harness social pressure within the
borrower's community;
 The provision of small loans (micro-credit) to poor people to help them
engage in productive activities or grow very small businesses. The term may
also include a broader range of services, including credit, savings, and
insurance.

Rouse (2012:1) provided a contemporary and all-encompassing definition that micro

finance is the provision of savings accounts, loans, insurance, money transfers and
other banking services to customers that lack access to traditional financial services,
usually because of poverty. The Consultative Group to Assist the Poor (2013:1)
presented a limited definition of micro finance as financial services for poor and low-
income clients offered by different types of service providers.

Roodman (2010:5) again contributed to the definition of micro finance by arguing that
micro-finance is the business-like provision of financial services to the poor, and
provision of financial services to the poor, in ways that depend on outsiders,
especially socially motivated ones, for finance and advice.

This study used micro-finance institutions narrowly, referring to Governmental and

non-Governmental organizations, non-bank financial institutions, and commercial
banks that specialise in micro-finance as defined above, as well as additional micro
finance programs.

2.3 THE ORIGIN AND SPREAD OF MICRO-FINANCE

People, communities and businesses have been borrowing, lending and saving
since trade and other forms of transactions existed. Micro-finance practices have
taken place within different communities using their own systems and methods, with
or without external support or assets (Seibel, 2007:13). The sector is new in that it
has only recently drawn attention as a response to the failure or indifference of

20
commercial banks (formal financial system) to serve the needs of low-income
households and small and medium enterprises.

Although micro-finance has gained popularity in recent years the concept is ancient,
with institutional origins for instance in European countries in the 18th and 19th
century, Nigeria in the 16th century and India around 1000 BC (Seibel, 2007:13).
Therefore, the concept of micro-finance can be both old and new.

The African concept of micro-finance has long been practised in many forms. The
practice of lending in the agricultural sector has always been common among
families or villagers (Babandi, 2011:127). They have been lending fields or seed to
other members for farming with the expectation of a harvest return. This form of
micro-finance practice has also been exercised for animal procreation. A community
member lends an animal to another member for procreation with the expectation of
gaining more animals in return (Engel & Lutz, 2013:35). Depending on the agreed
terms and conditions, the party that borrows returns to the lender the initial (capital)
and the expected interest (mainly in the same nature that was borrowed) (Engel &
Lutz, 2013:35).

This form of financing activities is linked to capital repayment plus interest. In some
cases there is no obligation imposed by the lending party on the receiving person or
community. This type of lending is prevalent among close family members or friends
to help each other to overcome poverty.

Seibel (2007:12) states that the term micro-finance was first introduced in 1990 with
the specific connotation of encompassing micro-credit and micro-savings as well as
other financial services, in response to Vogel‟s claim that savings were the forgotten
half of rural finance.

Haque and Harbin (2009:1) asserted that micro-credit was unheard of until Dr.
Muhammad Yunus, an American educated economics Professor, began his Micro-
Credit Scheme as a poverty busting tool with a deep conviction from the beginning
21
that it could serve to alleviate poverty. Since the mid-1970s, there has been an
explosion of activity in the micro-finance sector and several models have been
developed, various services have been pioneered, and many international
organisations have become involved (Maksudova, 2010:1; Roy, 2003:2).

Less known but equally important, is the demand for saving and financial transaction
opportunities for individuals and businesses in developing countries (Roy 2003:2).
Entrepreneurs and individuals in these countries are looking for a convenient way to
make safe deposits and transactions with their money (Roy 2003:3). It is
acknowledged that these deposits can fund micro-credit activities. This is particularly
true in countries where banking systems have collapsed or became non-existent
such as in the DRC, where the banking system is not providing services to the
majority of the population (Engel & Lutz, 2013:35).

Through the provision of micro-loans to entrepreneurs and small businesses, the

Grameen Bank has empowered the poor, giving them the resources to generate
additional income, stimulate value creation and in turn, development (Roy 2003:2).
Therefore, the micro-finance model, pioneered by the Grameen Bank in Bangladesh
(Roy 2003:2) could become an instrument to addresses this impasse for the
Democratic Republic of Congo. Likewise, savings based micro-finance institutions
have been found to be better positioned to endure periods of financial downturn.
Savings based on micro-finance institution principles reinforced funds through local
deposits. Furthermore, local funding is generally more stable and carries no
exchange rate risk.

Micro-finance institutions, as an instrument for stimulating income generating

activities, were introduced by NGOs in the 1970s and have traditionally offered
supply-driven micro-credit to subsistence farmers in rural areas, and focused on
poverty reduction objectives (Seibel 2007: 12).

Haan and Lakwob (2010:351) indicated that the 1990s saw the expansion of micro-
finance as both a replacement of and a complementary service to commercial
22
banking. This phenomenon was attributed to micro-finance institutions' typical
characteristics such as proximity to customers, speed and flexibility of service,
hidden transaction costs, diversity of services and products, as well as mutual
reciprocity.

2.4 THE FUNCTIONS OF MICRO-FINANCE INSTITUTIONS

Micro-finance institutions provide many functions to those in need of financial and

related services in many parts of the world. They provide capital to entrepreneurs,
giving them the means to snatch an opportunity to start a business, expand an
existing business or to use as working capital, which may lead to improve profit
margins as well as their lives.

Seibel (2007:13) referred to micro-finance institutions as a system of financial

intermediation between micro-savers and micro-borrowers; it may further include
micro-insurance and other financial services such as money transfers. Jegatheesan
et al. (2011:300) pointed out that micro-finance provides different functions to their
clients; supplying access to various financial services such as credit, savings, micro-
insurance, remittances, leasing to low-income clients including consumers and the
self-employed, who traditionally lack access to banking and related services.

Furthermore, micro-finance institutions have been identified as being vitally important

to the growth of small and medium enterprises in developing economies (Roy
2003:2). It is believed that it contributes to job creation, innovation and its welfare
effects are visible in different countries.

The micro-finance revolution has taken hold across developing economies and has
for ever impacted the world of business as described in section 2.7 the performance
of micro-finance in selected countries. It is argued in the Democratic Republic of

23
Congo that micro-finance institutions make indispensable contributions to the market
economies (Opportunity International 2011:1).

Firstly, they are an integral part of the reformed process that pervades and defines
financial institutions. Micro-finance institutions play a crucial role in the financial
innovations that lead to technological change and productivity growth. Undeniably,
micro-finance institutions are agents of change, because they are changing the
financial sector.
Secondly, micro-finance institutions provide essential mechanisms by which many
entrepreneurs enter the economic mainstream. Micro-finance institutions make it
possible for entrepreneurs to access the quest of their economic success. In this
evolutionary development, micro-finance institutions play a crucial and indispensable
part in providing the “collective glue” that binds together both entrepreneurs and the
financial institution‟s activities (Kessy & Tembu, 2010: 109). After the study of the
literature, the following functions are summarised in figure 2.1.

Figure 2.1: The different functions of micro-finance institutions

Function Description
Micro-credit or micro-loans An amount of money given to the borrower with the option
of future repayment.
Saving Deposits made to be used in future, in exchange for a
series of savings made.
Insurance Insurance involves a contribution made into a pool, to
spread the risk between individuals on the assumption
that something may go wrong.
Pension An amount of money deposited to benefit from at a
specified and generally distant date in the future in
exchange for a series of savings made.
Money transfers Micro-finance institutions provide facilities to borrowers
to transfer money to families, friends and make
payments to small and medium enterprises, suppliers

24
 and other creditors.
Consulting services, In addition to lending money, micro-finance institutions
including education. also offer consulting services, including basic business
education to loan beneficiaries on how to manage their
finances and run a business efficiently.
Group lending. Micro-finance institutions prefer their borrowers to create
a group, so as to ensure timely repayments. Formation
of groups act as support for each other and every
member can guarantee the repayment of other members
of the group. Through group lending, micro-finance
institutions collect payments more efficiently and the
group can offer support to the borrower that faces any
challenge of repayment.
Empowerment. Lending to the poor is definitely better for the right
development of the community. They use the proceeds
for educational purposes of the children or to purchase
food for the family‟s survival. Apart from these, lending to
the poor also resolves the problem of inequality that has
been prevailing in our society for many years.
Technology. Technology used by micro-finance institutions has
assisted beneficiaries to be connected with the rest of
the world. This is how micro-finance has played a vital
role in connecting the world in pecuniary manner.

Source: Muntengezanwa et al. 2011.

The Consultative Group to Assist the Poor 's (2012:16) survey results contain seven
reasons that attract micro-finance institutions to serve small and medium enterprises.
Among those reasons, business growth opportunity topped with 85%, followed by
follow micro-client all the time 69%. Increased competition among micro-clients and
higher profitability ranged respectively within 35% and 37%. Disbursement
target/pressure accounted for 21%, incentive from funders 17% and incentives from
Governments 15%. This gives a clear indication that both the micro-finance
25
institutions and borrowers are pursuing growth strategies. Reasons for micro-
finance institutions to service small and medium enterprises could be influenced by
the technical, economic, political and the social factors to combine traditional and
modern micro-finance approaches. Figure 2.2 provides reasons micro-finance
institutions served small and medium enterprises.

Figure 2.2: Reasons for MFIs to serve SMEs.

Source: The Consultative Group to Assist the Poor (2012:16)

During the past few years, micro-finance practices were increasingly being
integrated as part of financial services offered by commercial banks in most
developing countries that seek business growth. Commercial or traditional banks
have also entered this market segment that used to be unattended by these
institutions.

2.5 THE COMMERCIAL BANKS IN THE MICRO-FINANCE MARKET

Providing micro-credit to small and medium enterprises is no longer confined to

Micro-finance institutions. Commercial banks are now competing with micro-lenders.
Commercial banks have entered the micro-finance market in increasing numbers
over the past years (Delfiner & Perón, 2007:9). This phenomenon is known as
downscaling in the financial sector. Commercial banks are stimulated to downscale
26
due to various reasons. These motives are linked to the bank‟s quest for new
markets or revenue generation and to the growth potential of small and medium
enterprises, ignored for a long time.
Other reasons include growing competition in markets traditionally served by
commercial banks and a declining customer base due to recession or economic
downturn, which results in a decline in the bank‟s returns. This has encouraged the
search for new market niches (Delfiner & Perón, 2007:9).

In most developing countries, like the DRC where institutional micro-finance is in an

infant stage, and an unattended market segment exists; this market is viewed by
commercial banks as an instant source of rapid growth and positive returns.
Nevertheless, commercial banks' focal enticement in the micro-finance market is
linked to the fact that profit in this segment is in line with the risks sustained (Kiweu,
2011: 100).

This new approach has made it possible for commercial banks to diversify their loan
portfolio, with a particular focus on a segment formerly unattended (Kiweu, 2011:
99). Commercial banks increased their client base to include micro-credit borrowers.
This new market has compelled commercial banks to expand their branch networks
to accommodate new clients.

These commercial banks have adopted a number of strategies employed by micro-

finance institutions, which set them apart from more traditional lending
establishments: unsecured lending facilities, a simpler and more condensed
application process, personal visits by bank staff to clients to avoid the branch
application process, just a few days for application approval, and a high interest rate
(Kiweu, 2011: 103).

The inclusion of micro-finance in the commercial banks' portfolio has assisted them
to fulfil their corporate social responsibilities like caring for the most disadvantaged
social sectors and improving their public image in general. Commercial banks' micro-

27
loans to small and medium enterprises in developing countries have revolutionised
the way finance is progressing in the largely informal business sector.

2.6 THE PRACTITIONERS IN THE MICRO-FINANCE MARKET

Seibel (2007:13) declared that micro-finance covers a wide array of micro-finance

institutions. These include indigenous rotating savings, credit associations, self-help
groups, financial cooperatives, rural banks, community banks, non-bank financial
institutions which include credit non-Governmental organisations, all the way up to
development banks and commercial banks. They may also comprise of
moneylenders and private deposit collectors.

Over the years views on micro-finance institutions have been an issue of debate.
Kiweu (2011:88) described two views on micro-finance institutions namely, the
traditional and commercial. Advocates of the traditional view or poverty focused,
believe that micro-finance is a social product and should not offer credit for profit
basis. The base of their argument is that pioneer institutions in the sector were non-
profit making, which were non-Governmental organisations with the aim of poverty
alleviation (Kiweu, 2011:88-89).

The commercial view believes that micro-finance is like any commercial institution
and profit should be pursued on its activities. This view has had the wrong
connotation for micro-finance, and it indicates a mission flow in the motivation of
those lending to the poor. Micro-finance now attracts large scale private investment
through venture capital and other forms.

Molloy (2012:19) indicates that a number of financial organisations entered the

micro-finance market with an economic motive and not a social one. They charged
high interest rates to desperate customers seeking for a corridor out of poverty. The
result has been a surge in micro-loan defaults.

28
Commercialisation gave rise to its own breed of “loan sharks”. It has resulted in
devastating effects on the communities that micro-finance was designed to help and
has perpetuated indebtedness (Molloy, 2012:19). Organisations with social intent
moved away entirely from the micro-finance concept in support of other approaches
of economic development in developing countries. Figure 2.3 classifies practitioners
of micro-finance.

Figure 2.3: Types of micro-finance institutions

Type Nature of operations

Informal This system includes entities and individuals operating outside the
financial domain of the financial system. It includes financing from family and
systems friends and unregistered supplier credit. This is a high risk form of
(Family, traditional financing. Interest rates could be as high as more than 100 per
savings and
cent and repayment terms are often quite flexible.
money lenders)
Semi-formal Semi-formal lending institutions, such as the cooperative or village
finance bank are the dominant and sustainable traditional institutions that
(Cooperative and meet the financial and social needs of the poor. This is a dominant
village bank) form of credit and savings in urban and rural areas and provides a
lending option to small and medium enterprises or individual needs.
Members are required to attend scheduled meetings and the group
can be dissolved after each member has had a turn at borrowing.
NGOs Many donors provide funds to NGO‟s for distribution to needy small
(International and and medium enterprises. Most of their programmes take the form of
national aid
community lending and saving cooperatives, with high interest rates
programs and
para-public and inflexible repayment terms.
organizations)
Micro-finance The main objective of micro-finance institutions is the delivery of
institutions - financial services (micro-loans, micro-savings, micro-insurance,
(Micro-credit, money transfers, etc.) to a large number of productive but resource-
savings,
poor people in rural and urban areas, including small and medium
insurance and
money transfers) enterprises, in a cost effective and sustainable way. The

29
 interventions of the micro-finance institutions are intended to make
a positive and measurable impact on the lives of the poor.
Commercial Commercial banks have a limited capacity to deal with small and
banks
medium enterprise financing and are not favourably disposed
(Commercial
banks and towards small loans. A very low proportion of informal business
agricultural credit
sector operators have access to these formal financial institutions.
banks)

Source: Jegatheesan et al. (2011:300).

2.7 THE PERFORMANCE OF MICRO-FINANCE IN SELECTED COUNTRIES

It has been documented that the effects or interventions of micro-finance institutions

led to either a positive or a negative performance of small and medium enterprises.
This provision of micro-credit and various services by micro-finance institutions to
stimulate growth has produced mixed results.

Maksudova (2010:3) confirmed that less developed economies that further advance
the impact of micro-finance as a non-traditional bank may be poisoning the
economy. He further stated that micro-finance directly contributes to economic
growth by improving the value of small entrepreneurship and businesses. It indirectly
contributes to economic growth through interaction with the financial sector
development, captured by improved access to finance (financial deepening) and the
integration of households‟ financial needs.

A study done on the impact of training on the performance of small and medium
enterprises served by micro-finance institutions in Tanzania, revealed that the output
of enterprises that received training increased, compared to those who obtained
micro-credit without training (Kessy & Tembu, 2010: 105). Similarly, Maksudova
(2010:2) argued that the dynamic growth of micro-finance in recent decades, and
especially amidst the global financial crisis, signals that alternative means of

30
financing could play a significant role by filling the gaps in formal intermediation and
also by contributing to the financial stability of a country.

Aroca and Hewings (2009: 109) analysed the Brazilian and Chilean banks and
NGOs who accessed micro-credit programs. Using propensity score and matching
techniques, they contrasted the average income of individuals who received micro-
credit against the income of control groups, formed by respondents with similar
descriptions. The two countries presented opposing results. The Brazilian result
indicated a high positive impact of micro-credit programs, especially for those
administered by banks. In contrast, the Chilean scenario presented a weaker
substantiation for the micro-credit administered by banks. In support of the NGO-
based programs, the evidence was negative on the average income for their clients.

Akingunola and Onayemi (2011:331) conducted a study among women in the Ogun
and Oyo States of Nigeria and found that formal financial institutions may not really
be discriminating against women; rather, they were unable to satisfy their credit
needs because of the low income-yielding propensity of their businesses as well as
the inability of these women‟s small and medium enterprises to provide acceptable
collateral securities.

Nugroho‟s (2010:382) research in Indonesia established that informal micro-finance

institutions such as moneylenders and cooperatives can minimise the default rate on
small loans through maintaining close contact and friendships with their poor clients.
The study also further found that access to micro-finance services contributed to the
welfare of the poor.

Achoja (2011:275) carried out a study in the Delta State, Nigeria among the micro-
finance user groups and found a recorded loan marketing efficiency of 80.20%. He
recommended that micro-finance user groups should form linkage with financial
institutions for the purpose of a credit mobilisation scheme.

31
Akram and Hussain (2011:90) conducted a study in the District Okara in Pakistan.
Their findings were that micro-finance was efficiently serving the poor by increasing
their income level. 85.40% of their respondents stated that their income level had
increased after receiving micro-finance facilities and therefore improving their living
standard.

Another study carried out by Durrani et al. (2011:138) in Pakistan revealed that
access and efficient provision of micro-credit could enable the poor to smooth their
consumption, better manage their risks, gradually build their assets, develop their
micro-enterprises, enhance their income earning capacity, and enjoy an improved
quality of life. It also indicated that with little effort, the performance of micro-finance
institutions can be improved and these institutions can play their role better in
poverty alleviation than usual.

Cooke (2011:70) analysed the different effects that micro-credit would have on
producers of raw material, and second order producers that fashioned raw material
into products. The conclusion of the study was that micro-lending has the potential to
do harm to a developing marketplace, and micro-creditors must be cognisant of
possible unintended consequences of their micro-loans. Even after paying back
micro-loans, the micro-loan recipients were much better off than those who did not
receive a micro-loan.

Qureshi et al. (2012:717) pointed out that micro-finance helps different categories of
poor people and has significantly positive effects on the access to micro-credit.
Results also show that there is improvement in the micro-finance sector over recent
years in terms of investments, active borrowers, branches and personnel.

Mutengezanwa et al. (2011:161, 169) conducted a research focusing on the topic

under discussion and discovered a positive relationship between micro-credit and
the socio-economic lives of people. The study revealed that the activities of micro-
finance institutions resulted in an increased social interaction and socio-economic
sustainability. Micro-finance institutions assist micro-entrepreneurs to fund their
32
projects, especially those who could not access micro-loans from traditional banks.
Beneficiaries indicated that micro-finance institutions have a positive impact on the
socio-economic lives of people.

Idolor and Eriki's (2012:51) findings revealed that micro-loans and advances from
micro-finance banks had a significant impact on the education and life expectancy
indexes. Micro-finance banks' asset base had a negative impact on the human
development index and its components, while deposit liabilities of micro-finance
banks also had a negative impact on the human development index and its
components.

Ondoro and Omena (2012:32) conducted a study in Kenya and found that micro-
finance had no significant relationship between micro-finance services savings or
investment among the youth in the Migori. However, a positive effect was revealed of
micro-finance services on financial management skills.

Maksudova (2010:16) established that there was evidence of robust contributions to

micro-finance and it was positive only in less developed countries where formal
financial intermediation is immature, leaving significant space for alternative means
such as micro-finance. The positive impact, however, runs the risk to be eroded as
middle income countries catch up with the developed world.

2.8 THE PERFORMANCE OF MICRO-FINANCE IN THE DEMOCRATIC

REPUBLIC OF CONGO

The micro-finance sector in the Democratic Republic of Congo exists in different

forms. Since the collapse of the banking system, micro-finance institutions operating
both in the formal and informal sectors have become the main source of financial
services for the country. Helmsmüller (2012:1) traced the origin of formal micro-
finance since 1956 and observed its recent growth in serving a number of clients in
the same manner that commercial banks do. Although a variety of micro-finance
institutions exist to serve clients in different parts of the country, they hardly serve
33
more than 100 000 clients, a small number compared to a population of more than
70 million people (Helmsmüller, 2012:1).

Different micro-finance institutions claim that their micro-credit and services are
improving the lives of the Congolese people at the bottom of the economic pyramid.
Although the effects of micro-finance institutions are numerous, areas where micro-
finance institutions have impacted the community are educational; micro-finance
loans that enabled clients to build schools and educate their children, farming in rural
areas and many other untold stories (Opportunity International 2013:1).

There are numerous successful stories told by micro-finance institutions such as

International-DRC, FINCA - DRC, ProCredit Bank- DRC, Hekima, PAIDEK, and
many others, regarding the impact they have made in the lives of their clients (Marti,
2009:6). However, it should be noted that these effects of micro-finance institutions
on the performance of small and medium enterprise performance in the Democratic
Republic of Congo are opinion-based and have to be examined through empirical
studies.

Micro-finance institutions in the Democratic Republic of Congo have been operating

without a national body for a long time (Marti, 2009:3). In an effort to close the gap,
the Central Bank of the Democratic Republic of Congo and the micro-finance
institutions initiated a national association of micro-finance institutions (Helmsmüller,
2012:1). The main goal of the “Association Nationale des Institutions Micro Finance
(ANIMF)” is to assist the Government to regulate the micro-finance industry with
legal framework, procedures and codes of conduct in the Democratic Republic of
Congo (Marti, 2009:3).

2.9 THE FUTURE PROSPECTS OF MICRO-CREDIT

Literature contains evidence that small and medium enterprises play critical roles in
economic growth and reduced poverty in most developing countries. This growth and

34
poverty alleviation have been linked to micro-credit and other financial services
obtained from micro-finance institutions. These institutions grant credit to joint liable
groups to develop small and medium enterprises and foster income generating
activities. Numerous studies have demonstrated that access to financial services
such as savings, micro-credit and insurance are critical in helping the poor build
businesses to generate income, manage cash flow and protect against risk
(Opportunity International, 2011:1).

While studying micro-finance, Shetty (2008:88) found that credit alone could not shift
the burden of small and medium enterprises and could not make any difference to
the lives of the poor. He suggested the need for a paradigm shift from the minimalist
approach (the delivering of credit services to the poor either to level out
consumption or for income generating activities) to a maximalist approach, or
integrated approach (which comprises of both financial and non-financial services to
the poor) in unleashing entrepreneurship (Shetty, 2008:90).

The minimalist approach was based on the argument that the missing part for
enterprise growth in the midst of the poor was the accessibility of credit. Advocates
of this approach believed that finance alone is in the centre of enterprise growth
(Shetty, 2008:90). Minimalist tied the growth of small and medium enterprises to
access to credit only and ignored other factors such as education, business risks and
others.

It indicated that credit was more important in meeting the needs of the poor and
income generating activities than any other. Consequently, many of the micro-
finance institutions provided credit only to the poor with the expectation that it would
take care of economic activity without taking into consideration other elements that
have an impact on their clients.

The reality was entirely different as most of these institutions (minimalist) failed to
pop-up income generating activities for their members (Shetty, 2008:89). He further

35
spotted the important reason behind the failure and indicated that a supply of credit
alone cannot bring any prominent change in the economic activities of the destitute.

Opportunity International (2011:1) denoted the absence of institutions that could

provide a broad range of financial services on a sustainable basis. Shetty (2008:89)
attributed failure of small and medium enterprises that obtained micro-credit and did
not grow, to several years of deprivation of the basic economic resources and social
services; and suggested the combination of both financial and non-financial services
(integrated services) to bring them to the mainstream economy.

The maximalist or the integrated approach looked at a holistic way of small and
medium enterprise growth and income generating activities among the poor. It is a
combination of the three elements between financial intermediation, social
intermediation and entrepreneurial services that micro-finance institutions have to
offer their clients (Shetty, 2008:90). He mentioned few aspects such as financial
intermediation consists of working capital, fixed asset loans, savings and insurance.
Social intermediation services include enterprise development, leadership and
different training. Entrepreneurial services embrace areas of production, marketing,
trade and others.

Accordingly, the micro-finance institutions' transformation from the minimalist to

maximalist approach requires a paradigm shift in micro-finance practices. Shetty
(2008:91) indicated that some micro-finance institutions in rural areas of India
reached incredible achievements in unleashing women entrepreneurship. He
attributed these kinds of success stories to the active role of the integrated approach
deployed by micro-finance institutions.

Padma et al. (2012:1) affirmed that the micro-finance industry is developing very
rapidly and institutions are increasingly concerned with developing new products and
services. This assertion confirmed Shetty's (2008:91) study which revealed that rural
micro-finance institutions were highly efficient in transferring to their clients basic

36
(consumption levelling) to business by offering training on production, marketing,
accounting, leadership, and other.

Morvant-Roux (2008:10) glanced at the future survival of this industry and said that
trying out new products and services requires micro-finance institutions to work
collaboratively with a variety of role players and think in terms of synergy and
alliances. Although the dynamics underlying the micro-finance institutions have
shifted to a new phenomenon, associated risks need to be managed efficiently as
the industry moves forward into these uncertain times.

2.10 CHAPTER SUMMARY

The literature review on chapter 2 traced the origin and the development of micro-
finance institutions. The literature review pointed out that the concept of micro-
finance is both old and new. Although the institutionalisation of micro-finance has
received popularity in the last decade, this practice has existed for centuries.

Different views on micro-finance institutions were expressed. The minimalist

approach states that credit was the factor that hampers economic growth among the
poor. Provision of loans should result in addressing poverty alleviation. The
maximalist approach advocates the provision of credit with additional financial
services.

Literature revealed that credit alone was not sufficient to create an impact on the
small and medium enterprises. Credit must be accompanied by other financial
services to complement the micro-loans granted. This called on micro-finance
institutions to adopt an integrated approach that includes other services such as
training, operational management, leadership and skills development and human
resources to create the desirable impact on small and medium enterprises.

37
The results of the empirical findings on the effect of micro-finance in different parts of
the world divulged that most small and medium enterprises who received credit
showed improvement in their businesses. Different researchers found that there was
a relationship between micro-credit granted by micro-finance institutions and the
growth recipients experienced. As eminent, depending on variables assessed, there
was conflicting evidence from studies on the effect of micro-finance institution
programmes across the globe.

Micro-finance is not just about micro-credit transactions as when it was first

introduced. The new approach essentially integrated adequate and timely credit into
larger developmental processes such as community organising, leadership training
and entrepreneurship activities.
The core of micro-finance programmes go beyond mere access and distribution of
money, to deeper issues of how money is utilized and invested by recipients. It helps
in fostering and developing a micro community based environment where existing
networks and interlinks are strengthened. It is important therefore to understand that
micro-credit does not stand alone, but overlaps on existing developmental activities
and their implementation.

In the following chapter, the empirical study scrutinised the performance of small and
medium enterprises that contracted micro-loans and other services through micro-
finance institutions in the DRC. The performance of the small and medium
enterprises was assessed through the responses from the respondents in the
questionnaire, and statistically analysed.

38
 CHAPTER 3

THE EMPIRICAL STUDY AND RESULTS

3.1 INTRODUCTION

The focus of this chapter is on the methodological technique regarding data

gathering and the results and discussions of the empirical study. The chapter relates
to the problem statement and research objectives stated in chapter 1 section 1.2 and
1.3 respectively. The methodological technique consists of the development of the
questionnaire and data collection. Results and discussions centre around section A,
B and C of the questionnaire (see Appendix A: Empirical research questionnaire).
The conclusion summarises findings of the results and discussions.

3.2 GATHERING OF DATA

This section describes the methodological activities and reflections in conducting and
obtaining the analysable data used in the study. The gathering of data consisted of
two steps. The first part consisted of construction of the questionnaire and the
second part related to data collection.

3.2.1 Development and construction of the questionnaire

The first step in the gathering of data was the development and construction of the
questionnaire. Questions and matters were derived from the literature review on the
effects of micro-finance institutions on small and medium enterprises and the
research problem. Matters of the same sort that required the same type of
information were grouped together. This approach aimed at prompting information of
a specific nature without delays. The questionnaire was constructed to investigate
applicable types to the research questions and literature in the following analytical
approach:
39
  Section A: The socio-demographic profile of the respondents
o Gender;
o Marital status;
o Age;
o Household size (people);
o Experience in business;

 Section B: The functioning of micro-finance institutions

o Utilization of services offered by MFIs;
o Areas of consulting received from MFIs;
o Roles MFIs played;
o Most recent micro-credit utilized;
o Reasons for acquiring micro-loans;
o Financing amounts received;
o Interest rates charged;
o Collateral required;
o Constraints in obtaining micro-loans;
o Factors that influence the choice of MFIs;

 Section C: The Performance of small and medium enterprises

o Changes experienced in the performance of small and medium
enterprises after contracting micro-loans and other services.
o Transformations entrepreneurs experienced as a result of the changes
in performance experienced by small and medium enterprises.
o Factors positively contributing to the performance of small and medium
enterprises.
o Factors negatively contributing to the performance of small and
medium enterprises.

The questionnaire called for the research partakers to indicate the applicable
response by marking the appropriate box with an X. Section A in the questionnaire
required that respondents could mark only one block where suitable. Section B
40
contains questions where they could indicate their opinions with yes or no for each
statement. In this section, respondents were required to answer questions by
marking the numeric applicable option with an X in the appropriate box. The last part
of this section used a four point scale to measure responses such as “not at all, to a
small degree, to a moderate degree and to a large degree”. The four point Likert
scale measured responses in the last part of section B and C of the questionnaire.

3.2.2 Data collection

The questionnaire was printed and distributed to small and medium entrepreneurs in
the town of Kisangani, Oriental Province, Democratic Republic of Congo using the
purposive sampling method.

The study used the purposive sampling method to collect data. Purposive sampling,
also known as judgemental, selective or subjective sampling, involves a non-
probability sampling technique. This sampling technique relies on the researcher‟s
judgement when selecting the respondents that are to be studied. Extreme (or
deviant) case sampling of purposive sampling was appropriate in this context of the
study because it focused on notable outcomes that typically highlight, negative or
positive (failures or successes) of the effect of micro-finance institutions on small and
medium enterprises in the DRC.

The choice of purposive sampling in this study was mainly influenced by the absence
of a database which contained data of beneficiaries of micro-loans and other
services in the area. Consequently, the population was described as hidden because
a complete sampling frame could not be constructed, using random sampling
techniques. Even though random sampling could not be done, effects made by
micro-finance lenders on small and medium enterprises needed to be researched
using non-random sampling techniques proved to be scientifically acceptable.

41
In total seventy seven (77) entrepreneurs who accessed micro-loans responded to
the questionnaire. The procedure followed to distribute the questionnaires was to ask
for a time slot during the small scale mining forum as stated in section 1.5.2. The
forum allocated one and half hour for the research questionnaire. The researcher
used the allocated time to guide respondents to complete the questionnaire.
Completed questionnaires were dropped in the provided box.

The questionnaires were later collected from the box. These questionnaires were
completed by a wide range of small and medium entrepreneurs. Some of the
respondents were not literate enough to understand the questionnaire, but
enthusiastic to participate in the research.

A total of seventy seven (77) out of 80 questionnaires were returned from the
sample, which constitutes a 96.25% response rate. The main reason for non-
completion of the three (3) questionnaires was that these respondents were not yet
in business and never accessed any form of micro-finance loans or credit. The 77
useable returned questionnaires were handed to the Statistical Consultation
Services of the North-West University for analysis. Sections below show results and
discussions of the analysed questionnaires.

3.3 THE RESULTS AND DISCUSIONS OF THE FINDINGS

3.3.1 The Socio-demographic profile of the respondents

3.3.1.1 Gender

 Purpose of question

The purpose of question 1, in Section A of the questionnaire (refer to Appendix A)

was to classify the gender of entrepreneurs who participated in the research. The

42
results can be used to conclude if there is an association between entrepreneurial
orientation and gender.

 Results obtained.

The gender of entrepreneurs that responded to the questionnaire is depicted in

Table 3.1 below.

Table 3.1: Gender of respondents.

Gender Frequency Percentage

Male 58 75.3

Female 18 23.4

Total 76 98.7

Missing 1 1.3

Total 77 100.0

 Analysis of the results.

The largest group of respondents in this study was characterized by male

entrepreneurs with 76.3% of the total, followed by female entrepreneurs with 23.4%
and a 1.3% missing value which means that 1 respondent omitted this question.
Predominance of male entrepreneurs indicated that in this environment, there are
more males who are in business than females.

3.3.1.2 Marital status

 Purpose of question.

43
The purpose of question 2, in Section A of the questionnaire (refer to Appendix A)
was to identify the marital status of the entrepreneurs. The results can be used to
conclude if there is an association between entrepreneurial orientation and marital
status.

 Results obtained.

The marital status of entrepreneurs that responded to the questionnaire is depicted

in Table 3.2 below.

Table 3.2: Marital status of respondents.

Marital status Frequency Percentage

Single 24 31.2
Married 37 48.1
Divorced 15 19.5
Missing 1 1.3
Total 77 100.0

 Analysis of the results.

Table 3.2 indicates that 37 (48.1%) of the participants are married, twenty four
entrepreneurs (31.2%) were single, fifteen (19.5%) entrepreneurs are divorced and
one missing value (1.3%) which means that one respondent did not indicate their
marital status in the questionnaire.

3.3.1.3 Age group category

 Purpose of question.

The purpose of question 3, in Section A of the questionnaire (refer to Appendix A)

was to establish the age group category of participants.

44
  Results obtained.

Table 3.3 below contains the age group category of entrepreneurs that participated
in the research.

Table 3.3: Age group category of respondents.

Age group category Frequency Percentage

<30years 24 31.2
30-50years 32 41.6
>50years 21 27.3
Total 77 100.0

 Analysis of the results.

The largest grouping in the age group category analysis was defined by the 30 to 50
(41.6%) years age group followed by under 30 (31.2%) years age group. The last
category represented the above 50 (27.3%) years age group.

3.3.1.4 Household size (number of people).

 Purpose of the question.

The purpose of question 4, Section A of the questionnaire (refer to Appendix A) was

to establish the household size (number people) of participating entrepreneurs.
 Results obtained.

Table 3.4 present the household size (number of people) of participating

entrepreneurs.

45
Table 3.4: Household size (number of people) of participating entrepreneurs

Household sized (number people) Frequency Percentage

1-5people 44 57.1
6-10people 16 20.8
>10people 12 15.6
Missing 5 6.5
Total 77 100.0

 Analysis of the results.

The greater part of the participants 44 (57.1%) have a household size of 1 to 5

people, followed by 16 (20.8%) respondents having 6 to 10 people and 12 (15.6%)
respondents have more than 10 people. Five (6.5%) did not respond to this question.

3.3.1.5 Years of experience in business

 Purpose of the question.

The purpose of question 5, Section A of the questionnaire (refer to Appendix A) was

to establish entrepreneurs‟ years of experience in business.

 Results obtained.

Table 3.5 below presents the entrepreneurs‟ years of experience in business.

Table 3.5: Years of experience in business

Years of experience Frequency Percentage
1-5years 26 33.8
6-10years 23 29.9
11-15years 11 14.3
16-20years 15 19.5

46
 Missing 2 2.6
Total 77 100.0
 Analysis of the results.

A total of 26 (33.8%) participants indicated that they have 1 to 5 years‟ experience in

business while 23 (29.9%) respondents have 6 to 10 years of business experience.
Fifteen (19.5%) entrepreneurs have 16 to 20 years‟ experience in business. Lastly,
11 (14.3%) entrepreneurs signified that they have 11 to 15 years of experience
running the business. Two (2.6%) respondents did not indicate their opinions for this
question.

3.3.2 The Functioning of micro-finance institutions

3.3.2.1 Utilisation of services offered by MFIs

 Purpose of the question.

The purpose of question 6, Section B of the questionnaire (refer to Appendix A) was

to determine the utilization of services offered by micro-finance institutions to the
entrepreneurs. The types of services offered by micro-finance institutions are saving
accounts, insurance, pensions, money transfers, training and technology.
Respondents indicated yes or no, according to the services they received.

 Results obtained.

Table 3.6 below presents the entrepreneurs' utilization of services offered by micro-
finance institutions.

Table 3.6: Utilization of services offered by MFIs

Savings account Frequency Percentage

Yes 51 66.2

47
 No 26 33.8
Total 77 100.0

Insurance Frequency Percentage

Yes 12 15.6
No 65 84.4
Total 77 100.0

Pension Frequency Percentage

Yes 10 13.0
No 67 87.0
Total 77 100.0

Money transfer Frequency Percentage

Yes 58 75.3
No 19 24.7
Total 77 100.0

Training Frequency Percentage

Yes 49 63.6
No 28 36.4
Total 77 100.0

Technology Frequency Percentage

Yes 29 37.7
No 48 62.3
Total 77 100.0

 Analysis of the results.

The majority of respondents 58 (75.3%) specified that they utilized money transfers
and 19 (24.7%) of respondents did not. A total of 51 (66.2%) participants made use
of saving accounts, while 26 (33.8%) specified that they did not use this service.
Additionally, 49 (63.6%) respondents specified that they went for training, while 28
(36.4%) of respondents indicated that they did not attend any training workshops.

The majority of respondents 65 (84.4%) indicated that they did not have insurance
while only 12 (15.6%) of respondents utilized this service. A similar trend was
observed for pension services, where the vast majority of respondents 67 (87.0%)
48
indicated that they did not have a pension fund and only 10 (13.0%) of respondents
had pension. Finally, 48 (62.3%) of respondents indicated that they did not make use
of technology services offered by MFIs, but 29 (37.7%) put these services into
practice.

3.3.2.2 Areas of consulting received from MFIs

 Purpose of questions

The purpose of question 7, Section B of the questionnaire (refer to Appendix A) was

to determine the area of consulting received by the entrepreneurs. The areas of
consulting services on offer from micro-finance institutions are leadership, finance,
operations, marketing and administration. Respondents indicated with yes or no to
show the consulting services they received.

 Results obtained.

Table 3.7 below presents the areas of consulting received by the entrepreneurs.

Table 3.7: Areas of consulting received by the entrepreneurs

Leadership Frequency Percentage

Yes 35 45.5
No 41 53.2
Missing 1 1.3
Total 77 100.0
Finance
Frequency Percentage
Yes 57 74.0
No 20 26.0
Total 77 100.0

Operation Frequency Percentage

Yes 55 71.4
No 22 28.6

49
 Total 77 100.0

Marketing Frequency Percentage

Yes 38 49.4
No 38 49.4
Missing 1 1.3
Total 77 100.0

Administration Frequency Percentage

Yes 34 44.2
No 42 54.5
Missing 1 1.3
Total 77 100.0

 Analysis of the results.

The greater part of respondents 57 (74.0%) said that they received consulting
services relating to finance and 20 (26.0%) of respondents did not receive these
consulting services. Fifty five (71.4%) specified that they did make use of consulting
services related to running operations and 22 (28.6%) of respondents did not. A
similar trend was observed for marketing, where 38 (49.4%) of respondents specified
that they received marketing consultation, while 38 (49.4%) of respondents indicated
they did not received marketing consultation. 1 (1.3%) respondent did not indicate
their opinion.

The results from the questionnaire indicated that 41 (53.2%) of respondents did not
receive consulting services related to leadership, while 35 (45.5%) did receive this it.
1 (1.3%) respondent did not indicate their point of view on the questionnaire. As a
final point, 42 (54.5%) of respondents indicated that they did not receive consulting
services offered in the area of administration, 34 (44.2%) received this service and 1
(1.3%) respondent did not mark their opinion.

50
3.3.2.3 The roles micro-finance institutions played in small and medium enterprises

 Purpose of question.

The purpose of question 8, Section B of the questionnaire (refer to Appendix A) is to

determine the roles that micro-finance institutions play in small and medium
enterprises. The roles include the facilitator of small and medium growth, tool for
social change, provider of banking services to the people, tool for empowerment,
transferrer of technology and destroyer of small and medium enterprises.
Respondents indicated with yes or no to show the roles that MFIs played in their
small and medium enterprises.

 Results obtained.

Table 3.8 below represents the roles played by micro-finance institutions in the small
and medium enterprises of participating respondents.

Table 3.8: The roles played by micro-finance institutions

Facilitator of small and medium

enterprises growth Frequency Percentage
Yes 53 68.8
No 24 31.2
Total 77 100.0
Tool for social change
Frequency Percentage
Yes 56 72.7
No 21 27.3
Total 77 100.0

Provider of banking services to

the people Frequency Percentage
Yes 62 80.5
No 15 19.5
Total 77 100.0

Tool for empowerment. Frequency Percentage

Yes 53 68.8

51
 No 24 31.2
Total 77 100.0

Transferrer of technology Frequency Percentage

Yes 44 57.1
No 30 39.0
Missing 3 3.9
Total 77 100.0

Destroyer of small and medium

enterprises Frequency Percentage
Yes 24 31.2
No 52 67.5
Missing 1 1.3
Total 77 100.0

 Analysis of the results.

Table 3.8 indicates that the majority of respondents 62 (80.5%) specified that micro-
finance institutions fulfilled the role of provider of banking services, while 15 (19.5%)
indicated that micro-finance institutions did not fulfill this role for them. Concerning
the role of micro-finance institutions as a tool for change, 56 (72.7%) indicated that
micro-finance institutions fulfilled this role, 21 (27.3) specified that this was not the
case for them. A total of 54 (68.8%) participants viewed micro-finance institutions as
a facilitator of small and medium enterprise growth, while 24 (31.2%) specified that
micro-finance institutions are not fulfilling this role. Additionally, a total of 53 (68.8%)
of participants regarded micro-finance institutions as a tool for empowerment.
However, 24 (31.2%) of participants did not regard micro-finance institutions in the
same light.

Forty four (57.1%) of respondents said that micro-finance institutions was a

transferor of technology and 30 (39.0%) stated that microfinance institutions are not
fulfilling this role. Three (3.9%) of respondents did not specify their opinions. Lastly,
56 (67.5%) participants indicated that they do not see micro-finance institutions as
destroyers of small and medium enterprises, while 24 (31.2%) specified that in their
opinion micro-finance institutions are destroying small and medium enterprises.

52
3.3.2.4 Most recent micro-credit utilized by entrepreneurs.

 Purpose of the question.

The purpose of question 9, Section B of the questionnaire (refer to Appendix A) was

to determine the most recent micro-credit utilized by the entrepreneurs. The most
recent micro-credit accessed by the entrepreneurs included friends or relatives,
commercial banks and credit cooperative societies. Respondents indicated their
opinion by selecting one appropriate source of financing most recently used.

 Results obtained.

Table 3.9 below represents the most recent micro-credit utilized by the
entrepreneurs of participating SMEs.

Table 3.9: Most recent source of micro-credit utilized by the entrepreneurs

Most recent source of micro-

credit accessed Frequency Percentage
Friends or relatives
15 19.5
Micro-finance Institutions
35 45.5
Commercial banks
18 23.4
Credit cooperative societies
9 11.7
Total 77 100.0

 Analysis of the results.

The majority of participants 35 (45.5%) indicated that recently they did utilize micro-
finance institutions followed by 18 (23.4%) of respondents who used commercial

53
banks as source of financing, 15 (19.5%) of respondents accessed micro-credit from
relatives or friends and 9 (11.7%) from a credit cooperative society.

3.3.2.5 Reasons to acquire micro-loans.

 Purpose of the question.

The purpose of question 10, Section B of the questionnaire (refer to Appendix A)

was to find out the reasons for acquiring micro-loans by the entrepreneurs. The
reasons for taking out micro-loans were to expand existing businesses, acquire new
equipment, using the micro-loans as working capital and for building projects.
Respondents indicated their opinion by selecting one appropriate reason for
acquiring a micro-loan.

 Results obtained.

Table 3.10 below represents the reasons for acquiring micro-loans by the
entrepreneurs of SMEs
Table 3.10: Reasons for acquiring micro-loans

Reason for acquiring a micro-

loan. Frequency Percentage
Start a new business.
26 33.8
Expand an existing business.
20 26.0
Acquire new equipment.
11 14.3
Use loan as working capital.
12 15.6
Building projects.
8 10.4
Total 77 100.0

54
  Analysis of the results.

The most prominent reason for acquiring micro-credit as indicated by 26 (33.8%)

respondents was to start a new business, followed by expanding an existing
business as indicated by 20 (26.0%) respondents. The third reason was to the
money for working capital as shown by 12 (15.6%) respondents. The least
prominent indications for getting a loan were for acquiring new equipment and
building projects, which were specified by 11 (14.3%) and 8 (10.4) respondents
respectively.

3.3.2.6 Financing amounts received

 Purpose of the question.

The purpose of question 11, Section B of the questionnaire (refer to Appendix A)

was to verify the financing amount granted to the entrepreneurs. Respondents
indicated their opinion by selecting one appropriate financing amount received from
the micro-loan.

 Results obtained.

Table 3.11 represents the financing amount granted to the entrepreneurs of

participating SMEs

55
Table 3.11 Financing amount granted to the entrepreneurs.

Financing amounts received in

US $ Frequency Percentage
Under 5 000
14 18.2
6 000 – 10 000
21 27.3
11 000 – 15 000
20 26.0
16 000 – 20 0000
9 11.7
21 0000 – 25 000
7 9.1
Above 26 000
6 7.8
Total 77 100.0

 Analysis of the results.

Overall, 21 (27.3%) participants indicated that they were granted a micro-loan of 6

000 to 10 000, 00 (US $), while 20 (26.0%) of respondents received the amount of
11 000, 00 to 15 000, 00 (US $). Only 14 (18.2%) respondents received less than 5
000, 00 (US $). In addition 9 (11.7%) respondents received between 16 000, 00 to
20 000, 00 (US$) and 7 (9.1%) received a micro-loan between 21 000, 00 to 25 000,
00 (US $). Lastly, 6 (7.8%) of respondents indicated they received a micro-loan of
more than 26 000, 00 (US $).

3.3.2.7 Interest rates charged.

 Purpose of the question.

The purpose of question 12, Section B of the questionnaire (refer to Appendix A)

was to determine the interest rates charged to the entrepreneurs for the micro-credit
contracted. Respondents indicated their interest rate by selecting one of the
appropriate choices for interest rates charged for the acquired micro-loans.

56
  Results obtained.

Table 3.12 below represents the Interest rate charged to the entrepreneurs of SMEs.

Table 3.12: Interest rates charged to the entrepreneurs

Interest rates charged Frequency Percentage

Under 10%
2 2.6
11-20%
24 31.2
21-30%
22 28.6
31-40%
9 11.7
41-50%
6 7.8
51% & above
14 18.2
Total 77 100.0

 Analysis of the results.

A majority of 24 (31.2%) participants indicated that interest rate charged for their
loan range between 11 to 20%, while 22 (28.6%) of respondents specified interest
rates ranging from 21 to 30%. Interest rates charged at 51% and above was
indicated by 14 (18.2) respondents. Furthermore, 9 (11.7%) respondents pointed
out that their interest rates were between 31 to 40% and 6 (7.8%) of respondents
were charged from 41 to 50%. Surprisingly, 2 (2.6%) of respondents indicated
interest rates below 10%.

3.3.2.8 Collateral required by the micro-finance institutions.

 Purpose of the question.

The purpose of question 13, Section B of the questionnaire (refer to Appendix A)

was to determine the collateral required to obtain micro-credit from micro-finance
57
institutions. The collateral required by the micro-finance institutions were natural
assets (land/minerals), physical asset (houses/cars) and financial assets (savings/life
policies). Respondents indicated their response by selecting the appropriate
collateral required to obtain the micro-loan.

 Results obtained.

Table 3.13 below represents the collateral required to obtain micro-credit from micro-
finance institutions.

Table 3.13: Collateral required obtaining micro-credit

Collateral required Frequency Percentage

Natural assets (land/minerals)
30 39.0
Physical assets (houses/cars)
43 55.8
Financial asset (savings/life policies)
2 2.6
Missing 2 2.6
Total 77 100.0

 Analysis of the results.

The largest number of participants; 43 (55.8%) indicated that they provided collateral
in the form of physical assets such as a car or a house, followed by 30 (39.0%)
respondents who indicated that their collateral provided were in form of natural
assets (land/minerals) and 2 (2.6%) entrepreneurs provided collateral in the form
financial assets such as savings and life policies. Two (2.6%) respondents did not
indicate their opinions for this question. Respondents answered questions 14 and 15
of section B according to the Likert scale of four points.

58
3.3.2.9 Constraints to obtaining micro-loans

 Purpose of the question.

The purpose of question 14, Section B of the questionnaire (refer to Appendix A)

was to determine the constraints faced by the entrepreneurs to obtain micro-loans.

 Results obtained.

Table 3.14 represents the mean and the standard deviation (variation around the
mean) of each of the 7 assertions representing constraining factors for acquiring
micro-loans.

Where four Likert scale type questions ( 1 = not all, 2 = to a small degree, 3 = to a
moderate degree and 4 = to a large degree) were asked, low numbers specified
agreement with the assertion to a lesser extent, while high numbers indicated that
respondents were in higher agreement with the declaration.

Table 3.14: Constraints faced by the entrepreneurs

Constraints N Mean Std. Deviation

High interest rates.
76 3.1184 .99287
Inadequate credit.
74 3.0000 .77636
Repayment schedule.
76 3.1184 .78260
Amount of loan obtained.
73 2.9452 .70495
Late approval.
74 3.0270 .79335
Collateral contribution
76 3.0526 .79824
Inaccessibility of banks in the area of location.
76 3.1974 .80033

 Analysis of the results.

The biggest constraint facing the respondents in acquiring micro-loans is

inaccessibility of banks in their area of location, because participants indicated a very
59
high mean of 3.1974 for this declaration. Other statements that also obtained high
levels of agreement were high interest rates (mean of 3.1184), repayment schedule
(mean of 3.1184) and collateral contribution (mean of 3.0526).

This indicated that respondents were in agreement with these declarations.

Statements that obtained a low mean were late approval (mean of 3.0270),
inadequate credit (mean of 3.0000) and the amount of loan obtained (mean of
2.9452). The low mean indicated that respondents were in lesser agreement with the
declarations.

3.3.2.10 Factors that influence the choice of MFIs

 Purpose of the question.

The purpose of question 15, Section B of the questionnaire (refer to Appendix A)

was to determine the factors that influenced the choice of micro-finance institutions
by the entrepreneurs.

 Results obtained.

Table 3.15 indicates the mean and the standard deviation (variation around the
mean) of each of the 5 assertions representing the extent to which these factors
influence the choice of micro-finance institution, for acquiring a micro-loan. Four
Likert scale type questions (not at all, to a small degree, to a moderate degree and to
a large degree) were asked low numbers specified lesser agreement with the
assertion, while high numbers indicated that respondents were in greater agreement
with the declaration.

60
Table 3.15: Factors that influence the choice of micro-finance institution
Std.
Factors influencing the choice of MFI. N Mean Deviation
Location of the MFIs.
76 2.8684 .77187
Influence of friends.
76 2.9737 .78271
Knowledge of the staff of MFIs.
74 2.7162 .81963
Availability of credit.
75 2.9733 .82156
Additional services provided by MFIs.
77 2.7273 .94083

 Analysis of the results.

Factors that influenced the choice of a micro-finance institution with the highest
mean were the influence of friends, because participants indicated the highest level
of agreement (mean of 2.9737) for this declaration. Other statements that also
obtained high levels of agreement were availability of credit (mean of 2.9733) and
the location of the micro-finance institutions (mean of 2.8684). This indicated that
respondents were in agreement with these declarations.

Statements that obtained a low mean were additional services provided by the
micro-finance institutions (mean of 2.7273) and knowledge of the staff of the micro-
finance institutions (mean of 2.7162). The low mean indicates that respondents were
in lesser agreement with the declarations.

3.3.3 The Performance of small and medium enterprises

Section C of the questionnaire required respondents to answer according to the

Likert scale of four points.

61
3.3.3.1 Effect on the performance of small and medium enterprises

 Purpose of the question.

The purpose of question 16, Section C of the questionnaire (refer to Appendix A)

was to determine the performance of small and medium enterprises after contracting
the micro-loan and other services.

 Results obtained.

Table 3.16 below represents the area of changes small and medium enterprises
experienced after contracting the micro-loans and other services.

Table 3.16: Performance of small and medium enterprises

Std.
Changes in Small and medium enterprises. N Mean Deviation
Increase in revenue.
77 2.5455 .89656
Increase in net profit.
76 2.6447 .87489
Increase in their customer base.
74 2.6892 .77505
Increase in the facility for operations.
75 2.7200 .86306
Increase in productivity.
76 2.7368 .88496
Increase in the labour force.
75 2.6000 .75337
Increase in market share.
74 2.6351 .86917
Increase in brand awareness.
75 2.8000 .82199

 Analysis of the results.

The highest change experienced by the respondents after acquiring a micro-loan

was an increase in brand awareness, because participants indicated a very high
mean of 2.8000 for this declaration. Other statements that also obtained high levels
of agreement were an increase in productivity (mean of 2.7368), an increase in the
facilities for operations (mean of 2.7200) and an increase in their customer base
62
(mean of 2.6892). This indicated that respondents were in agreement with these
declarations.

Statements that obtained a low mean were an increase in net profit (mean of
2.6447), an increase in market share (mean of 2.6351) and an increase in their
labour force (mean of 2.6000). The least prominent change experienced was an
increase in revenue (mean of 2.5455). The low mean indicated that respondents
were in lesser agreement with the declarations.

3.3.3.2 Changes experienced by individuals

 Purpose of the question

The purpose of question 17, Section C of the questionnaire (refer to Appendix A)

was to determine the area of changes individuals experienced after contracting the
micro-loans and other services.

 Results obtained.

Table 3.17 below represents the area of changes individuals experienced after
contracting the micro-loans and other services.

Table 3.17: Changes individuals experienced

Std.
Changes as an individual N Mean Deviation
Increased standard of living.
74 2.7027 .67701
Improved education for family members.
75 2.7333 .81096
Increased consumption levels.
72 2.5972 .83345
Increased personal income.
75 2.7467 .80695
Became a role model.
75 2.7733 .76359
Increased management skills
75 2.8400 1.00054

63
  Analysis of the results.

Increased management skills was rated as the highest change experienced on

individual level by the respondents after acquiring a micro-loan, with a high mean of
2.8000. Additional declarations that also obtained high levels of agreement were
became role model (mean of 2.7733) and increased personal income (mean of
2.7467). This indicated that respondents were in agreement with these declarations.

Statements that obtained a low mean were improved education for family members
(mean of 2.7333) and increased standard of living (mean of 2.7027). The least
prominent change experienced by individuals was an increase in consumption levels
(mean of 2.5972). The low mean indicated that respondents were in lesser
agreement with the declarations.

3.3.3.3 Factors that positively contributed to the performance of SMEs

 Purpose of the question.

The purpose of question 18, Section C of the questionnaire (refer to Appendix A)

was to determine the factors that positively contributed to the performance of the
businesses.

 Results obtained.

Table 3.18 represents the factors that positively contributed to the performance of
the businesses.

64
Table 3.18: Factors that positively contributed to the performance of businesses
Std.
Positive factors N Mean Deviation
Provision of a micro-loan by a MFI.
72 2.8056 .76248
Consulting services provided by MFIs.
73 2.4384 .79907
Government intervention.
71 2.1268 1.05464
General performance of the economy.
72 2.6806 .85294

 Analysis of the results.

Provision of a micro-loan by a MFI was rated as the highest factor that positively
contributed to the performance of the businesses by the respondents, with a high
mean of 2.8056. It was followed by the general performance of the economy (mean
of 2.6806). This indicated that respondents were in agreement with these two
declarations.

Statements that obtained low mean were consulting services provided by a MFI
(mean of 2.4384) and the lowest was Government intervention (mean of 2.1268).
The low mean indicated that respondents were in lesser agreement with the
declarations.

3.3.3.4 Factors that negatively contributed to the performance of the businesses

 Purpose of the question.

The purpose of question 19, Section C of the questionnaire (refer to Appendix A)

was to determine the factors that negatively contributed to the performance of the
businesses.

65
  Results obtained.

Table 3.19 below represents the factors that negatively contributed to the
performance of the businesses.

Table 3.19: Factors that negatively contributed to the performance of the businesses
Negative factors N Mean Std. Deviation
Repayment schedules.
71 2.8873 .76624
Taxes.
73 3.1370 .87106
General performance of the economy.
71 2.7606 .72634
Infrastructure of the Democratic Republic of Congo.
73 3.2329 .96495

 Analysis of the results.

Infrastructure of the DRC was rated as the highest factor that had a negative
influence on the performance of the businesses by the respondents, with a high
mean of 3.2329, this was followed by taxes (mean of 3.1370) and interest rates
(mean of 3.0685). This indicated that respondents were in agreement with these
three declarations.

Statements that obtained a low mean were repayment schedules (mean of 2.8873)
and the lowest was general performance of the economy (mean of 2.7606). The low
mean indicated that respondents were in lesser agreement with the declarations.

3.3.4 Reliability of the questionnaire measuring the constructs

The reliability of the internal consistencies of the questionnaire was calculated

through the establishment of the Cronbach Alpha‟s coefficients. The Cronbach
Alpha‟s coefficient was based on the mean correlation of variables within certain
tests and was about the composition of the questionnaire. The Cronbach Alpha‟s

66
coefficient that is greater than 0.7, is the more reliable scale of construct. The
questionnaire was considered as reliable and internally consistent.

Table 3.20 contains the reliability and internal consistency of the constructs
measured in the questionnaire.

Table 3.20: Reliability and internal consistency of the constructs

Cronbach
Construct Alpha’s
Constraints that affect the SMEs to obtain the micro-loans. .778

Factors influencing the choice of a MFI. .669

Changes SMEs experienced after contracting micro -loans and other services .823

 Analysis of the results.

The results indicate in table 3.20 that the measuring instrument used to measure the
constructs had acceptable reliability. Two factors had Cronbach Alpha‟s values
above the acceptable value of 0.70. One factor had a value of .669 which is still
acceptable. This proved the reliability of the internal consistencies of the
questionnaire.

3.3.5 Mean of score factor.

The mean of score factor was to group factors with similar inclinations within a
question and established the mean of the grouping thereafter. Table 3.21 provided
the mean score factor for question 14 to 19 of the questionnaire. Question 14 to 16
consisted of two factors, while question 17 to 19 comprised of one factor. The mean
specified the level of agreement of the assertions presented in the questionnaire.

67
Table 3.21: Mean of score factor
Factor Mean Std. Deviation
14 Constraint under the bank‟s control. 3.0379 .63903
14 Other constraints. 3.0974 .57249
15 General factors that influenced the choice of a MFI. 2.8896 .56267
15 Additional services that influenced choice of a MFI. 2.7273 .94083
16 Financial changes SMEs experienced. 2.6039 .80434
16 Operational changes SMEs experienced. 2.7076 .60264
17 Changes individuals experienced. 2.7351 .58324
18 Factors that positively contributed to the performance of SMEs. 2.5148 .60466
19 Factors that negatively contributed to the performance of
3.0275 .60171
SMEs.

 Analysis of the results.

The results of the mean score factor in table 3.21 indicated that on average
responses for question 14 to 19 were above 2.5 on the scale of 1= not at all, 2= to a
small degree, 3= to a moderate degree and 4= to a large degree. The mean score
above 2.5 was the indication that respondents agreed to large extend to these
questions.

3.1 CHAPTER SUMMARY

The chapter concentrated on research methodology with the focus on data

gathering, development, the construct of the questionnaire and data collection
through the use of the questionnaire. The questionnaire was completed by 77 small
and medium entrepreneurs during the small scale mining forum that took place in the
Oriental Province of the DRC.

The obtained information was captured and presented in frequency tables using the
Statistical Consultation Services of the North West University. Frequency tables
served as inputs to the analysis. The results were analysed in relationship to the

68
context of the research objectives and the problem statement. The collected data
comprised of statements in section A, B and C as referred to Appendix A.

The outcome of the analysis indicated that participants utilised services offered by
micro-finance institutions mainly in the area of training, saving accounts; money
transfers to a larger extent and to a lesser extent the insurance, pension and
technology services. To a higher extent, small and medium enterprises received
consulting services relating to leadership, finance, operations and marketing. To a
lesser extent they received consulting services offered in the area of administration.

Micro-finance institutions played the role of facilitator to small and medium enterprise
growth, as a tool for change, provider of banking services, tool for empowerment,
transferor of technology and to a lesser extent showed that micro-finance institutions
are destroyers of small and medium enterprises.

Furthermore, two sources of financing utilized most recently by small and medium
enterprises were micro-finance institutions and commercial banks. The borrowed
finance was used prominently to start a new business with, expand the business and
for working capital. The amount of the micro-loans borrowed was mainly from 6 000
to 10 000, 00 (US $), 11 000, 00 to 15 000, 00 (US $) and under 5 000, 00 (US $).
The interest rates paid were from 11 to 20%, 21 to 30% and 51% and above. The
collateral provided was in the form of physical assets such as a car or a house.

The results of the mean score factor indicated that on average responses for
questions 14 to 19 were above 2.5 on the scale of 1 to 4. The mean score above 2.5
was the indication that respondents agreed to large extend to these statements. This
leads to the conclusion that overall, the effect of micro-finance institutions on the
performance of small and medium enterprises in the DRC was positive as proved by
the mean score factor.

The next chapter, which is chapter four, will focus on the empirical study‟s conclusion
to steer the effects of micro-finance institutions' performance in the DRC.

69
 CHAPTER 4

CONCLUSION AND RECOMMENDATIONS

4.1 INTRODUCTION

This chapter concluded the empirical study, by enlisting the effects of micro-finance
institutions on small and medium enterprises in the DRC. The chapter further
suggests recommendations to advance micro-finance. Moreover, attainment of study
objectives as well as suggestions for additional research and a critical evaluation of
the study are discussed.

4.2 CONCLUSIONS OF THE EMPIRICAL STUDY

The following subsections show the typical effect of micro-finance institutions on

small and medium enterprises in the DRC as a conclusion of the empirical study
conducted.

4.2.1 Socio-demographic profile of the respondents

The majority of entrepreneurs who participated in this study were male, between the
ages of 30 to 50 years, married with a household size (number of people) of one to
five people. The entrepreneur had between 1 and 5 years‟ experience in business.

4.2.2 The functioning of micro-finance institutions

Although respondents utilized services such as saving accounts and training and
technology, money transfers was the most used service by small and medium
enterprises. The area of consulting that respondents received the most was finance.
Provision of banking services to the people was rated the higher among the roles

70
fulfilled by micro-finance institutions. Micro-finance institutions were selected as the
most recent source of micro-credit small and medium enterprises accessed to
acquire a micro-loan. The prominent reason for acquiring micro-credit was to start a
new business. The amounts of the micro-loans contracted ranged from 6 000, 00 to
10 000, 00 (US$) and interest rates paid by entrepreneurs ranged from 11% to 20%.
The collateral required for a micro-loan was a physical asset (house or car).

Respondents were in agreement that inaccessibility of banks in the area of location

was the main constraint to obtaining a micro-loan. Factors that influenced the choice
of a micro-finance institution were the influence of friends followed by the availability
of credit and the location of micro-finance institutions.

4.2.3 Performance of small and medium enterprises

Changes in the performance of small and medium enterprises experienced after

contracting micro-loans and other services were increased brand awareness as the
highest area of performance change, followed by an increase in productivity,
increased facilities for operations and an increased customer base.

Changes experienced by the entrepreneurs as individuals after contracting micro-

loans and other services was indicated as an increase in management skills,
followed by becoming a role model and an increase in personal income. The
provision of a micro-loan by micro-finance institutions was rated as the highest factor
that positively contributed to the performance of small and medium enterprises,
followed by the general performance of the economy and consulting services. The
infrastructure of the DRC was rated as the highest factor that negatively contributed
to the performance of the business, followed by taxes and interest rates.

71
4.3 RECOMMENDATIONS

Micro-finance has been identified as an important tool in the developing countries

where commercial banks are unable to provide for the financial quest of the poor,
small and medium enterprises. Micro-finance is also recognised as an instrument for
economic growth in these countries. Additionally, it has the potential to create jobs
and alleviate poverty. To stimulate greater performance of small and medium
enterprises in the DRC, recommendations include among many others:

 Capacity building within micro-finance institutions.

Micro-finance institutions have the potential to expand in the regions where banking
and financial services are not provided. Outreach in new areas enable the growth of
micro-finance institutions and accelerate the provision of micro-credit to the vast
need in the DRC. This outreach should include formal training, consulting services
with on-site support practices for the most suited needs of the particular local
conditions.

 Engagement of investors.

Micro-finance institutions should engage in both development and commercial banks

for the inclusion of potential investors to increase the flow of financial resources for
micro-finance institutions.

 Government interventions.

It is recommended that the Government provide an environment that is appropriate

for small and medium enterprises to flourish. Policies and regulations for small and
medium enterprises should be relaxed and provide incentives to those who operate
in the informal sector to enter the formal economy stream. Aspiring small and
medium entrepreneurs should find it appealing to do business the formal sector.
Eliminate red tape to register new businesses and layers of administrative
72
requirements. Institute one centre where small and medium entrepreneurs can be
assisted without delays.

The DRC‟s Government should address policies that limit the ability of micro-finance
institutions to raise resources either locally through member deposits or through
institutional borrowing, or from international investors in the form of equity, loans or
other financial instruments.

To accomplish these activities, a series of engagements, structured workshops,

seminars, dialogue and documentation are required, in order to promote an
understanding of the needs and abilities of micro-finance institutions to promote
economic growth.

4.4 THE CRITICAL EVALUATION OF THE STUDY

Section 1.3 of this research delineated the objectives of the study. The achievement
of the study is based upon the realisation of the primary and secondary objectives.

4.4.1 Primary objectives revisited

The general objective of this study is to investigate the effect of micro-finance

institutions on the performance of small and medium enterprises in the DRC. For this
reason, secondary objectives were formulated with the aim of implementing the
primary objective.

4.2.2 Secondary objectives revisited.

 Firstly, gain insight into the effect of micro-finance institutions on the

performance of small and medium enterprises.

73
  Secondly, establish the socio-demographic profile of small and medium
entrepreneurs who contracted micro-credit.

 Thirdly, assess the functioning of micro-finance institutions in the DRC.

 Fourthly assess the performance of small and medium enterprises.

The first secondary objective; to gain insight into the effect of micro-finance
institutions on small and medium enterprises by means of a literature study, was
realized in chapter two, the literature review. It provided insights that supplied a
structured understanding on the effect of micro-finance institutions on the
performance of small and medium enterprises.

The second secondary objective; to establish the socio-demographic profile of small

and medium entrepreneurs, who contracted micro-credit, was achieved in chapter
three, the empirical research and concluded in chapter four.

The third secondary objective; to assess the functioning of micro-finance institutions

in the Democratic Republic of Congo was attained in chapter two's literature review,
the comprehensive empirical research in chapter three and concluded in chapter
four.

The fourth secondary objective; to assess the performance of small and medium
enterprises was also reached in chapter two's literature review, comprehensive
empirical research in chapter three and concluded in chapter four.

Through the achievement of all these secondary objectives it can be established that
the primary objective which was to investigate the effect of micro-finance institutions
on the performance of small and medium enterprises in the Democratic Republic of
Congo was accomplished.

74
4.5 SUGGESTIONS FOR FUTURE RESEARCH

There was no empirical evidence found of prior research on the effect of micro-
finance institutions on the performance of small and medium enterprises in the DRC.
Consequently, further research in these areas is recommended to provide more
insights to the broader subject of micro-finance or development finance.

The following suggested topics provide basis for future research:

 A comparative study between beneficiaries of micro-credit and non-
beneficiaries in the DRC.
 An assessment of factors affecting the growth of micro-finance institutions in
the DRC.
 How government policies affect micro-finance institutions in the DRC.
 Strategies for growth of micro-finance institutions in the DRC.
 Effects of services offered by micro-finance institutions on the performance of
small and medium enterprises in DRC.

4.6 CHAPTER SUMMARY

This chapter consists of the conclusion of the empirical study, by providing a brief
conclusion on the socio-demographic profile of respondents, the functioning of
micro-finance institutions and the performance of small and medium enterprises.

Respondents indicated that increased brand awareness was a change that small
and medium enterprises experienced on business level after contracting micro-loans
and other services. On individual level an increase in management skills was
experienced after contracting a micro-loan and other services. Provision of micro-
loans by micro-finance institutions was rated as the factor that positively contributed
to the performance of small and medium enterprises while the infrastructure of the
DRC was rated as the factor that negatively contributed to the performance of the
businesses.

75
The empirical research resulted in the general conclusion that the effect of micro-
finance institutions on small and medium enterprises performance in the DRC was
above the mean core factor of 2.5. This means that the effect of micro-finance
institutions on small and medium enterprise performance in the DRC was positive as
indicated in the study. The mean of factor established that there was a correlation
between provision of finance and other services provided by micro-finance lenders
and small and medium enterprise performance in the DRC.

The empirical research resulted in the formulation of a few recommendations to

improve the performance of small and medium enterprises. The chapter includes
achievements of this study‟s objectives and suggestions for future studies.

76
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new paradigm. The Icfai Journal of Financial 90 Economics, 6 (1): 88-98.

Simeyo, O., Martin, L., Nyamao, N.R., Patrick, O. & Odondo, A.J. 2011. Effect of
provision of micro-finance on the performance of micro enterprises: A study of youth
micro enterprises under Kenya Rural Enterprise Program (K-REP), Kisi County,
Kenya. African Journal of Business Management, 5 (20): 8290-8300.

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the 15 September 2013).

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 APPENDIX A: EMPIRICAL STUDY QUESTIONNAIRE

SECTION A. SOCIO-DEMOGRAPHIC PROFILE OF THE RESPONDENT

Select only one appropriate answer by marking an X in the box for each statement

1 Gender 2 Marital 3 Age 4 Household

status size (people)
Male Single Under 1-5
30 yrs

Female Married 30-50 6-10

yrs

Divorced Above Above 10

50 yrs

5 1-5 6-10 Yrs 11-15 16- Above

Experience Yrs Yrs 20
in business Yrs 20 Yrs

SECTION B: THE FUNCTIONING OF MICROFINANCE INSTITUTION (MFI)

Select only one appropriate answer by marking an X in the box for each statement

6 Did your organisation utilised services below offered by MFI? Yes No

a Saving account

b Insurance

c Pension

d Money transfer

e Training

f Technology

7 Indicate the area of consulting your organisation received from Microfinance Yes No
institutions?

a Leadership

b Finance

83
c Operation

d Marketing

e Administration

8 Indicate the role that MFI played in your organisation? Yes No

a Facilitator of Small and medium enterprises growth

b Tool for social change

c Provider of banking services to the people

d Tool for empowerment

e Transferor of technology

f Destroyer of Small and medium enterprises

Select only one appropriate answer for each question below by marking and X in the box

9 What was the most recent source of microcredit your organisation utilised to acquire a microloan?

Friends or relatives 1

Microfinance Institutions 2

Commercial banks 3

Credit cooperative society 4

Select only one appropriate answer for each question below by marking and X in the box

10 What was the reason for your organisation to acquire a microloan?

Start the new business 1

Expand existing business 2

Acquire new equipment 3

Use as working capital 4

Building project 5

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Select only one appropriate answer for each question below by marking and X in the box

11 Indicate the amount of financing in USA dollar (in US $) your organisation received?

Under 5 000 1

6 000 – 10 000 2

11 000 – 15 000 3

16 000 – 20 0000 4

21 0000 – 25 000 5

Above 26 000 6

Select only one appropriate answer for each question below by marking and X in the box

12 What was the interest rate charged?

Under 10% 1

11-20% 2

21-30% 3

31-40% 4

41-50% 5

51% & above 6

Select only one appropriate answer for each question below by marking and X in the box

13 What was the collateral required for a microloan?

Natural asset (land, mineral) 1

Physical asset (house, car) 2

Financial asset (saving, life policy) 3

85
 Mark each assertion with one appropriate answer with an X in the

To a small

To a large
moderate
Not at all
corresponding box

degree

degree

degree
To a
14 To what degree does each of the following constraints affect your
organisation to obtain the microloan?

a High interest rate

b Inadequate credit

c Repayment time

d Amount of loan obtained

e Late approval

f Collateral contribution

g Inaccessibility of banks in area of location

Mark each assertion with one appropriate answer with an X in the

To a small

To a large
moderate
Not at all
corresponding box

degree

degree

degree
To a
15 To what extend did these factors influence the choice of a MFI?

a Location of the MFI

b Influence of friends

c Knowledge of the staff of MFI

d Availability of credit

e Additional services provided by MFI

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SECTION C: PERFORMANCE OF SMALL AND MEDIUM ENTREPRISE (SME)

Mark each assertion with one appropriate answer with an X in the

To a small

To a large
moderate
Not at all
corresponding box

degree

degree

degree
To a
16 To what degree does your organisation experienced changes after
contracting the microloan and other services?

a Increase revenue

b Increase net profit

c Increase customer base

d Increase facility for operation

e Increase productivity

f Increase labor force

g Increase market share

h Increase brand awareness

Mark each assertion with one appropriate answer with an X in the

To a small

To a large
moderate
Not at all
corresponding box

degree

degree

degree
To a
17 To what degree has your life change as an individual after obtaining
the microloan or other services?

a Increase standard of life

b Improve education of family members

c Increase consumption level

d Increase personal income

e Become role model

f Increase management skills

87
 Mark each assertion with one appropriate answer with an X in the

To a large
moderate
Not at all
corresponding box

degree

degree

degree
small
To a

To a
18 To what degree did each of the following factors positively
contributed to the performance of the business?

a Provision of microloan by MFI

b Consulting services by MFI

c Government intervention

d General performance of the economy

Mark each assertion with one appropriate answer with an X in the

To a small

To a large
moderate
Not at all
corresponding box

degree

degree

degree
To a
19 To what degree did each of the following factors contributed to the
decline of the performance of the business?

a Interest rate

b Payment period

c Taxes

d General performance of the economy

e Infrastructure of the Democratic Republic of Congo

Thank you for completing the questionnaire

88