THE ROLE OF FINANCIAL INSTITUTIONS TO THE GROWTH OF SMALL AND MEDIUM ENTERPRISERS IN TANZANIA:

Abstract

Small and Medium Enterprisers The aim of this study was to examine the role of financial institutions to the growth of Small (SMEs.) in Tanzania using Njombe Town marketing area as case study. More specifically, this study examined' what growth of SMEs, determined how sales growth is affected in Njombe Town Market area and determined if there is a relations' between financial institutions and growth of SME, the study was conducted at Njombe Town market area. A quantitative and case study research design was used in this study. The study population included SMEs owners in Njombe Town market area. The sample size was 98 from the total population of 130 who were selected using a purposive sampling technique. The questionnaire, interview and documentary review were used to collect data. Descript statistics and regression analysis were used to analyze quantitative data collected from participants in order to decode their meaning. In this study, it was established that, size of loans, borrowing costs, credit accessibility and follow-up and supervision are financial institution services that affect the growth of SMEs in Njombe Town Market Area. Furthermore, the, findings from this study shows that, the growth of SMEs in Njombe Town Market Area is improving. Lastly, findings show that, the independent variables are explaining 34.1% of variance in dependent variable (SMEs growth). The best predictor of dependent variable is credit accessibility which is having regression coefficient of r = 0.329; p = 0.005, and borrowing cost with regression coefficient of r = 0.289; p = 0.008. Other variables such as loans and follow-up were not statistically significant, as they do not have significant contribution in explaining the dependent variable (p >0.05). This implies that, the growth of SMEs depends on the extent to which these services are offered effectively to the SME owners. Henceforth, we recommend the financial institutions to increase the size of loans, reduce borrowing costs, ensure credit accessibility and continuous follow-up and supervision for SMEs, so as to improve the SMEs growth. Moreover, we recommend a mixed survey research to be done employing larger sample size so as to cover the complex and multifaceted relationships existing between financial institutions and growth of SMEs in Tanzania, so as to increase generalization capacity of the study. Key words: financial institutions, SMEs, SMEs growth, Credit, Loans, Inventory