Challenges faced by Informal business Sector in accessing credits from Microfinance Institutions

Abstract

he study focused on assessing challenges facing the Informal businesses in accessing credits from MFIs Using Food and Fruit vendors at MoCU as the case study. The selected area was Moshi Cooperative University (MoCU) at Moshi Municipality in Kilimanjaro region. The research specific objectives were to examine criteria of Microfinance Institutions to issue loans to the Informal business sector, to find out why most of Informal Business sector fail to prepare good Business Plan, to determine factors affecting informal business sector in preparing proper accounting records, to understand the reasons as to why MFIs cannot reach the Informal business sectors while most of them they are in group of low-income people. The study used data collection methods such as Questionnaires and Focus group discussion, snowball sampling was used to determine the sample size, where by 50 respondents were involved in the study, both primary and secondary data were used in this study, data were analyzed by the use of statistical package for social science (SPSS) and excel, and were presented through figures and tables. The study findings reveal several challenges faced by Informal businesses on accessing credits from MFIs, lack of collateral, lack of savings, lack of entrepreneurship education, lack of physical address, lack of trustiness. The study recommended the Microfinance Institutions should provide training and education about entrepreneurship to their clients, reduce the terms and conditions, and find other alternatives of lending money to entrepreneurs than depend much on collateral. It also recommended Government should provide conducive environment to Small and Medium Enterprises operating informally on accessing a loan from Microfinance Institutions by advising MFIs to reduce restrictions on accessing loan to entrepreneurs, and entrepreneurs should make sure that they have permanent business address for easier access a loan and monitored.