EFFECTS OF MICROFINANCE SERVICES ON THE FINANCIAL PERFORMANCE OF SMALL AND MEDIUM ENTERPRISES IN MOGADISHU, SOMALIA

Abstract

In this study titled the effect of microfinance services on the financial
performance of small and medium enterprises, a case study of microfinance
institutions in Mogadishu, Somalia. Most of the small and medium enterprises in
Somalia fail in their premature state, because of lack of insufficient capital, lack of
risk awareness and the absence of financial literacy. The major objective of this study
was to measure the relationship between these above variables, the independent and
dependent respectively. The specific objectives for this study include ascertaining
how financial sustainability affects financial performance in small and medium
enterprises in Mogadishu. The findings about this study stated that financial
sustainability, financial literacy and risk diversification have moderate positive
relationship with financial performance of microfinance institutions in Mogadishu.
The target population for this study consisted of four microfinance institutions Salam
Somali Bank, Dahabshiil, Trust African bank and Kaah microfinance enterprise.
Sample of 82 respondents was taken. The sample was chosen by using Slovene’s
formula. Sampling technique for this study was non-random sampling particularly
purposive sampling. Descriptive research design was employed. Structured
questionnaire have been designed to facilitate the acquisition of relevant data which
was used for analysis. Descriptive statistics which involves simple tables and
illustrations was tactically applied in data presentations and analysis. Regression
model was used to measure the kind of relationship that exists between the
independent and the dependent variable. The results of the study showed that
moderate positive relationship exists between financial sustainability, financial
literacy, risk diversification and financial performance of microfinance institutions in
Mogadishu, Somalia. The researcher would like to recommend for the microfinance
institutions to expand their services to other parts of the country to distribute the
opportunities that can be benefited by the poor citizens in entire the country