BINDURA UNIVERSITY OF SCIENCE

EDUCATION

FACULTY OF COMMERCE

DEPARTMENT OF BANKING AND FINANCE

DISSERTATION RESEARCH TOPIC

THE IMPACT OF LOANS FROM MICROFINANCE INSTITUITIONS ON THE

GROWTH OF SMALL AND MEDIUM ENTERPRISES: A CASE STUDY OF
REDSPHERE FINANCE MICROFINANCE

BY

TINASHE SAUNGWEME E

A DISSERTATION SUBMITTED IN PARTIAL FULFILLMENT OF THE

REQUIREMENTS FOR THE BACHELOR OF BUSINESS STUDIES HONOURS
DEGREE IN BANKING AND FINANCE OF BINDURA UNIVERSITY OF SCIENCE
EDUCATION.
RELEASE FORM

Name of Author: TINASHE SAUNGWEME

Title of Project: THE IMPACT OF LOANS FROM MICROFINANCE INSTITUITIONS

ON THE GROWTH OF SMALL AND MEDIUM ENTERPRISES: A CASE STUDY OF
REDSPHERE FINANCE MICROFINANCE

Program: BACHELOR OF COMMERCE HONOURS DEGREE IN BANKING AND

FINANCE

Year Granted 2024

Permission is hereby granted to Bindura University of Science Education Library and the
department of Banking and Finance to produce copies for scholarly and scientific research only.
The author reserves to other publication right and the dissertation extensive extracts thereof may
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The undersigned certify that she has supervised the student B200596B a dissertation entitled the
impact of loans from microfinance institutions on the growth of small and medium enterprises: a
case study of Redsphere finance microfinance submitted in Partial fulfilment of the requirements
of the Bachelor of Business Studies Honours Degree in Banking and Finance at Bindura
University of Science

Education.
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I affirm that this research venture here is my innovative work and has not been imitated or
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Name of Student Signature Date Tinashe Saungweme E

DEDICATION
This research is dedicated to the Saungweme family my school institution as well as my
colleagues. They have been very handy a great inspiration in my life and I will always cherish
the knowledge, assistance and support I got from them.

ACKNOWLEDGEMENT

To begin with, I would like to give thanks to the Saungweme family for all the support love and
provision of the best education I have been able to attain in all these years and everyone who
helped to make the accomplishment of this research possible.

Secondly, my appreciation goes to Mr Njanike who was my supervisor providing me practical

ideas and guidance throughout the whole project.

Last but not least, I would like to thank the Lord Almighty for making all this a success through
granting me with his wisdom and liberal provisions I received in all my going in and out.

ABSTRACT

This study investigates the impact of microloans provided by Redsphere Finance on the growth
of small and medium-sized enterprises (SMEs) in Zimbabwe. Given the increasing reliance of
SMEs on microfinance institutions for financial support, the research examines how Redsphere
Finance microloans influence various aspects of SME performance, including sales growth, asset
value, and annual profit. The study employed an explanatory research design and collected data
through questionnaires administered to a sample of 20 SMEs chosen through a stratified and
simple random sampling method. Data analysis using SPSS (version 21.0) with inferential
statistics revealed a statistically significant positive relationship (p<0.05) between microloans
from Redsphere Finance and all three growth indicators. This suggests that access to microloans
from Redsphere Finance plays a significant role in boosting sales, increasing asset value, and
driving higher annual profits for SMEs in Zimbabwe. The study concludes with
recommendations for microfinance institutions like Redsphere Finance, suggesting they can
further empower SMEs by increasing the maximum loan size, providing financial advisory
services alongside loans, and reducing lending rates while improving overall customer service.
By implementing these recommendations, microfinance institutions can become even more
instrumental in fostering the sustainable growth of SMEs in the country

TABLE OF CONTENTS
Abbreviations

SME

MFI

Definition of terms

Small and medium enterprise - According to the Harvard Business Review, an SME, or Small
and Medium Enterprise, is defined as "a business that maintains revenues, assets, or a number of
employees below a certain threshold."

Microfinance - is a type of banking service provided to low-income individuals or groups who

otherwise wouldn't have access to financial services (Julian Kagan, 2024).

Interest rate - The interest rate is the amount a lender charges a borrower and is a percentage of
the principal that is the amount loaned (Caroline Bantom, 2023)
 CHAPTER I
INTRODUCTION

1. Introduction

This chapter is going to be examining the influence that microfinance loans have on the growth
of the Small and medium enterprises in Zimbabwe. The Chapter also covers the study's
background, research problem, research objectives, research questions, as well as the study's
significance, limits, delimitation, definition of important words, and chapter summary.

1.1 Background to the Research Problem

SMEs have a crucial role in stimulating economic growth, encouraging entrepreneurship, and
generating job opportunities in both advanced and emerging economies. Nonetheless, these
businesses frequently encounter obstacles when trying to obtain financial services from
conventional banks. That's where microfinance institutions (MFIs) come in, providing
customized financial solutions to empower and assist SMEs.

Dr. Mohammed Yunus established the first microfinance program in Bangladesh in 1976 as a
part of an experiment in the rural areas. Subsequently, the plan evolved into the Grameen bank,
paving the way for several microfinance institutions and banks across the globe. In recognition
of his efforts to use microfinance to end poverty, Dr. Mohammed Yunus received the Nobel
Peace Prize (Bateman, 2014). The nature of microfinance has evolved throughout time, and
depending on the nation, some participants' objectives are now profit-driven rather than only
promoting social and economic development. Their status has changed from "non-profit"
organizations to corporations with the goal of turning a profit at the cost of their members. There
are many participants in the microfinance sector, and regulations and laws are constantly
changing (Robinson, 2001).

The industry has evolved in the modern era to become both more congested and sophisticated.
The definition of microfinance has evolved to include topics like money transfers, insurance, and
saving. After being the main business for decades, microcredit is no longer the focus; this is
because microfinance is searching for new ways to generate income. Although MFIs are
primarily classified as financial services, there are differences in their legal structures, business
strategies, sources of capital, and levels of sustainability (Robinson, 2001).

The first microfinance organization in the world, Grameen Bank, was born out of Dr. Yunus's
experiment. Through their operations, a system of group lending became widespread, in which
members of homogeneous groups would guarantee one another's loans. If any member missed a
payment, the other members would not be credited further. Thus, there was an incentive to repay
the loans that were taken out. Due to the lack of collateral, the loans gained a lot of popularity
among those who had nothing to use as security. Global adoption of this microfinance concept
started, with developing nations leading the way (Roy, 2009).

In their respective research, Habibu (2010) and John (2011) observed that MFI loans had raised
the income of the majority of owners and low-income people in Zimbabwe and Bangladesh,
respectively. Both studies examined how well businesses performed in relation to things like
asset acquisition and sales growth.

Because of the stringent threshold criteria imposed by the Microfinance Act [Chapter 24.29],
MFIs that converted have witnessed a significant decline in earnings, which has deterred other
competitors. MFIs are able to lend to the general population at far cheaper rates than other
financial institutions, which are more costly and therefore charge their clients hefty interest rates.

The main objective of microfinance institutions is to provide low-income individuals with the
means to become self-sufficient by giving them access to insurance, loans, and savings accounts.
The majority of microfinance institutions' clientele are low-income individuals with restricted
access to major financial services. The products offered by MFIs give these individuals credit
and banking services that they would not otherwise be able to obtain through traditional banking.
These services include remittances, insurance, savings accounts, and loans (IMF, 2011).

According to Gafri (2006), microfinance loans facilitate enterprise development for borrowers.
Because the MFIs focus on the disadvantaged industry, they provide a range of products. MFIs
employ a few unconventional techniques that are not employed by typical banks, such as group
lending and group liability as well as savings requirements prior to loan approval. A guarantee
system and a progressive increase in loan amounts are used to entice borrowers to apply for some
future loans provided that the current loans are repaid in whole and on time. By taking these
steps, MFIs can lower the risk of loan default and guarantee that members will still be able to use
these services after they have paid off all of their outstanding loans.

A sizable segment of Zimbabwe's working population is employed by SME businesses. 2, 8

million entrepreneurs of all sizes and 2, 9 million workers are employed in the SME sector,
according to the 2012 results of the FinScope SME Survey (Reserve Bank of Zimbabwe, 2014).
60% of the GDP is also contributed by this industry. A 2012 survey by FinScope indicated that
small and medium-sized businesses (SMEs) are a major force in Zimbabwe's economy,
contributing a significant 60% to the GDP [1]. However, despite this reported economic growth,
the shift away from the Zimbabwean dollar has had unexpected consequences. Limited access to
financing remains a key obstacle, hindering the anticipated expansion of the SME sector
(Mugure 2011).

The switch to a system with multiple currencies increased demand for capital for SMEs, while
also reducing available cash. This according to Azende (2012), has led many SMEs to rely on
microfinance loans to fund their businesses. To address this, the Reserve Bank of Zimbabwe
reported that by May 2014, a total of $164.4 million in loans had been provided to SMEs by
various institutions. They also planned to significantly increase this credit facility to $2.8 billion.

Microfinance institutions have a significant impact on SMEs by improving access to capital,

fostering entrepreneurship, promoting financial inclusion, providing capacity-building support,
and driving positive social change. Despite challenges, the ongoing development and refinement
of microfinance models hold great potential for unlocking the growth of SMEs and promoting
inclusive economic development.

1.2 Research Problem

The influence of microfinance institutions (MFIs) on small and medium enterprises (SMEs) has
been widely recognized, but there are still gaps in our understanding of the specific mechanisms
by which MFIs affect the growth and development of SMEs. Additionally, it is important to
investigate the contextual factors that determine the effectiveness of MFIs in different regions
and sectors.

However, SMEs usually face the challenge of lack of access to credit facility particularly from
MFIs regardless of their contribution to the economy. Therefore SMEs growth remains a
challenge even though they get assistance from the Government through new policies being put
in place to support their growth. This research problem seeks to explore the relationship between
MFIs and SMEs in greater detail, examining the various ways in which MFIs affect the growth
and financial performance of SMEs. This research particularly seeks into looking at SMEs that
receive loans from Redsphere Finance Microfinance.

1.3 Aim of the study

The purpose of the study is to evaluate the impact of Redsphere Finance Microfinance loans on
small and medium business enterprises in Zimbabwe.

1.4 Research objectives

1. To assess the effect of Redsphere Finance Microfinance loans on the level of SMEs sales in
Zimbabwe.
2. To ascertain the impact of Redsphere Finance Microfinance loans on Zimbabwean SMEs asset
value.
3. To Carry out the determination of the connection amid Zimbabwean SMEs yearly profit and
Redsphere Finance Microfinance loans.

1.5 Research Questions

The research questions are as follows:
1. What is the effect of Redsphere Finance Microfinance loans on the level of SMEs sales in
Zimbabwe?
2. What is the impact of Redsphere Finance Microfinance loans on the asset value of SMEs in
Zimbabwe?
3. What is the connection between SMEs yearly profit and Redsphere Finance Microfinance
loans in Zimbabwe?

1.6 Assumptions
 That the chosen sample will accurately reflect the population being studied
 A high response rate to the questionnaire is anticipated. This will allow the researcher to
collect extensive, accurate, and relevant data, leading to well-supported and insightful
conclusions.
 The chosen participants will react in a reasonable amount of time, allowing the researcher
to finish the study on schedule.

1.7 Significance of the research

To:

Researcher
Knowledge and Skill Development, Engaging in this research helps the researcher deepen in the
knowledge and understanding of microfinance, SME growth, and the interplay between financial
services and entrepreneurship. The researcher will gain expertise in conducting empirical research,
data collection, analysis, and interpretation, which are valuable skills for future academic pursuits or
professional endeavours.

Policy makers

This research can provide valuable insights for policymakers, regulatory bodies, and practitioners in
designing and implementing effective policies and interventions to support SMEs. It can influence
the development of microfinance regulations, improve the delivery of financial services, and enhance
the overall ecosystem for SMEs.

Other Researchers

The study will benefit other academicians who are studying the same topic and serve as a source
of reference information for future scholars on similar themes.

SMEs and other Stakeholders

.

Studying the impact of microfinance institutions (MFIs) loans on small and medium enterprises
(SMEs) holds great significance due to its potential contribution to economic development,
poverty alleviation, and inclusive growth.

1.8 Delimitations
This study examines the impact of microloans provided by Redsphere Finance on the growth of
Zimbabwean SMEs. The data collection period is limited to the years 2023 and 2024.
1.9 Limitations
Limited time for conducting the study and collecting data may affect the comprehensiveness of
the findings. This investigation combined primary and secondary data to overcome the
constraint. Additionally, because the information was confidential, respondents refused to
provide it to the researcher when asked. In order to solve this issue, the researcher promised that
their data will be kept private and used just for scholarly research.

1.10 Chapter summary

This chapter has laid the groundwork for our investigation into how Redsphere Finance
Microfinance loans influence the growth of Zimbabwean SMEs. We've explored the context of
the study, the specific issue we're addressing, the overall goal, key objectives, and the research
questions that will guide our Research. Additionally, we've acknowledged the boundaries and
limitations of this research, along with any underlying assumptions made.

CHAPTER II
LITERATURE REVIEW

2.0 Introduction
The chapter examines a number of theoretical as well as the empirical theories regarding how
microloans from microfinance institutions affect the expansion of small and medium-sized
enterprises. It provides comprehensive overviews of the topics that have been researched by
other scholars. The chapter therefore discusses the theoretical and conceptual frameworks as well
as the results of earlier research.

2.1 Conceptual framework

This study employed a conceptual framework to illustrate the influence of microloans offered by
microfinance institutions (MFIs) on the growth of SMEs. The framework highlighted the
hypothesized relationship between microloans and SME expansion. It positioned microfinance
loans as the independent variable, and SME growth – measured by sales levels, asset values, and
annual profits – as the dependent variable

Figure 1
 SMALL AND
MEDIUM
MICFOFINANCE
ENTERPRISES

DEPENDENT
INDEPENDENT
VARIABLES
VARIABLES
SME LOANS
MICROFINANCE LOANS SME ASSET VALUE
SME PROFITABILITY

Theoretical links between Microfinance and SME Development

According to Diagne and Zeller (2001), SMEs and general welfare may suffer if those who are
impoverished but not quite above the poverty line do not have enough access to finance. Credit
availability strengthens SMEs' capacity to take on risk, enhances their risk-copying tactics, and
permits gradual consumption smoothing. These reasons presuppose that microfinance enhances
the wellbeing of the underprivileged. In their 1992 study, Rhyme and Otero contended that MFIs
with a large outreach and a stable financial standing provide a better living for their members and
foster the growth of SMEs by ensuring that the impoverished have long-term access to credit.
After doing studies in Kenya, Malawi, and Ghana, Buckley (1997) concluded that there was little
evidence to support the idea that microfinance services had a meaningful and long-lasting effect
on clients' levels of employment, SME development, or enhanced income flows. The article
focused on the idea that improving the poor people's access to microfinance and the market alone
was insufficient unless it was complemented with advancements in technology and/or
techniques. There are also intriguing results from research studies conducted by Zeller and
Sharma (1998), who contend that microfinance can help start or enhance family businesses,
potentially making the difference between a life of economic security and poverty alleviation.

Access to Capital and Financial Performance

Numerous studies have highlighted the positive impact of MFIs on SMEs' access to capital and
their subsequent fina2ncial performance. For example, Khandker et al. (2010) found that access
to microcredit significantly increased the likelihood of SME survival and profitability in
Bangladesh. Similarly, Armendariz and Morduch (2010) demonstrated that microfinance
improved SMEs' ability to invest in productive assets and generate higher revenues in several
countries.

Growth and Expansion:

The literature emphasizes the role of MFIs in facilitating SME growth and expansion. A study by
Mersland and Strom (2009) indicated that access to microfinance positively influenced SME
growth rates in Nicaragua. Furthermore, Beck et al. (2007) found that MFIs positively affected
SME growth, particularly in countries with weaker financial systems.

Non-Financial Benefits and Capacity Building:

In addition to financial services, MFIs often provide non-financial support, including business
training, mentoring, and networking opportunities. Such capacity-building initiatives have been
shown to enhance SMEs' management skills, entrepreneurial capabilities, and overall
performance (Augsburg et al., 2015; Cull et al., 2015). By equipping SME owners with
knowledge and skills, MFIs contribute to long-term sustainability and success.

Impact on Job Creation and Employment:

Microfinance can have a significant impact on job creation and employment generation within
SMEs. Access to microfinance allows SMEs to expand their operations, invest in new projects,
and hire additional employees. Research by Khandker and Khalily (2009) found that microcredit
significantly increased employment in Bangladesh, particularly for women-owned enterprises.
Similarly, studies in other countries have shown that MFIs contribute to job creation and poverty
reduction (Christen et al., 2004; Kabeer and Mahmud, 2004).

2.2 Theoretical framework

2.2.1 Trade-off Model

There are several theories that explain how businesses choose funding sources and the ideal mix
(Holmes & Kent, 1991). One theory, the trade-off model, suggests companies aim for an optimal
debt level that balances the tax benefits of debt with the risks of financial distress (Brierley,
2001; Bunn, Cunningham, & Drehmann, 2005). Managers might only issue additional stock if
they believe their shares are overvalued. This model also considers the potential benefits of debt
beyond taxes, such as reducing information asymmetry between lenders and borrowers As a
result, whenever a new stock issue is announced, investors will discount both existing and new
shares (Shreiner, 2001).

Cassar and Holmes (2001) discovered that businesses compromise on a number of issues, such
as agency fees and bankruptcy risk versus the tax advantages of taking on debt. While debt can
be risky, leading to higher capital costs due to potential insolvency (Babagana, 2010), businesses
also leverage debt to gain tax advantages, even though it comes with agency costs (conflicts
between managers and shareholders) and potential bankruptcy expenses. This suggests an
optimal debt-to-equity ratio that's unique to each company and fluctuates over time as the
balance between costs and benefits shifts (Modigliani & Miller, 1963). The aims are explained in
detail by this model. It is obvious that managers will choose a combination of sources to
minimize capital costs while protecting the entity from elements that could negatively impact the
firm's ability to continue operating, which is why this theory's applicability to the research is
pertinent

2.2.2 Pecking Order Theory

Pecking Order Theory says that a company's desire to finance new investments—first internally,
then with low-risk debt, and finally with equity if all else fails—drives its capital structure. As a
result, the companies favor internal funding over external funding (Myers and Majluf, 1984).
Both small and large businesses can benefit from this notion. Due to their opaque nature and
significant adverse selection issues, which can be attributed to credit rationing, small businesses
incur significant information costs (Psillaki, 1995). Small businesses sometimes have greater
degrees of asymmetric information since their financial statements range in quality. Small
businesses may wish to minimize these expenses even though investors might prefer audited
financial statements (Pettit and Singer, 1985). As a result, costs are relatively high when
releasing new capital, but they are negligible when using internal money. The costs associated
with debt fall somewhere between those of internal funds and equity. Because of this, businesses
favor internal financing (retained earnings) above debt, with equity being their final choice
(Pettit and Singer, 1985).

2.3 The effect of microloans on the level of SMEs sales

According to one theory (Field, Pande, Papp, & Rigol, 2013), microfinance loans can
significantly affect SMEs' sales by giving them the money they need to spend in marketing,
production capacity, inventory, and other areas. When SMEs broaden their product offerings,
penetrate new markets, and enhance their general company operations, having access to
microfinance can result in higher sales for them. This argument is supported by a study
conducted in 2015 by Banerjee, Duflo, Glennerster, and Kinnan, which demonstrates that SMEs
that obtain microfinance loans see an increase in sales as a result of their capacity to meet
customer demand, improve the quality of their products, and innovate in response to market
opportunities. This hypothesis emphasizes how vital microfinance is to the expansion of SMEs'
sales and their ability to compete in the market.

Another idea contends that by encouraging financial responsibility and discipline among
business owners, microloans can also have an effect on the sales of SMEs (Karlan & Valdivia,
2011). Microfinance institutions assist SMEs to adopt sound financial practices that can improve
their sales performance by requiring loans to be repaid on time and fostering financial literacy.
According to research by Attanasio, Augsburg, de Haas, Fitzsimons, and Harmgart (2015),
SMEs that take part in microfinance programs are more likely to handle their money wisely,
make strategic investments in their companies, and eventually increase sales revenues. This idea
emphasizes how improved financial management and decision-making procedures play a crucial,
albeit indirect, role in enhancing the sales outcomes for SMEs through microfinance.

2.4 The impact of microloans on SME asset value

Microfinance importance in terms of promoting economic growth, especially for Small and
Medium-Sized Businesses (SMEs), has come to light. The Financial Constraint Theory and the
Resource-Based View Theory are two key theories that help explain how microloans from
microfinance companies affect small and medium-sized enterprises.

According to the Financial Constraint Theory, microloans are essential in helping SMEs
overcome their financial limitations. These loans give SMEs access to cash, enabling them to
grow their operations, make investments in their companies, and generate job opportunities—all
of which boost SMEs' competitiveness and productivity (Smith et al., 2018). Furthermore, since
microfinance organizations frequently grant loans without requiring collateral, business owners
who might find it difficult to obtain regular bank financing can take advantage of them.
Microfinance provides SMEs with the financial means to invest in building core competencies,
developing innovative products or services, or expanding market presence. By leveraging these
resources effectively, SMEs can enhance their competitive advantage, differentiate theSMElves
in the market, and increase asset value over time.

On the other hand, the Resource-Based View Theory contends that microloans offer beneficial
non-financial resources like networking opportunities, technical support, training, and
mentorship in addition to money resources. These tools are crucial for improving SME owners'
capacities, expertise, and knowledge so they can embrace best practices, make wise judgments,
and successfully handle obstacles (Jones, 2020). SMEs can increase operational effectiveness,
produce novel goods and services, and create long-lasting competitive advantages in their
markets by utilizing these non-financial resources. In the end, microfinance institutions'
combination of non-financial and financial support enables SMEs to prosper, boost regional
economic growth, and have a good social influence on their communities. With access to
microfinance, SMEs can acquire machinery, equipment, technology, or human capital, thereby
enhancing their operational efficiency, productivity, and competitiveness. By strategically
deploying borrowed funds to build and upgrade assets, SMEs can increase their overall asset
value.

2.5 The impact of microloans on SMEs yearly profit

Two prominent theories that offer insights into the impact of microfinance loans on SME
profitability are the Financial Sustainability Theory and the Credit Rationing Theory.

According to the Financial Sustainability Theory, by offering microloans to support financial

sustainability, microfinance institutions (MFIs) can increase the profitability of small and
medium-sized enterprises (SMEs). With the help of these loans, SMEs can make investments in
their companies, grow their operations, buy essential equipment, or create new goods and
services. SMEs can raise revenue, enhance profitability, and improve production by gaining
access to these funds. This idea places a strong emphasis on how sustainable financial practices
support the expansion and prosperity of SMEs (Ozili, P. K. 2021).

However, the Credit Rationing Theory contends that SMEs' access to microloans might lessen
the credit constraints they experience, increasing their profitability. Because they lack collateral
or credit history, SMEs frequently have difficulty obtaining typical bank loans. This gap may be
filled and SMEs can receive the capital they need to invest in their operations thanks to
microfinance loans, which are distinguished by more accommodating lending standards and
reduced processing costs. SMEs can take advantage of development prospects, improve their
competitiveness, and reach greater levels of profitability by overcoming credit restriction
(Pawani Malhotra, 2015).

Both the Financial Sustainability Theory and the Credit Rationing Theory highlight the positive
impact of microfinance loans on SME profitability. Microfinance institutions (MFIs) are key
players in economic development and poverty reduction. They achieve this by providing
essential financial resources to SMEs, which in turn fuels their growth and sustainability
(Research Gate, 2024).

It is thought that one of the key elements in raising SMEs' profitability is their capacity to obtain
low rate loans (Murray, 2011). It is believed that small and medium-sized businesses can
improve their financial performance by having access to loans (Heidhues, 2005). Microcredit's
primary goal is to help SMEs perform better by giving them easier access to modest loans that
traditional financial institutions do not give (Navajas, 2000). Insufficient loan availability by
those living just below or above the poverty line, according to Warue (2012), may have a
detrimental effect on SMEs and the general profitability of small businesses. According to Sheila
(2011), SMEs' capacity to absorb risk is further enhanced by having access to low-interest
finance, which also helps them develop better risk-coping mechanisms and permits gradual
smoothing of consumption. According to these justifications, micro lending is supposed to
increase SMEs' profitability (Robinson, 2013).

There is a claim that MFIs with high outreach and financial sustainability lead to better
livelihoods for SMEs and improve their performance as they ensure SMEs will always have
access to finance (Nwanyawu, 2011).According to Madugu and Bzugu (2012), having access to
sufficient credit is thought to be a key component in SMEs' development and expansion when
evaluated focusing on profitability (Okwoli and Abubakar, 2013). It has a reputation for raising
income levels, increasing sales volume, and ultimately producing great profitability. According
to Hiedhues (2005), having access to credit helps low-income individuals get over their cash
flow problems and make investments like advancing their companies' technology, which boosts
their net profitability.

2.6 Empirical Review

AL-Maamari O; Vedava.P; Sanad S; did a survey on Microcredit Contributtion to the

Profitability of Micro and Small Enterprises (SMEs)? An Empirical Study from Yemen
This study's primary goal was to find out how microcredit affected Yemeni micro and small
enterprises' (SMEs') profitability. In order to achieve this, the researcher assessed how
microcredit affected SMEs' profitability. The researcher can accept the hypothesis once the data
have been analyzed. The study's conclusions suggest that microcredit availability and use may
boost SMEs' profitability in Yemen. The conclusion is supported by the study's findings, which
showed a positive association (R=0.353) between microcredit and SMEs' profitability. Thus, the
study's findings lend credence to the question, "Does microcredit contribute to the profitability of
micro and small enterprises (SMEs) in Yemen?" Thanks to more working capital, the availability
of credit has led to a notable rise in the profitability of SMEs. The investigation led to the
following conclusions being drawn: Yemeni SMEs' profitability was somewhat impacted by
microcredit; nevertheless, they still need to concentrate more on lowering interest rates and
making it easier for borrowers to provide the guarantees needed to secure loans from
microfinance centers. Future scholars are encouraged to look into the topics covered in this
research, apply the conclusions, and build on the potential this study has created. Future research
along these lines could examine the impact of microcredit provided by MFIs on the profitability
of small and medium-sized enterprises. This can be achieved by implementing strategies to
mitigate the constraints of the ongoing research.

Fida Moussa; Impact of microfinance loans on the performance of SME: the case of
Lebanon
The objective of this study is to examine how microloans provided by microfinance institutions
(MFIs) impact the financial statements of small and medium enterprises (SMEs). By analyzing
balance sheet variables, the researchers aimed to assess the financial status of SMEs and
investigate the influence of microcredits. Additional factors, such as the demographics of
beneficiaries and their regional context, were also considered. SMEs play a vital role in the
economic and social development of both developed and developing nations. The analysis
resulted in the rejection of the null hypothesis, which suggested that microfinancing has no effect
on the performance of supported SMEs. Instead, the alternative hypothesis, which states a
positive association between microloans from MFIs and SMEs' financial performance, was
accepted. The corresponding sub-hypotheses were also accepted and elaborated upon in the
discussion section. Among the 17 SMEs studied, two did not show progress after receiving
microloans, while the remaining 15 experienced a significant average net profit growth of
36.78%. These findings are consistent with a previous study that highlighted the positive impact
of microfinance institution funds on SME development. The correlation analysis revealed a
strong relationship between the loan amount and variables such as own resources, liabilities, total
assets, stock, liquidity, turnover, and net profit, with a significant positive link identified. The
One Way MANOVA table and curve estimation regression analysis yielded consistent results,
affirming the study's reliability. In Lebanon, the SPSS analysis indicated a meaningful
connection between the amount of microcredit and the dependent factors, supporting the notion
that microcredits from MFIs positively influence the financial performance of Lebanese SMEs.
These findings underscore the importance of microfinance in improving the economic conditions
of individuals experiencing poverty and contributing to overall economic development. Efforts to
alleviate poverty and enhance welfare levels through microfinance organizations are crucial in
addressing persistent poverty in the Lebanese economy. Overall, microfinance has proven
effective in increasing income levels and improving the financial well-being of the less fortunate
(Akram & Hussain, 2011; Kasali et al., 2016).

Gyimah P; Boachie W; Effect of Microfinance Products on Small Business Growth:

Emerging Economy Perspective
This study investigated the impact of microfinance services on small businesses in Ghana. The
results showed that microloans significantly boosted business growth (p-value < 0.01). This led
to rejecting the null hypothesis (no impact) for microloans. Similarly, microsavings and
microeducation also had positive impacts (p-value < 0.05), leading to rejection of their respective
null hypotheses. Microinsurance showed a weaker positive correlation (p-value = 0.087), with a
significant impact at the 10% level. Overall, microfinance products positively affect small
businesses in Ghana.Microloans had the strongest influence (R-squared = 82%, p-value =
0.000).Microeducation also had a strong influence (R-squared = 72%, p-value = 0.022).Micro-
savings had a moderate influence (R-squared = 64%, p-value = 0.01).Microinsurance had the
weakest influence (R-squared = 47%, p-value = 0.087).

Based on these findings, the study recommended the following : Expanding microinsurance
which would provide security to entrepreneurs and potentially encourage saving, Continued
training programs such as Educational programs that can help small businesses grow and become
more profitable and Longer loan terms by Extending loan durations and repayment periods so as
to allow businesses to better utilize credit for growth.

Mveku B ; Mutero T ; T Nyamwanza ; Munyaradzi Chagwesha M ; Bhibhi P ; Carried out

a survey on the Significance of Microfinance Establishments on the Growth of Small to
Medium Enterprises in Zimbabwe

The study looked at how crucial it is to set up microfinance institutions (MFIs) in order to
support the expansion of small and medium-sized businesses (SMEs). It also looked at the
importance of microloans as a useful instrument for raising the revenue and profitability of
SMEs. The results of the study indicate that microfinance loans positively impact profitability
and have a substantial positive link with sales growth. It also discovered that the main obstacles
influencing the size of SMEs in Zimbabwe are government taxation, hyperinflation, competition,
and financing availability. In theory, the study would give other academics information about
how important microfinance institutions (MFIs) are to the expansion of small and medium-sized
businesses (SME). It will accomplish this by emphasizing the ways in which MFI loans benefit
SME owners. In actuality, the study will help MFIs understand the value and efficacy of their
offerings in promoting the expansion of SMEs. Regular reviews of lending policies and
regulations by microfinance institutions are necessary to enable small to Medium Enterprises
(SME) to complete projects that have a major impact on their lives and communities. These loan
packages will assist SME in production, which will lead to increased sales, increased revenue,
and the formation of other social entrepreneurs in other potential sectors. Small and medium-
sized businesses should be given the option of flexible loan payback terms by microfinance
organizations. The repayment schedule ought to be modified to accommodate small- and
medium-sized business owners' requirements. They are able to enhance their investment
portfolios as a result, which raises growth rate and profitability. The government should monitor
and control inflation, provide a climate that makes it easier for small and medium-sized business
owners to operate, and impose modest taxes on them. Along with creating rules that support
SMEs' growth, the government should also finance SMEs.

Maina (2012) did a survey on microfinance services contribution to entrepreneurial

development in Kenya.

The study focused on SMEs in Nairobi and used a case study methodology. According to
Maina's (2012) research, Kenya's banking industry is rather active when compared to developing
third-world nations. But the official commercial banks clearly control 90% of the market. Small
and medium-sized firms were implied to have limited access to credit facilities by banking
institutions' credit policies, which were primarily tailored for large corporations. The Maina
(2012) report also noted that MFIs were established to bridge the financing needs gap for small
and medium-sized businesses (SME). This research identified several roadblocks hindering
microfinance institutions (MFIs) from effectively providing loans to small and medium-sized
businesses (SMEs). These challenges included Difficulty for SMEs to obtain credit and financial
services, Lack of collateral which SMEs often need to secure loans, Outdated legal and
regulatory frameworks that don't accommodate innovative lending models and Absence of a
system that smoothly channels funds from banks to MFIs and then on to SMEs. These limitations
all contribute to making loans more expensive for SMEs.

Examining How Microfinance Affects Nigerian SMEs (Christopher, 2012)

The study’s purpose was to assess how microfinance affects SMEs. The work's main goals were
to determine whether MFI loans are available to SMEs in Nigeria and to look into how these
loans affect the performance of SMEs. The sample of one hundred SMEs was chosen by simple
random sampling. There was usage of structured questionnaires. Simple percentage graphical
charts and other descriptive statistics were used in the presentation and analysis of the data. Even
though only a small percentage of SMEs were able to obtain the necessary amount from MFIs,
the study's findings showed that the majority of SMEs profited from the loans that these
institutions provided. Most small and medium-sized businesses (SMEs) reported that
microfinance loans helped them gain a larger market share, develop new products, and ultimately
become more competitive in the market. In order to encourage SMEs in Nigeria, the researcher
suggested that in addition to tax breaks and financial aid, the government provide infrastructure
services including a strong road network and training facilities.

2.7 Research Gap

Empirical evidence shows that most researches where done in developed and developing
countries with better stable economic environments as compared to Zimbabwe with their
capacity almost being fully utilized. The rates of economic development and growth are much
too dissimilar from those in Zimbabwe. Zimbabwe's bank profitability and liquidity levels are
not the same as those in the nations where earlier studies were conducted. While earlier research
was conducted in nations with stable national cash levels, the whole Zimbabwean economy is
currently experiencing a liquidity crisis. In addition, compared to other affluent nations,
borrowing appetites are higher in Zimbabwe due to low wages and income levels. There's a lack
of research specifically focused on the impact of microfinance loans on the growth of SMEs in
developing nations. Existing studies often examine how traditional bank loans affect larger
corporations, not the unique needs of smaller businesses. This research gap motivated the
researcher to investigate the impact of microloans on the growth of SMEs that specifically
receive loans from Redsphere Finance microfinance in Zimbabwe.

2.8 Chapter Summary

The literature review highlights the multifaceted impact of MFIs on SMEs, encompassing access
to capital, financial performance, growth, non-financial support, socio-economic empowerment,
job creation, technology adoption, and sustainability. It underscores the need to consider the
types of microfinance services, the role of technology and innovation, and the methodological
challenges in evaluating impact. By addressing these dimensions, the research contributes to a
comprehensive understanding of the impact of MFIs on SMEs and informs the design of
effective interventions to promote SME development and inclusive economic growth. The
literature review demonstrates that MFIs play a crucial role in supporting SMEs by providing
access to capital, facilitating growth and expansion, offering non-financial support, and
promoting socio-economic empowerment. Contextual factors and challenges faced by MFIs also
shape the outcomes for SMEs. The findings underscore the importance of designing targeted
interventions, considering local contexts, and addressing risks to maximize the positive impact of
microfinance on SMEs.
 CHAPTER III
RESEARCH METHODOLOGY

3.1 Introduction
This chapter outlines the methods used to assess the impact of Redsphere Finance Microfinance
loans on the growth of small and medium-sized enterprises (SMEs). It details the research
methodology, which will be explored in the following subtopics: Research Design, Population
and Sample Selection, Sources of Data, Validity, Reliability, Data collection and Management,
Data analysis procedures, Ethical considerations, Limitations and Delimitations and finally the
chapter summary.

3.2 Research Design

Several researchers define a research design as a structured plan outlining how data will be
collected and analysed. Kothari (2004) emphasizes the importance of balancing efficiency with
relevance to the research objective when creating this plan. Similarly, Zikmund (2007) views a
research design as a comprehensive strategy that details the methods and approaches for
gathering and analysing data specific to the research project. An explanatory research design was
employed by the researcher. Research design addresses at least four concerns: what to examine,
what data are relevant, what data to collect, and how to analyse the results. It will focus on
transforming research questions into testing questions. Answering why questions is the goal of
explanatory research, and this characteristic forces the inclusion of causal explanations. This
study investigated the impact of microloans provided by Redsphere Finance Microfinance on the
growth of small and medium-sized enterprises (SMEs) in Zimbabwe. An explanatory research
design was chosen because it facilitated data collection through questionnaires. Questionnaires
were preferred due to their flexibility, allowing respondents to complete them at their own pace
and ask clarifying questions, ultimately leading to more reliable data

3.3 Sources of Data

The researcher employed a combination of primary and secondary data in order to accomplish
the research. The primary sources provided fresh perspectives and pertinent data, which is why
the researcher primarily relied on them. Questionnaires were the main tool utilized, and
additional secondary data was also acquired from other sources, including working papers,
reports, textbooks, and internet-based research.

3.4 Target Population

A target population is any group of people who share one or more traits that the researcher is
interested in. This definition was provided by Best and Khan (2003). This study targeted 100
small and medium-sized enterprises (SMEs) registered with the Zimbabwe SMEs Association
and receiving loans from Redsphere Finance Microfinance across the country. These SMEs
represented various sectors, including retail, wholesale, service, and manufacturing industries.
The Sample is composed of Owners, Managers and Employees within the Microfinance and the
small and Medium Enterprises.

3.5 Sampling Procedure

Depending on the quantity needed to meet the study's research objectives, a variety of sampling
techniques can be utilized to identify the people that make up the sample (Creswell, 2009). To
select participants, the researcher used a combination of probability and non-probability
sampling techniques. This allowed for both statistical methods and expert judgment in choosing
the final sample. Specifically, the study employed stratified random sampling. The entire
population of SMEs was first divided into four subgroups (strata) based on their business
categories (retail, manufacturing, wholesale, and services). Then, random samples were drawn
from each subgroup to ensure all industry types were represented in the final sample. Using this
method, the researcher first chose the element for the sample by grouping the sample frame into
a homogeneous group. A straightforward random selection method was employed to choose
participants from every stratum. When researchers use random sampling to select participants,
the results can be more easily applied to a larger group (population). Every participant in the
study will have an equal probability of being chosen if simple random sampling is used (Leedy,
2007).

3.6 Unit of Analyses

The manager or owner of the SME served as the study's unit of analysis because he or she is the
one who runs the company and receives all information from other sources, including the
organization and other operation documents.
3.7 Sample size
The 100 SMEs operating across Zimbabwe were the study's target population. The five major
strata of the target demographic were separated according to the recognized business sectors. The
sample size was based on 20 % of the 100 SMEs that is 20 of the total SMEs. This study
employed a sampling technique, which is common in descriptive surveys according to Mugenda
(1999), especially when dealing with large populations. In such cases, a sample size of 10-30%
is often sufficient to gather meaningful data. Sampling offered several advantages in this study,
including reduced costs, time commitment, and resource allocation compared to surveying the
entire population.

Illustration is shown in Figure 1 below

Category Target Population Sample Size (20% of the
total Population)
Retail 25 25%
Service 20 20%
Manufacturing 30 30%
Wholesale 25 25%
Source: Primary

3.9 Research instruments

The study used surveys with a five-point rating scale (Likert scale) to collect new data directly
from participants. The survey approach was suitable for this type of study because it offers a
quantitative account of the attitudes, experiences, and opinions of the sample group. Using a
numerical score sheet, respondents indicate their agreement or disagreement on a Likert scale
(Kotler, 2000). The questionnaires used a five-point Likert scale, offering response options
ranging from strongly disagree to strongly agree (Bassey (2005). This type of scale is known to
encourage detailed feedback from participants as noted by researchers in the field (Kerlinger
2006).

Figure 2: Ratings of the Linkert Scale

Questions Strongly Disagree Neutral Agree Strongly
Disagree Agree
Points 1 2 3 4 5
Source: Joslin (2013)

The respondent were asked to select the best response on the influence of loans from Red sphere
microfinance on the expansion of their SMEs using a Likert scale method that provided a range
of choices.

3.10 Questionnaires
A questionnaire is a structured list of inquiries aimed at a subset of the population from which
pertinent data is expected (Griffin, 2013). This is consistent with Kumar's (2012) interpretation
of a questionnaire as a set of inquiries to which respondents record their responses. The study
participants received a standardized questionnaire to complete themselves. These questionnaires
were distributed in two ways: some were delivered by hand, while others were sent
electronically. The questionnaire followed a closed-ended format, meaning it offered pre-defined
answer choices (Griffin, 2013). This approach helped keep the survey concise, which encouraged
completion and ensured consistent responses from all participants, minimizing the risk of
misinterpretations. Additionally, it made tabulation and interpretation simpler for the researcher.
There were four primary sections to the questionnaire's design. The profile of the SMEs
respondents was the first section. The questions in the second, third and fourth sections pertained
to the topic of the investigation.

3.9 Validity and reliability of the instrument

3.9.1 Validity
This concept emphasizes how well a research instrument truly reflects the intended characteristic
it's supposed to assess. In other words, validity focuses on ensuring the accuracy and soundness
of the conclusions drawn from a study based on the chosen measurement tool (Polit & Beck,
2010). According to Mugenda (1999), content validity is a sort of validity that indicates how
much the study's objectives and research questions are represented. The investigator asked the
subject matter experts to assess the usefulness of the items in these instruments in obtaining the
data that the investigation was looking for. To ensure the effectiveness of the research
instruments, the researcher incorporated feedback from experts in the field. This feedback, which
included opinions, advice, and explanations, helped refine the tools. Once improved, the
instruments were then tested with a smaller group of five managers and SME owners.

3.9.2 Reliability
The degree to which an instrument would consistently measure what it is supposed to measure is
referred to as its reliability (Mugenda, 1999). Ambiguous questionnaires and imprecise
instructions to the 24 respondents lead to random errors. During piloting, the researcher double-
checked the surveys to reduce random errors. Pilot testing, also known as pre-testing, is the
process of testing the research instrument on a subset of respondents in order to find and fix any
limitations and defects in the questionnaire (Taylor, 2013). A small group of participants (5
managers/SME owners) were involved in a pilot test of the questionnaires. This practice run, as
suggested by Teijlingen & Hundley (2001), helps identify potential issues like unclear questions,
protocol violations, or overly complex methods. Based on their feedback, the questionnaires
were streamlined by removing unnecessary information. Generally, pilot studies involve 5-10%
of the final sample size (Galloway, 2007).
Test-retest methodology was employed in this work to determine the dependability of the
research equipment. This study evaluated the questionnaire's reliability using Cronbach's Alpha,
a statistical measure calculated with SPSS software (version 21.0).
3.10 Data presentation and analysis techniques
3.10.1 Data Analysis
As Kerlinger (2006) suggests, data analysis involves organizing, refining, and summarizing
information to answer research questions. In this study, the researcher cleaned and coded the
data, ensuring all questionnaires were complete. The data was then analysed using SPSS (version
21.0) software, while Microsoft Excel was used for report generation.

3.10.2 Descriptive Statistics:

To understand how respondents viewed statements related to each variable, descriptive statistics
like mean, mode, variance, and standard deviation were employed.

3.10.3 Inferential Statistics:

The relationship between microfinance loans (independent variable) and business growth
(dependent variable) was examined using Pearson's correlation coefficient, a common inferential
statistic.

3.10.4 Data Presentation:

Tables generated by SPSS were used to present the data effectively, as tables clearly categorize
different data points

3.12 Ethical Considerations

Following established research protocols ensured this study adhered to ethical principles outlined
by Leedy & Ormrod (2005). These principles encompass protecting participants from harm,
obtaining informed consent, respecting privacy, and maintaining honesty with colleagues.
Throughout the research, participants were treated with fairness, dignity, and respect. To
safeguard participant privacy, the study assured them that no personal information would be used
to identify them in the results. Names were omitted from the questionnaires, further ensuring
anonymity.

3.13 Chapter Summary

This chapter outlined the research methods used to collect and analyze data relevant to the study.
It covered the research design, target population and sample size, how participants were selected,
the data collection tools, and how the data was presented and analyzed.

CHAPTER IV
PRESENTATION OF DATA, ANALYSIS AND DISCUSSION

4.1 Introduction
The results and conclusions from the SPSS data analysis were given in this chapter. The analysis
of the results will come after presenting a concise overview of the data. Questionnaires for both
qualitative and quantitative data served as the foundation for the study. The research objectives
and the results of the literature review were connected. The study presented the data visually
using pie charts, bar graphs, and tables. By analysing this data, the researcher was able to draw a
clear conclusion about how microloans from microfinance institutions impact the performance of
SMEs Data about the items and knowledge the researcher had collected over the course of the
investigation were given. A sample of fifty was selected.

Figure 1: Questionnaire Response Rate

Frequency Response rate
Distributed Questionnaires 20 100%
Returned Questionnaires 20 100%
Source: Primary
4.2 Respondents Characteristics

Below are the respondents' descriptive data.

Figure 2: Respondents gender

GENDER

45%

55%

FEMALE MALE

n = 20
Source: Primary
According to the research findings, as shown in figure 2 above, men predominated with 55% of
the total answer, while women made up 45% of the total. Therefore, it can be said that SME's in
Zimbabwe are being run by Men

Figure 3: Age of Respondents

 Respondents Age Groups
40%
35%
35%
30%
30%

25%
20%
20%

15%
10%
10%
5%
5%

0%
< 25 years 25 to 35 years 36 to 46 years 47 to 57 years >57 years

Age Groups

Source: Primary

The study looked at the ages of the respondents and it was seen that the age group of 36 to 46
years had the most respondents with the highest percentage of 35%, followed by that one of 25 to
36 years with 30%, followed by 47-57 years age group with 20%, followed by <25 years with
10% and then lastly the elderly age group of >57 years with 5%.These findings suggested that
middle-aged individuals made up the most of the respondents and these individuals were
consequently people responsible for their answers.

Figure 4: Age of business

 Age of Business
70% 65%

60%

50%

40%
30%
30%

20%

10% 5%

0%
<5 years 5 to 10 years >10 years

Source: Primary

The purpose of the survey was also to determine the average age of the firms operated by the
respondents. The results showed that 65% of the businesses were under 5 years old. The findings
in Figure 4 show that 30% of the participating SMEs have been operating for 5 to 10 years, while
only 5% have been in business for over 10 years. It is assumed that the majority of respondents'
businesses fail to be in existence for more than 10 years since some of them will have become
large businesses and no longer categorised under SMEs and some of them lack the necessary
financial literacy, financing, and process management skills.
Figure 5: Educational Qualifications
 Educational Qualifications

others

Tertiary level

Secondary level

Primary level

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Source: Primary

Figure 5 reveals that most respondents (50%) reported having a secondary school education as
their highest level of achievement. Tertiary education was the second most common
qualification, with 30% of respondents holding such degrees. The least responders were 20% of
the population that achieved only the primary level accounting for 10% of education and the
other ones categorized as others % since they were not educated and did not have any
educational qualifications accounted for the other 10%. Therefore, given that the majority of
respondents attended school, it may be inferred that they were able to provide valuable
information relevant to the study.

Figure 6: Loan Access

 loan access

10%

Getting loans
Not getting loans

90%

Source: Primary

The Research was done against our independent variable which is Microfinance loans. As shown
in the diagram that most SMEs are getting loans from Red sphere microfinance as shown by
them being 90 % of the total with only 10% not getting loans from the microfinance.

Figure 7: Reliability statistics

Reliability Statistics

Cronbach's Alpha N of Items

.928 18

Source: Primary

A Cronbach's alpha result of 0.928 indicates a very high level of internal consistency among the
18 items being measured. Cronbach's alpha is a measure of reliability that assesses the
consistency or homogeneity of items within a scale or questionnaire. In this case, the value of
0.928 suggests that the 18 items are highly correlated and effectively measure the same
underlying construct or concept.
A Cronbach's alpha value above 0.8 is generally considered to indicate good internal
consistency, and a value above 0.9 is considered excellent. Therefore, a Cronbach's alpha of
0.928 indicates that the 18 items in your scale demonstrate a high level of reliability and
consistency in measuring the construct they are intended to assess.

4.4 To assess the effect of Redsphere Finance Microfinance loans on the level of SMEs sales
in Zimbabwe.

Figure 8 below is showing the statistical relationship between microloans and sales of SMEs that
are getting loans from Red sphere Finance Microfinance.

Figure 8: Model summation between microloans and SME sales relationship.

Model Summaryb
Model R R Adjusted Std. ErrorChange Statistics Durbin-
Square R Square of theR Square ChangeF Change df1 df2 Sig. FWatson
Estimate Change
1 .865a .748 .734 .31427 .748 53.361 1 18 .000 1.788
a. Predictors: (Constant), loanaccess
b. Dependent Variable: sales
Source: Primary
R: The multiple correlation coefficient (R) indicates the strength and direction of the linear
relationship between the predictor variables and the outcome variable. In this case, the value of
0.865 suggests a relatively strong positive correlation.

R Square: The coefficient of determination (R Square) represents the proportion of variance in

the outcome variable that can be explained by the predictor variables. Here, the value of 0.748
indicates that approximately 74.8% of the variability in the outcome variable is accounted for by
the predictor variables.
Below is a table showing the ANOVA between microloans and SME sales relationship

Figure 9: ANOVA between microloans and SME sales relationship

ANOVAa

Model Sum of Squares df Mean Square F Sig.

Regression 5.270 1 5.270 53.361 .000b

1 Residual 1.778 18 .099

Total 7.048 19

a. Dependent Variable: sales

b. Predictors: (Constant), loanaccess

Source: Primary

F: The F-statistic is a ratio that compares the variability explained by the regression model to the
variability unexplained (residual variability). In this case, the F-value is 53.361, suggesting a
significant relationship between the predictor variable (loan access) and the outcome variable
(sales).

Figure 10 below is showing the Coefficients of relationship between microloans and SME sales

Figure 10: How Microloans Relate to SME Sales

Coefficientsa

Model Unstandardized Coefficients Standardized t Sig.

Coefficients

B Std. Error Beta

(Constant) 3.000 .222 13.500 .000

1
loanaccess 1.711 .234 .865 7.305 .000

a. Dependent Variable: sales

Source: Primary

The Coefficients table provided presents the results of a regression analysis examining the
relationship between the independent variable "loan access" (representing access to microfinance
loans) and the dependent variable "sales" (representing SME sales). Here is a comment on the
specific results:
The t-value of 13.500 suggests that the constant term is statistically significant, with a p-value of
0.000. The coefficient for the independent variable "loan access" is 1.711, indicating the change
in the dependent variable (sales) associated with a one-unit increase in the independent variable.
The standard error of 0.234 reflects the precision of this coefficient. The standardized coefficient,
also known as beta, is 0.865, representing the change in standard deviation units in the dependent
variable for a one-standard-deviation increase in the independent variable Loan access has a
significant positive impact on SME sales. This is shown by the t-value (7.305) and the p-value
(0.000). The t-value indicates a strong relationship, and the very low p-value (ideally below 0.05)
suggests this relationship is unlikely due to chance.

Overall, these results suggest that access to microfinance loans (represented by the variable "loan
access") has a significant and positive influence on SME sales (the dependent variable). The
constant term, indicating the expected sales when loan access is zero, is also statistically
significant. These findings provide valuable insights into the relationship between microfinance
loan access and SME sales, suggesting that increased access to microfinance loans is associated
with higher levels of sales for SMEs.

4.5 To ascertain the impact of Redsphere Finance Microfinance loans on SME asset value
in Zimbabwe.

Figure 11 Impact of Microloans on Asset Growth in Red Sphere Finance Borrowers

Figure 11: Model summation between microloans and SME Asset value relationship.
Model Summaryb

Mod R R Adjusted Std. Change Statistics Durbin-

el Squa R Error of R F df1 df2 Sig. F Watson
re Square the Square Change Change
Estimate Change

1 .888a .788 .777 .30046 .788 67.015 1 18 .000 1.744

a. Predictors: (Constant), loan access

b. Dependent Variable: asset value
Source: Primary
Microloans are a significant factor in asset growth. The R-squared value of 0.788 indicates that
nearly 79% of the variation in asset value (dependent variable) can be explained by access to
loans (predictor variable). This suggests a moderately strong positive correlation between loan
access and higher asset value for SMEs.

Accounting for model complexity, loan access significantly impacts asset growth. The adjusted
R-squared value of 0.777 indicates that 77.7% of the variation in asset value can be explained by
access to loans. This adjusted value considers the number of variables analyzed and the sample
size, providing a more reliable estimate of the model's explanatory power. In other words, while
there may be other factors affecting asset growth, access to loans is a strong contributor.

Below is a table showing the ANOVA between microloans and SME asset value relationship

Figure 12: ANOVA between microloans and SME asset value relationship

ANOVAa

Model Sum of Squares df Mean Square F Sig.

Regression 6.050 1 6.050 67.015 .000b

1 Residual 1.625 18 .090

Total 7.675 19

a. Dependent Variable: asset value

b. Predictors: (Constant), loan access

Source: Primary
The F-statistic of 67.015 compares the explained variability (sum of squares for regression) to
the unexplained variability (sum of squares for the residual). A higher F-value suggests a
stronger relationship between the predictor variable and the dependent variable.

The associated p-value of 0.000 indicates that the relationship between "loan access" and "asset
value" is statistically significant. This suggests that the inclusion of "loan access" in the
regression model significantly contributes to explaining the variability in "asset value."
The study's analysis confirms that access to microloans has a statistically significant impact on
the asset value of SMEs. This conclusion is supported by the overall results of the ANOVA test,
which examines how well the model explains the variation in asset value based on the included
variable "loan access."" The significant F-value and p-value suggest that "loan access" has a
notable influence on "asset value" and is a statistically significant predictor in the model.

Figure 13: Correlation between Microloans and Asset Growth in SMEs

Coefficientsa

Model Unstandardized Coefficients Standardized t Sig.

Coefficients

B Std. Error Beta

(Constant) 3.000 .212 14.120 .000

1
loan access 1.833 .224 .888 8.186 .000

a. Dependent Variable: asset value

Source: Primary

Loan access has a positive influence on asset value. The coefficient of 1.833 for "loan access"
suggests that an SME's asset value increases by an average of 1.833 units for every one-unit
increase in loan access." The standard error of 0.224 provides information about the precision of
this coefficient. The standardized coefficient, also known as beta, is 0.888, representing the
change in standard deviation units in "asset value" for a one-standard-deviation increase in "loan
access." The t-value of 8.186 suggests that the coefficient for "loan access" is statistically
significant, with a p-value of 0.000.

Overall, these results suggest that "loan access" has a significant and positive influence on "asset
value." The constant term, indicating the expected "asset value" when "loan access" is zero, is
also statistically significant. These findings provide valuable insights into the relationship
between "loan access" and "asset value," suggesting that increased access to loans is associated
with higher levels of asset value.
4.6 To determine the connection between SMEs yearly profit and Redsphere Finance
Microfinance loans in Zimbabwe.

Figure 14 below is showing the statistical relationship between microloans and profitability of
SMEs that are getting loans from Red sphere Finance Microfinance.

Figure 14: Model summation between microloans and SME profitability relationship.
Model Summaryb

Model R R Adjusted Std. Error Change Statistics Durbin-Watson

Square R of the R Square F df1 df2 Sig. F
Square Estimate Change Change Change

1 .910a .829 .819 .26352 .829 87.120 1 18 .000 2.000

a. Predictors: (Constant), loan access

b. Dependent Variable: profitability

Source: Primary
Microloans are a major factor influencing SME profitability. The R-squared value of 0.829
suggests that access to loans (predictor variable) explains a substantial portion (82.9%) of the
variation in profitability (dependent variable). This indicates a strong positive correlation
between loan access and higher profitability for SMEs.

Loan access is a key driver of profitability, even considering model complexity. The adjusted R-
squared value of 0.819 indicates that 81.9% of the variation in profitability can be explained by
access to loans. This adjusted value takes into account the number of variables analysed and the
sample size, providing a more reliable estimate of the model's explanatory power. In other
words, while there may be other factors affecting profitability, access to loans remains a strong
contributor.

Below is a table showing the ANOVA between microloans and SME profitability relationship

Figure 15: ANOVA between microloans and SME profitability relationship

ANOVAa

Model Sum of Squares df Mean Square F Sig.

1 Regression 6.050 1 6.050 87.120 .000b

 Residual 1.250 18 .069

Total 7.300 19

a. Dependent Variable: profitability

b. Predictors: (Constant), loan access

Source: Primary
The F-statistic of 87.120 compares the explained variability (sum of squares for regression) to
the unexplained variability (sum of squares for the residual). A higher F-value suggests a
stronger relationship between the predictor variable and the dependent variable.

The associated p-value of 0.000 indicates that the relationship between "loan access" and
"profitability" is statistically significant. This suggests that the inclusion of "loan access" in the
regression model significantly contributes to explaining the variability in "profitability."

The study's analysis confirms that access to microloans has a statistically significant impact on
the profitability of SMEs. This conclusion is supported by the overall results of the ANOVA test,
which examines how well the model explains the variation in profitability based on the included
variable "loan access. “The significant F-value and p-value suggest that "loan access" has a
notable influence on "profitability" and is a statistically significant predictor in the model.

Figure 16 below is showing the Coefficients of relationship between microloans and SME
profitability

Figure 16: Impact of Microloans on SME Profitability

Coefficientsa

Model Unstandardized Coefficients Standardized t Sig.

Coefficients

B Std. Error Beta

(Constant) 3.000 .186 16.100 .000

1
loan access 1.833 .196 .910 9.334 .000

a. Dependent Variable: profitability

Source: Primary
The statistical results strongly suggest that microloans have a significant positive impact on SME
profitability. This is indicated by two key findings firstly the constant term being statistically
significant (t-value: 16.100, p-value: 0.000) tells us the model is valid and there's a baseline level
of profitability even without loan access and lastly the coefficient for "loan access" is 1.833,
meaning that for every one-unit increase in loan access, SME profitability increases by an
average of 1.833 units. The standard error of 0.196 provides information about the precision of
this coefficient. The standardized coefficient, also known as beta, is 0.910, representing the
change in standard deviation units in "profitability" for a one-standard-deviation increase in
"loan access." The t-value of 9.334 suggests that the coefficient for "loan access" is statistically
significant, with a p-value of 0.000.

Overall, these results suggest that "loan access" has a significant and positive influence on
"profitability." The constant term, indicating the expected "profitability" when "loan access" is
zero, is also statistically significant. These findings provide valuable insights into the relationship
between "loan access" and "profitability," suggesting that increased access to loans is associated
with higher levels of profitability.

4.7 Chapter summary

The study found a positive correlation between micro-finance loans and the growth of small and
medium enterprises (SMEs) that receive their loan from Red sphere finance Microfinance. All
questionnaires were returned, resulting in a 100% response rate. Almost half (45%) of the
respondents were women while the rest of the 55% were men. The majority of business owners
were young, between 25 and 44 years old, and had been operating their businesses for five years
or less. The study measured SME sales, Asset value and profitability as dependent variables, and
micro-finance loans as the independent variable. There was a positive relationship between all
the dependent variables and the independent variable, microfinance loans. This showed that
Redsphere Finance Microfinance loans influence the growth of every Small and Medium
Enterprise that it grants loans to a greater extent.

CHAPTER V
SUMMARY OF RESEARCH, CONCLUSIONS AND RECOMMENDATIONS

5.1 Introduction
This chapter brings the research to a close by summarizing the main conclusions and
recommendations derived from the analysis of the study's findings. These conclusions and
recommendations are directly connected to the research objectives outlined earlier and are
supported by the data collected and the insights gleaned from the literature review.

5.2 Summary of findings

This study explored the relationship between microfinance loans and the growth of small and
medium-sized enterprises (SMEs) in Zimbabwe. It specifically examined the impact of loans
provided by Redsphere Finance on SME performance. The research had three main objectives.
First, it aimed to assess how Redsphere Finance loans influence the sales levels of Zimbabwean
SMEs. Second, the study investigated how these loans affect the overall asset value of the
businesses. Finally, the research explored the connection between the annual profits of SMEs
and their access to loans from Redsphere Finance. To gather data, the study employed an
explanatory research design and utilized questionnaires administered to a sample of 20
respondents. These respondents were chosen through a combination of stratified and simple
random sampling methods.

The analysis of the data yielded positive results. There was a statistically significant and very
strong correlation between microfinance loans provided by Redsphere Finance and the level of
sales turnover achieved by SMEs. This suggests that access to these loans plays a substantial role
in boosting sales growth for small and medium-sized businesses.

Encouragingly, the research also revealed a similarly strong positive relationship between
Redsphere Finance microloans and the asset value of SMEs. The study found that microfinance
loans were responsible for a significant 79% variation in the asset value of these businesses. This
indicates that access to microloans can contribute significantly to the overall financial health and
growth of SMEs.
Finally, the findings demonstrated a positive and statistically significant relationship between
microfinance loans and the annual profits of SMEs that received loans from Redsphere Finance.
Microloans were found to explain a substantial 83% of the variation in annual profits for these
businesses. This reinforces the notion that microfinance plays a crucial role in driving
profitability among small and medium-sized enterprises in Zimbabwe.

5.3 Conclusion
This research investigated the critical role of microfinance institutions (MFIs) in fostering the
growth of small and medium-sized enterprises (SMEs). It focused on microfinance loans as a key
tool for boosting SME performance in three key areas: sales, asset value, and profitability. The
findings revealed a strong positive correlation between access to microloans and all three factors.
SMEs that received loans from Redsphere Finance, a specific MFI, experienced significant
increases in sales turnover, asset value, and annual profits. However, the study acknowledges
ongoing challenges. Expanding outreach, retaining clients, and adapting to evolving SME needs
remain hurdles. It emphasizes the importance of collaboration between policymakers,
microfinance providers, and SMEs to unlock the full potential of microfinance for sustainable
economic development. The success story of Redsphere Finance serves as a powerful example of
how responsive microfinance programs can empower SMEs and promote inclusive economic
growth.

5.4 Recommendations
 Lower Interest Rates: A key recommendation for microfinance institutions (MFIs) is to
offer interest rates that are lower than traditional banks. This would make microloans
more accessible to the poor and unbanked population who are often excluded from
traditional lending due to collateral requirements and other strict creditworthiness factors.

 Supporting SME Growth: The government can play a significant role by continuing to
develop programs that support the growth of SMEs. These programs should provide both
financial and non-financial services, making it easier for small businesses to access credit
 and the resources they need to thrive. Additionally, government supervision and
monitoring of MFI lending practices can help ensure fair lending rates are offered.

 Investing in Larger Loans: The study highlights the positive impact of microloans on
asset growth and job creation. To further empower SMEs, MFIs should consider
increasing the maximum loan size offered. Criteria can be established to determine
appropriate loan amounts for individual applicants, such as basing loan size on a
percentage of working capital or annual turnover.

 Financial Literacy Programs: Financial institutions can extend their support beyond loans
by offering financial advisory services to individual business owners. This could include
providing guidance on risk management, financial planning, and best practices.

 Embracing Technology: The study identified underutilization of information and

communication technologies (ICT) by SMEs. To bridge this gap, there's a need for
initiatives that encourage and facilitate the use of ICT among small businesses.
Technology can empower SMEs by connecting them to valuable services and
information that can fuel their growth and development.

Future areas of study

1. The same research as this one can be done focusing on other Microfinances other than
Redsphere Finance Microfinance and compare the results with this one.
2. Limitations and problems faced by Microfinance institutions in assisting Small and
Medium Enterprises.

REFERENCES
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2. Beck, T., Demirgüç-Kunt, A., & Maksimovic, V. (2005). Financial and legal institutions and
firm size. The World Bank Economic Review, 19(3), 571-605.

3. Cull, R., Demirgüç-Kunt, A., & Morduch, J. (2018). Microfinance meets the market. Journal
of Economic Perspectives, 32(1), 3-28.

4. D'Espallier, B., Goedecke, J., & Hudon, M. (2017). The multifaceted role of subsidies in
microfinance: Evidence from the Indian SHG-Bank linkage program. World Development, 89,
28-41.

5. Field, E., & Pande, R. (2008). Repayment frequency and default in microfinance: Evidence
from India. Journal of the European Economic Association, 6(2-3), 501-509.

6. Kabeer, N. (2005). Is microfinance a 'magic bullet' for women's empowerment? Analysis of

findings from South Asia. Economic and Political Weekly, 40(44/45), 4709-4718.

7. Khandker, S. R. (2005). Microfinance and poverty: Evidence using panel data from
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8. Ledgerwood, J. (2006). The microfinance handbook: A financial market system perspective.

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9. Mersland, R., & Strøm, R. Ø. (2009). Microfinance mission drift? World Development, 37(4),
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https://www.researchgate.net/publication/362279422_

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The-Machingambi/635e7b14885bc0bc93464cc4d8de30740581e6a5

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14. U.S. Chamber of Commerce. "Everything Your Small Business Needs To Know About
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15. Consumer Financial Protection Bureau. "What Is the Difference Between a Loan Interest
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5, pp.48-59, May, 2019 Published by: Dama Academic Scholarly & Scientific Research Society
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21. Journal of Entrepreneurship and Business Innovation · June 2018

APPENDICES

APPENDIX 1 QUESTIONNAIRE

Instructions: Tick where applicable in Section A and please indicate your level of
agreement or disagreement with each statement by selecting the appropriate response on a
scale of 1 to 5 in sections to follow, where:
1 = Strongly Disagree
2 = Disagree
3 = Neutral
4 = Agree
5 = Strongly Agree

Section A: Demographic Information

1. Gender:

a) Male

b) Female

2. Age:

a) <25 years

b) 25-35 years

c) 36-46 years

d) 47-57 years

e) >57 years

3. Educational Qualifications:

a) Primary level

b) Secondary level
 c) Tertiary level

d) Other

4. Business Experience:

a) Less than 5 years

b) 5-10 years

c) More than 10 years

5. Type of Business

a) Manufacturing

b) Retail

c) Wholesale

d) Service
6. Have you ever received loans from Red sphere finance Microfinance?

a) Yes

b) No

1 2 3 4 5
THE EFFECT OF MICROLOANS ON THE LEVEL OF
SECTION B SMES SALES IN ZIMBABWE

Questions 1 SMEs utilize microfinance loans to procure raw materials and

access necessary services to facilitate their production
processes, ultimately leading to an augmentation in sales
volume.
Questions 2 The availability of microfinance loans enhances the financial
capability of SMEs, enabling them to access broader markets
and consequently achieve an increase in sales volume.
Questions 3 Microfinance loans provide SMEs with working capital,
which directly influences their sales volume.
Questions 4 Through microfinance loans, SMEs can benefit from
economies of scale and adopt new technologies, thereby
 positively impacting their sales turnover.
Questions 5 Microfinance loans empower SMEs to enhance their
competitiveness, leading to an increase in sales volume.

SECTION C THE IMPACT OF MICROLOANS ON THE ASSET 1 2 3 4 5

VALUE OF SMES IN ZIMBABWE

Questions 1 Microfinance loans contribute to the asset value of enterprises

by fulfilling their financial requirements.
Questions 2 Microfinance loans assist SMEs in financing the growth of
their fixed assets and increasing their working capital.
Questions 3 Microfinance loans play a significant role in elevating the
status of SME enterprises and augmenting their asset value.
Questions 4 Microfinance loans enable SMEs to acquire new technology,
machinery, and equipment, boosting their asset value.

SECTION D THE CONNECTION BETWEEN SMES YEARLY 1 2 3 4 5

PROFIT AND MICROLOANS IN ZIMBABWE

Questions 1 Microfinance loans aid in the development of the productive

capacity of SMEs, resulting in increased profitability.
Questions 2 By providing increased financial capacity, microfinance loans
enable SMEs to access broader markets and subsequently
experience higher profitability.
Questions 3 Microfinance loans serve as working capital for SMEs, which
directly impacts their profitability.
Questions 4 Microfinance loans empower SMEs to enhance their
competitiveness, ultimately leading to increased profitability.