The significance of microfinance in the growth of small and medium enterprises in Pietermaritzburg, South Africa.

Abstract

Despite the recognised potential of South African small and medium sized enterprises (SMEs) in addressing the socio-economic issues, access to microfinance services has always been one of the major challenges faced by most SMEs in the country, which hinders their growth and development. To determine the financial and nonfinancial options provided by microfinance institutions and how they influence growth of SMEs in Pietermaritzburg, South Africa. The study focuses on the microfinancing options available for the development of SMEs in Pietermaritzburg, South Africa. The study adopted a descriptive research approach. A quantitative survey was conducted on a sample of 153 SMEs’ owners and managers, identified randomly. Statistical Package for the Social Sciences (SPSS) version 21 were used to analyse data. The Pearson Chi-Square test was used to test for independence or association of categorical variables to determine the relationship between variables that form the basis of the study. The study revealed that a significant number of SMEs are not gaining access to microfinance whilst a limited number do and are experiencing growth. SMEs obtained financial assistance in the form of loans to start-up their businesses. Significant nonfinancial assistance accessed by SMEs from microfinance institutions included business plan writing and business governance. SMEs faced challenges of lack of awareness, employment formality and nationality constraints in accessing microfinance services. The chi-square test results reveal that significant growth is influenced by age, level of education, type of business, motivation of opening business, and access to MFIs.