The role of microfinance on entrepreneurial development: The case of Urban

Maseru

By

Motsoeli Tau

A Dissertation Submitted in Partial Fulfilment of the Requirements for Award

of

The Degree of Master of Development Studies (MDS) of

The University of the Free State

2020

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 CERTIFICATION

We, the undersigned, certify that this dissertation entitled The Role of Microfinance
on Entrepreneurial Development: The Case of Urban Maseru, submitted by
Motsoeli TAU conforms to acceptable standards and as such is fully adequate in scope
and quality. We hereby recommend for the acceptance by the University of the Free
State, as a fulfilment of the Dissertation requirements for the award of the degree of
Master of Development Studies (MDS) of the University of the Free State.

……………………………
Major Supervisor

…………………………….
Internal Examiner

Accepted for the Board of

…………………………………………
DEAN/DIRECTOR/FACULTY/DIRECTORATE/SCHOOL/BOARD

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 DECLARATION

I, Motsoeli J. TAU, declare that this research is my own original work except as
indicated in the references. It has not been presented and will not be presented to
any other University for a similar or any other degree award.

Signature:

Date:

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 DEDICATION

This dissertation is dedicated to my beloved family, who have been my source of

inspiration in my academic pursuit and tolerated my absence until the accomplishment
of my studies. Indeed, all the family members contributed immeasurably and untiringly
through support and encouragement in the entire period of my studies.

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 ACKNOWLEDGEMENTS

I thank God for His grace in seeing me through the course of my studies. I would like
to extend my sincere gratitude to my supervisor Dr. Edson Vengesai, without whose
intellectual guidance, motivational support, devotion and moral support, this work
would not have been completed.

I gratefully also acknowledge great assistant provided by Officials at the Ministries of

Trade and Industry and of Small Business Development, Cooperatives and Marketing.

I wish to offer my gratitude to my family for support throughout the entire period of my
academic pursuit.

Last but I wish to offer gratitude to classmates, discussion group members and friends
for their support.

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 ABBREVIATIONS AND ACRONYMS

AfDB - African Development Bank

ANOVA - Analysis of Variance
BDS - Business Development Support
BEDCO - Basotho Enterprises Development Corporation
BED - Barriers the Impede Entrepreneurial Development
CFE - Constraints faced by Micro Entrepreneurs
CMS - Contributions of Microfinance Institutions in Supporting SMMES
CSF - Challenges faced by SMMEs in accessing finance
EDP – Entrepreneurship Development Programme
EMG – Effects of microfinance on SMMEs growth
LNDC – Lesotho National Development Corporation
MFIs – Micro Finance Institutions
MTI - Ministry of Trade and Industry
NGO(s) - Non Governmental Organizations
ROSCAs - Rotation for Savings and Credit Cooperatives Society
SACCOs - Savings and Credit Cooperative Society
SFB - Sources of funding for business
SMMEs – Small, Medium and Micro Enterprises
SPSS – Statistical Package for the Social Sciences

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 ABSTRACT

Small, Medium and Micro Enterprises have been identified as one of the key
components to advancing growth and development in Lesotho. This study assessed
the role of microfinance on entrepreneurial development with the aim to identify the
key inhibitors for Small, Medium and Micro Eenterprises (SMMEs) to have access to
microfinance services. The study was conducted in Urban Maseru, Lesotho with the
aim to assess the challenges faced by SMMEs in Urban Maseru in accessing
microfinance services, then examine the impact of micro-finance on the output of
SMMEs in Urban Maseru and further examine the contribution of microfinance on
business growth of selected SMMEs in Urban Maseru.

The study made use of quantitative research method and questionnaires for collection
of primary data and analysed by using Statistical Package for Social Sciences (SPSS)
and tables and figures for the presentation of results. A descriptive variable sampling
technique was employed and the Solvin’s formula was used in selecting the sample of
400 respondents from SMMEs in Urban Maseru that have benefited from microfinance
services between 2016 and 2019. The study concludes that there are various barriers
that impede entrepreneurs’ development. The fundamental impediment faced by
SMMEs is the burdensome procedure that is related to access for credit of which high-
interest rates and collateral security are major setbacks. The study submits that
microfinance has had a positive influence on entrepreneurial performance measured
in terms of output. In the same vein, the study concludes that microfinance has had a
significantly positive effect on the business growth of the SMMEs sampled in Urban
Maseru.

To this end, SMMEs need to be assisted to use the identified factors to promote
growth in order to realise full potential of microfinance contribution on SMMEs
development. As such Microfinance Institutions (MFIs) need to review their policies
on the terms of credit extension and other finance related development to SMMEs to
enhance accessibility to finance by SMMEs. Furthermore, government’s support
through appropriate policies and business extension services is necessary for
SMMEs’ capacity development.

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Table of Contents

CHAPTER ONE .................................................................................... 1

INTRODUCTION AND BACKGROUND TO THE STUDY .................... 1

1.0 Introduction ................................................................................... 1

1.1 Background to the study .............................................................. 2

1.2 Problem Statement ........................................................................ 5

1.3 Objectives of the Study ................................................................. 6

1.3.1 General Objective .................................................................... 6

1.5 Significance of the Study .............................................................. 7

1.6 Delimitation and Scope of the Study ........................................... 8

1.7 Summary ........................................................................................ 8

CHAPTER TWO .................................................................................. 10

LITERATURE REVIEW....................................................................... 10

2.0 Introduction ................................................................................. 10

2.1 Conceptual Framework ............................................................... 10

2.2.1 The global context............................................................. 14

2.2.2 The Lesotho context ......................................................... 15

2.3 The concept of SMMEs in Lesotho ............................................. 17

2.3.1. Microfinance Operations in Lesotho ................................. 18

2.3.1.1 Credit Extension ............................................................ 19

2.3.1.2 Savings ...........................................................................20

2.4 Theoretical Framework ............................................................... 20

2.4.1. Theories of entrepreneurship ................................................. 20

2.4.2 Theory of Economic Development – Schumpeter .............. 21

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 2.4.3 Theory of Entrepreneurial Discovery – Kirzner
perspective ..................................................................................... 22

2.4.4 The Theory of Entrepreneurship - Mishra and Zachary 22

2.5. Theories of microfinance .......................................................... 23

2.5.1 The Grameen Model.............................................................. 23

2.5.2 Progressive Lending – BancoSol Model ............................. 26

2.6. Barriers to entrepreneurship development .......................... 27

2.6.2 Heavy costs of compliance ............................................. 28

2.6.3 Education ........................................................................... 28

2.7. Functions of Microfinance Institutions ................................ 29

2.7.2.2 Lack of right technical skills for the managers and

staff ............................................................................................ 32

2.7.3.3 High Interest Rates .........................................................32

2.8 Contribution of microfinance Institutions in Financing

SMMEs ............................................................................................ 33

2.8.2 Financial Literacy .............................................................. 34

2.8.3 Development of Management skills .................................35

2.9 Empirical Framework.............................................................. 35

2.12 Summary ............................................................................... 38

3.1 Research Approach ................................................................ 40

3.2 Research Design ..................................................................... 41

3.3 Research Target Population .................................................. 43

3.4 Sampling Design .................................................................... 43

3.6 Sampling SMMEs ................................................................... 45

3.7 Data Collection methods ....................................................... 46

3.7.1 Questionnaire .................................................................. 47

3.8 Data Analysis…………………………………………………….48

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 3.9 Validity and Reliability ............................................................ 50

3.10 Pilot study ............................................................................. 51

3.11 Research ethics ..................................................................... 52

3.12 Informed Consent .................................................................. 53

CHAPTER FOUR ................................................................................ 54

DATA ANALYSIS AND PRESENTATION .......................................... 54

4.1 Introduction ................................................................................. 54

4.2 Response rate .............................................................................. 54

4.3 Descriptive statistics................................................................... 54

4.3.1 Gender of the respondents ................................................... 55

4.3.2 Age of the respondents ........................................................ 55

4.3.3 Legal structure of Respondents ........................................... 56

4.3.4 Respondents by Size of SMMES.......................................... 57

4.2.4 Annual Turnover of Respondents ....................................... 58

4.2.5 Marital Status of Respondents ............................................. 59

4.2.5 Educational Level of Respondents ...................................... 60

4.3 Analysis by research questions ................................................. 60

4.3.1 Reliability Analysis ................................................................... 61

CHAPTER FIVE .................................................................................. 83

DISCUSSION, SUMMARY OF THE FINDINGS, CONCLUSION AND

RECOMMENDATIONS ....................................................................... 83

5.1 Introduction ................................................................................. 83

5.2. Summary of the findings............................................................ 83

5.3 Conclusion ................................................................................... 86

5.4 Recommendations …………………………………………………...87

5.5 Areas for Further Study .............................................................. 88

Bibliography ...................................................................................... 89

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 LIST OF TABLES

Table 1: Structure of SMMEs .................................................................................. 67

Table 2: Cronbach’s alpha reliability statistics ......................................................... 67
Table 3: Cronbach’s alpha item-total statistics .......................................................67
Table 4: Challenges that SMMEs face in accessing finance ................................. 68
Table 5: Group statistics for gender ........................................................................ 69
Table 6: Independent Samples Test for gender...................................................... 70
Table 7: Group statistics for legal structure ..............................................................71
Table 8: Independent Samples Test for legal structure ............................................ 72
Table 9: Response on the impact of microfinance on SMMEs output ...................... 73
Table 10: ANOVA on size of SMMEs ...................................................................... 74
Table 11: ANOVA Multiple Comparison on size of SMMEs… ................................. 75
Table 12: ANOVA on annual turnover. .................................................................... 76
Table 13: Multiple Comparisons on annual turnover ............................................... 77
Table 14: Responses on contribution of microfinance on business growth ............. 78
Table 15: Regression Analysis Model summary...................................................... 79
Table 16: ANOVA .................................................................................................... 79
Table 17: Coefficients.............................................................................................. 80
Table 18: Chi-Square Tests: age and marital status................................................ 81
Table 19: Symmetric Measures ............................................................................... 81
Table 20: Chi-Square tests on age and educational level .......................................82
Table 21: Symmetric Measures ............................................................................... 82
Table 22: Correlations ............................................................................................. 84

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 LIST OF FIGURES
Figure 1: Response by gender ................................................................................ 61
Figure 2: Response by age ..................................................................................... 61
Figure 3: Response by legal structure ..................................................................... 62
Figure 4: Response by size of SMMEs.................................................................... 63
Figure 5: Annual Turnover ....................................................................................... 64
Figure 6: Marital Status… ........................................................................................ 65
Figure 7: Educational level…................................................................................... 66

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 LIST OF APPENDICES
Appendix 1: Questionnaire ...................................................................................... 99
Appendix 2: Informed Consent Document .............................................................. 100
Appendix 3: PermissionLetter................................................................................. 101

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 CHAPTER ONE

INTRODUCTION AND BACKGROUND TO THE STUDY

1.0 Introduction

Developing countries such as the Kingdom of Lesotho continue to undertake various

reforms with the aim to tackle poverty and attain sustainable development. In this
regard, entrepreneurial development is gaining strength as the mainstay of economic
development, in particular, its role in employment creation considering the growing
labour force and the ability of entrepreneurs to provide sustainability in the economy at
large. Nonetheless, achieving sustainability of the entrepreneurial establishments has
become a challenge to governments and the private sector itself. This could be
attributable to lack of and limited access to finance considering that SMMEs need
capital to start and achieve sustainable growth of their businesses.

According to International Labour Organisation (ILO)(2003), capital is one of the major

barriers to social-economic development and success for micro-enterprise initiatives.
Kauffman (2005) further highlighted that the SMMEs in Africa do not have adequate
access to finance which prohibited their emergence and development. AfriScope and
FinMark Trust (2015) indicated that the majority of entrepreneurs in Lesotho started
their businesses with low capital where 49% of SMMEs expressed the difficulty in
sourcing money while 19% of the owners stated limitations on cash flow, which is
closely connected to access to finance, as a problem. This research therefore aims at
investigating the role of microfinance on entrepreneurial development in Maseru
Urban. For the purpose of this study, microfinance is described as the provision of
loans, savings and other basic financial services to low-income clients, which include
SMMEs (Mecha, 2017). The term “development or growth” is used to mean an
increase in the amount for example in output, exports or sales, which could lead to
expansion of the entrepreneurial establishment, while the baseline covariates included
gender, legal structure, size of SMMEs, annual turnover, age, marital status and
educational level completed.

This chapter displays information on the background to the study, statement of the
problem, the purpose and the significance of the study. It also highlights a brief

1
description of methodology. It finally provides the scope of the study as well as the
definition of key terms that were used in the study.

1.1 Background to the study

The nature and evolution of microfinance in Lesotho has hinged more on the nature of
national policies that have been established. The underdeveloped policies on
microfinance, based on the money lenders Act of 1989 (Central Bank of Lesotho
Annual Report, 2018), have encouraged the establishment of informal microfinance
service providers. As such, the microfinance services in Lesotho have in the longest
time been delivered through informal arrangements where groups came together in an
informal setting to assist each other (AfriScope and FinMark Trust, 2015). These
groups evolved into more organised cooperatives which have to date been active in
providing microfinance support to the low income communities.

Microfinance is explained by Randhawa and Gallardo (2013) as the provision of

various financial services such as deposits, loans, payment services, money transfers
and insurance products to the unemployed, low income individuals and small
businesses with no or limited access to other forms of financial services. As a result,
the importance of microfinance institutions continues to be significant as the main
source of capital for small businesses. To this effect, it becomes necessary to
investigate the effect of microfinance in facilitating entrepreneurial development.

The report of the Central Bank of Lesotho (2009) indicates that the Government of
Lesotho in an endeavour to provide conducive legal environment that favours
sustainable development of SMMEs, established a wide-ranging set of programmes
through the three Ministries and two agencies which are broadly categorised into
Financial Assistance and Business Support Services. The government financial
assistance to SMMEs includes soft loans, grants, equity financing, guarantees and tax
incentives. Ministries and agencies involved in microfinancing include: the Ministry of
Small Business Development and Cooperatives, Ministry of Trade and Industry and
Ministry of Finance, while agencies are the Basotho Enterprise Development
Corporation (BEDCO) and Lesotho National Development Corporation (LNDC).

Despite having all these institutions, a lot is still needed to boost the SMMEs sector,
as they continue to experience challenges in accessing finance and suffer significant

2
failure thus restricting SMMEs development (Mazanai and Fatoki, 2011). AfricaScope
and FinMark Trust (2015) highlights that 2%of the SMME owners predominantly
borrowed from the bank with less borrowing from other formal non-bank institutions.
The author further indicates that 4% borrow from informal groups and 3% from family
and friends. The majority of SMMEs constituting 91% do not borrow for fear that they
may not be able to reimburse the money or service the loan and due to stringent
lending terms and conditions including the collateral based lending required by
microfinance institutions which mostly SMMEs do not have capital to finance.

The profile of SMMEs in Lesotho is generally dominated by micro-enterprises which

mostly fall under the informal sector. According to AfricaScope and FinMark Trust, (2015),
only 18% of the SMMEs were reported to have been registered while 80% is not
registered (). Micro-enterprises constitute 97% of the total SMMEs in Lesotho. The
distribution by districts places Maseru as the largest entrepreneurial hub with 49% of
the total SMMEs established in Maseru. The SMMEs are engaged in activities within
the retail and agricultural sectors. These SMMEs experience several challenges in
their pursuit to expand and contribute significantly to the country’s economy, which
include sourcing finance, low market access, be it local, regional or international. The
other challenge facing SMMEs is the high operational costs, inadequate infrastructure
and cash flow problems as confirmed by AfricaScope and FinMark Trust (2015).

These financial constraints are due to the perception that SMMEs are considered a
high risk group by the commercial banks in that are unable to provide trustworthy
financial track records (AfDB; 2018). African Development Bank (AfDB) (2018) further
asserts that 56% of SMMEs have been involuntarily excluded from access to finance
and are in need of access to credit. AfriScope and FinMark Trust (2015) identify
access to finance as one of the constraints to a growing business that was highlighted
by the SMMEs. They further state that 49% of SMMEs reported that they had a
challenge sourcing capital to start their businesses while an average of 26% indicated
the challenge they experience with cash flow with access to finance as identified as
the biggest obstacle to growth. The SMME sector in Lesotho is considered one of the
significant contributors to the economy by providing income and employment to a
substantial proportion of the population. According to AfriScope and FinMark Trust
(2015), SMMEs employment share represents 10% out of the total employment of the
total population that is over 17 years of age. This therefore highlights the importance
3
of microfinance to enhance the SMMEs’ ability to realise growth in terms of increase in
the amount of output and turnover as well as contribution to the economy.

In addition, the demand for business development support facilities have been
relatively weak as a result of the very small scale that categorises the operations of
the majority of SMMEs, coupled with their limited capacity to grow their businesses as
a result of saturated markets, cash flow problems and poor access to credit. The
SMME Policy for Lesotho states that SMME development is hampered by various
issues which include limited access to finance (Ministry of Small Business
Development, Cooperatives and Marketing, 2016).

To meet the unsatisfied demand for financial services in Maseru Urban, a variety of
microfinance institutions and Non-Governmental Organisations (NGOs) have emerged
in recent times. This emergence was observed as a positive development towards
enhancement of SMMEs, nonetheless, the financial services sector in Maseru Urban
is still characterised by poor access to financial products and services for low income
communities including SMMEs. This is observed through the size of businesses which
are in the majority of small entrepreneurs that do not depict high start-up capital and
require financial support but rarely able to meet the requirements by the microfinance
institutions.

Naidoo (2013) highlight that even in the event where there is an opportunity to access
finance, people do not take that advantage due to high costs related to credit. Likhang
(2000) also highlight that the financial services in Lesotho come with a high cost more
particularly with the Central Bank of Lesotho increasing the interest rates; financial
institutions tend to provide impossible conditions such as high security. According to
ILO (2003), two-thirds (67.2%) of small entrepreneurs used their own savings to start
businesses. The formal financial sector is currently comprised of the Central Bank of
Lesotho, four commercial banks; Standard Lesotho Bank, NedBank, First National
Bank and Post Bank, licensed money lenders, Savings and Credit Cooperative Society
(SACCOs), and insurance companies and brokers according to Ministry of Finance
and Development Planning (2012). Parallel to these are a number of informal saving
and lending groups as well as community based approaches such as societies and
rotating credit groups known as stokvels. These lending groups are not regulated,
resulting in high interest rates that are imposed on borrowers and have substantially

4
 deprived SMMEs of realising meaningful growth. Taking note of the importance of
capital in the initiation as well as growth of businesses, it is important that micro
finance services are well monitored to best facilitate the operational activities and
growth of the SMMEs.

The choice of Maseru Urban as the main focus for the study was motivated by the
presence of microfinance facilities and activities for a longer period of time including
the concentration level of SMMEs activity, which is higher than in other areas within
the country.

1.2 Problem Statement

The application of microfinance in the Maseru Urban, Lesotho has generally been a
strategy for poverty eradication including making available technical and financial
instruments to support entrepreneurial development.

Despite the government’s efforts in putting in place appropriate tools to support

entrepreneurial activities, there is still low ability of SMMEs to access adequate and
affordable financial resources. This has been a serious setback to the growth in this
sector.

It is against this backdrop that this research work is undertaken to assess the role of
micro financing on entrepreneurial development in Lesotho with the view to illustrate
the extent to which the established micro-finance schemes in Lesotho, such as the
Savings and Credit Cooperatives (SACCOs) play a role in provision of credit to SMMEs
and in influencing their development.

1.3 Objectives of the Study

1.3.1 General Objective

The main objective of the study is to assess the role of micro finance on entrepreneurial
development in Urban Maseru.

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1.3.2 Specific Objectives:

• To assess the challenges faced by SMMEs in Urban Maseru in accessing

micro finance services;

• To identify the role of microfinance institutions in Maseru Urban;

• To identify challenges facing microfinance institutions in providing

services to micro entrepreneurs; and

• To examine the contribution of microfinance on business growth of selected

SMMEs in Urban Maseru.

The specific objectives are important as they highlight the significance of assessing
the needs of the SMMEs in order to establish the elements that influence
entrepreneurial development. They further emphasis the need to undertake an
appraisal of the key issues that impede entrepreneurial development in Lesotho. In
addition, it calls for attention to the availability of instruments that are aimed at
providing financial support to SMMEs to develop their businesses. The specific
objectives further intend to look into the investigation of existing literature relating to
SMMEs support and development that sought to bring to the fore the financing
challenges faced by small enterprises and the influence played by micro financing in
the growth of SMMEs.

1.4 Research Questions

The specific research questions that address the research problem are as follows:

 What are the challenges faced by micro entrepreneurs in accessing

microfinance services?
 What are the roles of microfinance institution?
 What are the challenges facing microfinance in providing services to micro
entrepreneurs?
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  What is the contribution of microfinance on business growth of selected SMMEs
in Urban Maseru?

1.5 Significance of the Study

The study is foreseen to be an instrumental vector for improvement in the activities

between micro entrepreneurs and microfinance institutions through identifying the
key issues that would facilitate and contribute to the development or amendment of
appropriate policies that would enhance the relationship between SMMEs and
microfinance institutions. The findings would also inform the Ministries of Trade and
Industry, and of Small Business Development, Cooperatives and Marketing of the
needs of SMMEs in order to develop more relevant policies to aid SMMEs
establishment and growth. Furthermore, the outcome of the study would enlighten the
Microfinance Institutions (MFIs) on the requirements of the SMMEs in order to adjust
their products. Coordinated work by both the SMMEs and MFIs would therefore enable
the MFIs to improve accessibility of their services and as a result enhance access to
finance by the SMMEs. Thus the study facilitated a common approach and position
given that the study gathered common views of micro entrepreneurs in relation to the
microfinance services. It further forms part of literature on microfinance and
entrepreneurial development in Lesotho for future reference by other researchers
and people who may require material on the same subject.

1.6 Delimitation and Scope of the Study

The study was conducted in Urban Maseru with focus on small, micro and medium
businesses that benefited from financial support within micro-finance institutions
during the past four years starting from 2016 until 2019.

The researcher experienced time constraints in data collection, analysing data and in
final presentation of the report. However, the researcher overcomed these problems
by engaging in aggressive follow-ups with the respondents through telephone
conversation. Furthermore, the researcher experienced a problem of non-response
from some respondents who were given the questionnaires to fill. This was partly
due to the concern that some of the information required is sensitive. In this regard,
the researcher assured the respondents that any information given in the
questionnaire would be treated with maximum confidentiality. The situation of

7
COVID-19 also contributed in the challenges faced by the researcher as it became
difficult to follow- up on the respondents physically which would hasten the data
collection process. The researcher used the telephonic and electronic facilities.

1.7 Summary
The chapter provided a brief introduction and background of the study. The chapter
also outlined the problem statement of the study and intentions of the researcher in
determining the objectives of the study. The next chapter covers literature review of
the study. It highlights the conceptual framework, evolution of microfinance both at the
global and national levels, both the theories of entrepreneurship and microfinance.
It considers the barriers to entrepreneurship development as well as the contribution
of microfinance institutions in financing SMMEs.

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 CHAPTER TWO

LITERATURE REVIEW ON THE ROLE OF

MICROFINANCE ON ENTREPRENEURIAL

DEVELOPMENT

2.0 Introduction

This section portrays the work of other researchers that relate to the topic of the current
research in order to inform the development of the research questions. The
fundamental aim of this section is to present the approach for executing a review of
empirical evidence concerning the role and impact of microfinance on the development
of SMMEs. The section initially provides a synopsis of the literature review. The
section relates to the broad definition of the notion of entrepreneurship that is key in
understanding the definition of SMMEs. It further considers the challenges or
constraints that plaque entrepreneurial development with more focus on microfinance,
which is defined in the subsequent section. Additionally, it reflects on the institutional
and entrepreneurial capacity in providing and accessing support, respectively. Finally,
the chapter concludes the main results of the literature review process.

2.1 Conceptual Framework

2.1.1 Entrepreneurship

Entrepreneurship can be explained as an action of designing and running a new

business, which is usually a small business. It entails innovation, creativity,
management or leadership and profit maximisation or initiation of the new business
which results in creation of innovative work, employment generation and ultimately
economic growth (Robbins and Coulter, 1999). In the similar vein, Muogbo and
Tomola (2018) explain entrepreneurship as “the act of identifying business
opportunities and organising to initiate a successful business activity”. Mondal (1998)
highlights the two schools of thought in entrepreneurship as Schumpeter’s theory of
entrepreneurship which emphasises innovation as the key ingredient that promotes
innovative products, and Austrian theory of entrepreneurial discovery where the
9
entrepreneur produces in accordance with the demands of the customer at a cheaper
rate than competitors.

The importance of entrepreneurship in generating additional jobs through their capacity

to innovate and produce new products cannot be overemphasised (Babu, Krishna and
Swathi, 2013). This therefore has a cascading effect in the economy. This emphasises
the importance of entrepreneurial development in any given country to promote value
addition as supported by El Hadidi (2018) in that “entrepreneurship is important to
national development, poverty eradication and employment generation”. Having
established a general understanding of the concept of entrepreneurship, it becomes
critical to get a better appreciation of the key constituency of this study. This indicates
that entrepreneurship is a process that leads to the creation of SMMEs. As a result,
the next section will engage into the definition of SMMEs.

2.1.2 SMMEs

The SMMEs are acknowledged as important engines that drive economic growth.
SMMEs are usually defined based on issues such as their size in relation to fixed
investments, sales turnover and the number of employees the company has.
According to the classification of SMMEs by the Small Industries Development
Organisation (SIDO), small scale industries are those industries that have employees
that do not exceed 50. It defines micro enterprises as those enterprises that employ
10 people or less (Ščeulovs and Gaile-Sarkane, 2012).

Berisha and Pula (2015) indicate that the most general criteria for defining an SMME
is by the number of employees that work in the establishment. The duo further
indicates that there are two approaches to the definition of SMMEs, namely, the
quantitative approach and the qualitative approach. They also explain that the
quantitative approach is the one that is commonly used. This is the case in Lesotho
as Darroll (2008) explains that small-sized businesses are defined as those that
employ between three to nine people while medium- sized businesses employ between
ten and fifty people. However, Stokes and Wilson (2010) indicate that as much as the
qualitative method seems easier to outline the level of enterprises, it has its limitations
as it assumes that the economic sectors are the same. The authors demonstrate that
different sectors could require different numbers of employees. They also note that the

10
 World Bank defines the SMMEs using three quantitative criteria, namely, the number
of employees, the total assets as well as total annual sales.

The definition of SMMEs has some connection with the ability in accessing finance as
well as the type of financial tools that could be available to such SMMEs. Evidently
access to finance plays an important role in developing microenterprises and
inaccessibility of these financial resources hinders development of entrepreneurs.
Considering the challenges faced by SMMEs in accessing finance from, the formal
financial institutions as the financial institutions consider SMMEs a high risk resulting
from the size of the loans SMMEs take. These small loans, according to financial
institutions cause high transaction and operation costs. Additionally, SMMEs have low
capital to meet the collateral requirements. As a result, and to counter financial
exclusion, SMMEs resort to obtaining financial support through the informal channels
such as rotating savings and credit associations (stokvels), family members, friends
and unregistered money lenders.

2.1.3 Microfinance

Microfinance is the emerging tool for economic development; however, it has had
many different definitions by different researchers. Lan (2004) explain microfinance
as the act of facilitating access to financial services to the low-income groups and
those that are self-employed. According to Wydick and Kevan (2001) access to credit
by the poor is important for two reasons, namely, the possibility to invest the
borrowed capital into small businesses and that it boosts economic development as it
increases the capital that the company possess which in turn leads to employment
creation. Tariq, et. al. (2015:184) explain microfinance as the “extended form of small
collateral free institutional loans”. Ali, Hasaballah and Abu-Hadi. (2013) purport that
the purpose of making micro-loans available to small business owners is to ensure
availability of income for new projects including the extension of the existing
businesses. According to Terano, Mohamed and Jusri (2015) microfinance as a
minimal amount of credit provided to the poor at subsidised interest rates. In the
same vein, Terano, Mohamed and Jusri (2015) define microfinance as the delivery of
different forms of financial services to the poor.

11
There are established microfinance models, which according to Olubenga (2017)
Grameen model and the progressive Lending-Banco Sol model are being the most
common. According to Waithaka, Marangu and N’gandu, (2014) micro credit has been
an effective tool for development of SMMEs as it assists them in accessing capital for
their businesses whether they are start-ups or the already existing businesses. Ali,
Hasaballah and Abu-Hadi (2013) confirm that access to microfinance service for
SMMEs remains acknowledged as a significant element for their success in their quest
to build their comparative advantage, job creation as well as meaningful contribution
towards poverty eradication. Sayed and Trivedi (2016) explain SMMEs sector as
subsidiary units that are complementary to large industries and contribute significantly
to the socio-economic development of India. According to Maliehe (2014) the majority
of the Basotho contribute to the economy through the SMME establishments which are
predominately in these sectors: the retail, which constitutes the largest sector, the
service, manufacturing, agro processing, and tourism, professional, financial,
commercial and commercial farming sectors.

2.1.4 Microfinance Schemes in Lesotho

Microfinance schemes can refer either to the Savings or/and Credit Cooperative
Organisations (SACCOs). These schemes are involved in the system of lending small
amounts of money to entrepreneurs to assist with the start-ups or expansion. In most
cases the microfinance schemes are formally registered and owned by members of
the cooperative. It encourages members to save money and utilise collective funds to
give loans to members at reasonable interest rates and to borrowers that are non-
members of the cooperative. In most cases, the amounts of money that SACCOs lend
out are significantly small to attract the interest of conventional lenders This has led to
the emergence of micro lenders to address the need (Kwai and Urassa, 2015). Lesotho
Times (2018) highlights that the People’s SACCOS in Lesotho are anticipating to be of
service to low income population to ensure that they have access to financial services
by providing less stringent requirements. Lesotho Times (2018) indicates that there are
120 SACCOS in Lesotho.

The importance of microfinance credit schemes in facilitating the ability of

impoverished persons to start businesses cannot be overemphasised. The

12
contribution of micro lending in changing the economic environment of the areas where
it is most prevalent is evident.

Micro lending has been beneficial to people at both ends of the economic spectrum.
The money is advanced to the needy entrepreneur who utilises the money to start or
finance business operations, which if successful lifts the entrepreneur out of poverty.
Resultantly, the repayment of the loan by the entrepreneur provides a return on
investment for the lender.

2.2 Evolution and Development of microfinance

2.2.1 The global context

The existence of microfinance has been in various forms and dates as far back as the
15th century when the Mounts of Piety was formed in Europe with the objective of
reintegrating the poorest populations into the acceptable community life (BNP Paribas,
2017). Furthermore, BNP Parabis (2017) expresses that in the 1800s, the
microfinance evolved where the first savings and loan cooperation was established in
German’s Rhineland. This institution facilitated access to credit primarily by the
working class. The cooperative movement soon expanded to other countries in Europe
and North America and further to developing countries.

The more advanced microfinance services emerged during the 1970s in Bangladesh
having noted that the microfinance tools that were developed in Europe could not
sufficiently address poverty concerns (Mersland and Strøm, 2012). This microfinance
system focused on providing poor communities with capital to initiate their own
businesses and it started with support to a group of women to start a bamboo stools
production company which became successful in generating employment thus
combating poverty (Yunus, 2016). Further in the same period the Irish Loan Fund
system extended loans to the poor families with no requirement of collateral.

This concept developed until early 1980s where the programme was upgraded into the
status of a banking establishment, the Grameen Bank, which was also known as the
Bank for the Poor. The main focus of intervention of donors and governments was
provision of credit to small and marginalised farmers in view of improving productivity
and income generation. These services grew and expanded into a number of branches
across the country (Shukran and Rahman, 2011).
13
Furthermore, Shukran and Rahman (2011) highlight that during the 1980s to 1990s
this model expanded across the world through the intermediaries of NGOs and
financial institutions. A number of microfinance institutions were established across the
globe. During this period, the microfinance model was adapted in Latin America where
rural agricultural sector was supported. The traditional informal financial system known
as the Rotating Savings and Credit Associations (ROSCAs) which were organised by
the poor communities themselves became popular (Kabuya, 2015). Considering the
low financial inclusion that prevailed in developing countries, particularly in Africa, the
informal finance sector is huge with the majority of the populations utilising the service.

The convening of the first microcredit summit in Washington in 1997 demonstrated the
importance of this concept. It was in the mid-1990s that the terminology evolved
whereby ‘microcredit’ was replaced by ‘microfinance’ that emphasised the expansion
in scope of support to go beyond credit to include services such as savings, insurance
and money transfers (Cull and Morduch 2017).

The early 21st century marked the rise in international microcredit facilities with the UN
marking 2005 as the International Year of Microcredit. The recognition at the global
level that microcredit can be a viable vehicle for economic development saw the
accreditation of Muhammad Yunus, the founder of the Grameen Bank, as a Nobel
Peace Prize winner in 2006 (Robinson, 2001).

To date, the concept of microfinance has been modernised and expanded its mandate
to provision of various financial tools that has to a large extent presented more benefits
to the financially excluded part of the society. As Mutoko and Kapunda (2017),
highlights that the number of financially excluded population in developing countries
can better be served and benefit from microfinance services if such financial services
are integrated into the three levels of financial systems, namely, micro, meso and
macro levels.

2.2.2 The Lesotho context

The microfinance concept in Lesotho dates as far back as early 1960s where the credit
unions existed as a form of micro-credit to small business holders. With time it
developed into microfinance, covering a broader financial base (Letete, 2013). There
14
is no policy that is specific to microfinance in Lesotho. Nonetheless, the microfinance
institutions are regulated by the Central Bank of Lesotho under different Regulations
and Acts (Central Bank of Lesotho, 2004).

During mid-1970s, the establishment of the Basotho Enterprises Development

Cooperation (BEDCO) was executed by the government of Lesotho with the aim to
support the Lesotho National Development Cooperation (LNDC) to effectively focus on

the small and medium Basotho owned businesses (BEDCO, 2009). According to the
report by BEDCO (2009), the institution had a mandate to also provide microfinance
services to the SMMEs that are owned by Basotho. These services had wide range
coverage across the ten districts of the country and the main beneficiaries were
women. These beneficiaries obtained skills development support as well as marketing
of their businesses. The microfinance services were not sustainable in their
implementation due to failure of the beneficiaries to repay their loans.

The SMME Support Network-Lesotho (2007) indicates that previously it was possible
for SMMEs in Lesotho to access loans easily as a result of availability of easy loans
offered by the government through BEDCO. However, the high rate of businesses
defaulting on their repayment of loans led to the foreclosure of BEDCO’s facility to
provide small holder loans. This undertaking led to more financial exclusion causing
access to finance by the poor to become more challenging. The collapse of the
financial services arm of BEDCO left the commercial banks as an option for the SMMEs
to obtain capital. In the early 2000s, the Lesotho Post Bank was established to provide
financial services and extend credit to the marginalised population (Lesotho Post Bank,
2010). During the same period, the Cooperatives Act was amended following which
the Boliba and Letsema cooperatives were established and according to Ozer and
Kamat (2012), these cooperatives have sustained their operations.

In mid-2000s, the government of Lesotho with the assistance of the donor community
developed the Financial Inclusion Investment Programme that was aimed to promote
the inclusive finance as an effective tool to enhance access to financial services
(Letete, 2013). This was foreseen as a microfinance programme that would assist in
improving the lives of the poor through mobilisation of domestic savings as well as
support to small and medium scale projects with the aim to generate employment
(UNDP, 2014).

15
To date, the microfinance sector has developed significantly with the informal financial
institutions that comprise of Rotating and Savings Credit Associations (RoSCAS) and
community societies increasingly being established. In the similar vein, the
microfinance institutions such as commercial banks, money lenders and insurance
companies continue to exist and avail themselves for financial support. The prominent
challenge relates to the outdated regulatory framework which is not sufficiently

comprehensive considering the current developments in the sector. The legal

framework does not recognise the informal providers of microfinance such as the
RoSCAS and burial societies as they are not required to register by law. Other
institutions take advantage of the loopholes in the regulations and lack of capacity of
the regulator and engage in illegal operations which bring challenges for entrepreneurs
to access finance (Letete, 2013).

2.3 The concept of SMMEs in Lesotho

The increasing rate of unemployment in Lesotho and the inability of the formal sector,
namely, public sector, parastatals and private sector to fully absorb the jobless
population in the labour market demonstrate the importance of SMMEs as alternative
route for employment creation (African Development Bank, 2012). According to the
SMME Policy, the SMME sector in Lesotho has become a significant contributor to
employment. The Ministry of Trade and Industry, Cooperatives and Marketing (2012)
highlighted that the inability of SMMEs to sustain pressure within the business
environment and are driven out of business affect the economy negatively as it
increases the level of unemployment.

According to FinScope (2015) the SMME sector has generated employment to

approximately 118, 000 people, and representing ten per cent of the total population
above seventeen years (FinScope, 2015). Tlhomola (2011) concludes that there are
prospects for potential impact of SMMEs in generating employment opportunities than
it is the case presently, and their contribution will further be pivotal in the construct of
economic development in Lesotho.

The organisation of SMME sector in Lesotho is characterised in line with the number
of employees and turnover. Table 1.1 illustrates a comprehensive structure of SMMEs.

16
 Table 4.1 Structure of SMMEs

Micro Small Medium

No. of employees, Less than 5 6 – 20 employees 21-50 employees

including the owner employees

Annual turnover Less than M 200, Less than M1, 000, Less than M5, 000,

000 000 000

Legal structure Informal Formal Formal

No. of business 97 3 0.3

establishments (%)
Source: FinScope (2015)

The government in recognising the importance to the SMMEs sector in the economy
developed a number of objectives in the National Development Plan to support the
SMME growth and development through provision of incentives as well as to assist
them in the acquisition of appropriate management and technical skills SMMEs sector
in Lesotho is identified as a key contributor to job creation and subsequently poverty
reduction (Ministry of Development Planning, 2012). According to the SMME Policy of
2016, there are 14 categories of small, micro and medium enterprise businesses in
Urban Maseru which consist of a heterogeneous group of agricultural and industrial
sectors that are composed of clothing, agriculture and services sub-sectors.

2.3.1. Microfinance Operations in Lesotho

The financial sector in Lesotho is composed of four commercial banks, three of which
are subsidiaries of South African banks and one being government-owned bank, nine
insurance companies, fifty insurance brokers, eleven Microfinance Institutions (MFIs),
two asset management firms, seventy-two money-lenders, and two money transfer

17
institutions (MTIs) (Lyn, 2019). According to the Central Bank of Lesotho, (2018)
Financial Stability Report, the share of MFI assets to financial sector assets is 3.3 per
cent, while all MFI assets amount to 9.3% of GDP.

While there is a wide range of institutions that provide microfinance services in Lesotho,
there exist a wide discrepancy in the definition of microfinance by different practitioners
in Lesotho, where others understand microfinance to mean financing for poverty
reduction with particular focus on microenterprises while others perceive it as short-
term cash loans to formally employed individuals.

The country offers a number of microfinance services that include:

2.3.1.1 Credit Extension

The key factor that facilitates ease of starting businesses for the entrepreneurs is
greater access to credit. On the other hand, the accessibility of credit makes it easier
for households to spend. Nonetheless, excessive credit extension could make
creditors vulnerable to adverse shocks and increase the risk to the financial system.
Credit extension is linearly related to demand, as such when there is increase in
demand for output, the entrepreneur naturally requires more capital hence increase in
loans (Central Bank of Lesotho, 2013). The credit extension in Lesotho has recorded
an increase during 2012, which the Central Bank of Lesotho (2013) perceives as
encouraging considering the importance of private sector or entrepreneurs in the
economy. The Central Bank of Lesotho’s economic review of 2013, however notes
that the economy of Lesotho is characterised by a higher share of credit to the
households than enterprises.

The government of Lesotho undertook some policy measures that saw the increase in
the credit to the private sector. These included the signing of Memorandum of
Understanding with commercial banks for partial credit guarantee fund which was
further supported by the establishment of the partial credit guarantee scheme by the
Lesotho National Development Corporation (LNDC) to support investors who intend to
start or expand SMMEs but are unable to access financial assistance from the banks
due to lack of collateral (Cental Bank of Lesotho, 2012).

18
Despite these efforts, most Basotho still access credit through informal providers or
family and friends (AfriScope and FinScope, 2011).

2.3.1.2 Savings

Savings positively impact the financial growth of the poor and at the same time the
output for the institutions. The multipurpose cooperatives bank such as Boliba and
Lephola have become most used by entrepreneurs for savings. The Lesotho Post
Bank is licensed by the Central Bank of Lesotho and started operations by providing
mainly savings products and later diversified into lending.

These provide a good avenue for the SMMEs to be able to access savings services
and be able to save their money. As such they are prevented from taking risks by
using mechanisms that are costly to them like investing in assets that would not bring
profitable returns. Campion and White (2001) emphasise the importance of savings
as they facilitate and contribute to the financial development of the poor as well as the
output for the institutions. Savings further enable the SMMEs to guard against the
unforeseen problems they may encounter. However, in most cases the banks require
clients to have savings in that particular bank which could be seen as a way to
guarantee repayment of loans.

Despite all the efforts to increase accessibility to finance for SMMEs in Lesotho, there
still are SMMEs that remain involuntarily excluded from access finance, which
according to AfDB (2018) accounts for 56 per cent of SMMEs in Lesotho.

2.3.1.3 Insurance Provision

Microfinance institutions have incorporated new products such as insurance in order

to assist their clients to also manage risks. According to Latortue (2003),
Microinsurance is the protection of low-income people against specific perils in
exchange for regular monetary payments (premiums) proportionate to the likelihood
and cost of the risk involved. The commercial microfinance institutions in Lesotho is
experiencing lack of knowledge about the effective operation of microfinance
including ineffective legal system to enforce contracts as cited by UNCDF (2010).
There have been a number of community based insurance groups that have been

19
operational in Sub-Saharan Africa which according to Jakab and Krishnan (2001)
have been successful. Churchill (2002) emphasizes the importance of the
multifaceted relationship with the client in strengthening customer loyalty or reducing
desertion by making the switching costs expensive and as a result encourages
microfinance institutions to adopt the models of community based micro insurance.

2.4 Theoretical Framework

2.4.1. Theories of entrepreneurship

There are a number of approaches to entrepreneurial process, which provide different

definitions of entrepreneurship in relation to its social context, innovation, profit
maximisation as well as creativity and risk taking. As such an entrepreneur is able to
identify an external opportunity to exploit and capitalise on them. As a result, the
entrepreneur has to be innovative which will pave the way to the ability to match the
resources at hand with the opportunity in order to enable the entrepreneur to leverage

such resources to develop competence that would enable him/her to acquire external
resources for start-up or expansion. To realise success in entrepreneurship, some of
the schools of thought that defined entrepreneurship include the Theory of Economic
Development by Schumpeter, The Theory of Entrepreneurship by Mishra and Zachary
as well as the Austrian Theory by Kirzner.

2.4.2 Theory of Economic Development – Schumpeter

In the Theory of Economic Development, Schumpeter (1934) emphasised the role of

the entrepreneur as an innovator and the bearer of the mechanism of economic
change. Schumpeter (1934) defines the role of the entrepreneur as to develop new
products through the combination of the productive factors. This exercise assists in
maintaining the competitive edge of the entrepreneur in the market.

Schumpeter in delineating the economic development, expresses the importance of

the activities of entrepreneurs in generating new ideas and product combinations
through institution of a new product and the institution of a new method of production.
Furthermore, the entrepreneur requires two things to be able to perform effectively,
namely, the existence of technical knowledge which will enable the entrepreneur to
develop new product or be able to introduce new factors of production. This according
20
to Schumpeter (1961) does not present any challenges considering the availability of
unused technical inventions that are at the disposal of the entrepreneur. The second
aspect relates to the execution of the first aspect which would require the entrepreneur
to have the purchasing power in the form of capital or credit which can be solicited from
financial institutions.

The consideration of the role of knowledge in entrepreneurship by Schumpeter is

important and emphasises the differences between the routine action and the
economic leadership. The function of the entrepreneur in this context is considered to
be that of economic leadership whereby an entrepreneur is able to carry out new
economic combinations or innovations. These according to Schumpeter are innovative
entrepreneurs that are able to provide for general economic development of the
country. This perspective becomes important and relevant to most developing
countries for which entrepreneurship is perceived in the context of job creation.

According to Schumpeter (2011), provision of credit is important but only reasonable if

it is extended to an innovative entrepreneur that will in turn have impact on economic
growth. He illustrates that without credit provision, the economic system cannot yield
the expected results. Credit creation is therefore an integral part of the process of
development as it enables entrepreneurs to borrow from microfinance institutions in
order to expand their businesses. He further emphasises that every new venture
requires funding be it through borrowing or ownership.

There are however concerns that the theory advanced by Schumpeter is no longer
relevant for the current business environment considering that the activities relating to
innovation and invention are predominantly carried out by large corporations instead
of individual entrepreneurs as suggested by Schumpeter. Furthermore, the assertion
that innovation is effectively financed by the credit from banks is not valid in the current
economic environment as the banks provide short-term loans while innovations require
long-term financial support.

2.4.3 Theory of Entrepreneurial Discovery – Kirzner perspective

The entrepreneurial discovery theory was introduced by Kirzner (1973), in which

Kirzner underscored the important role of the entrepreneur in eradicating price
21
disparities in the market, thus creating equilibrium in the market. The entrepreneur is
driven by profit making incentive of buying goods at lower prices and selling at higher
prices. Kirzner is of the view that entrepreneurs determine prices in the market. As
such, the entrepreneur is motivated by prospective profit opportunities in the market.
Kirzner’s (1973) philosophy that entrepreneurs seek opportunities to achieve market
equilibrium motivated the development of the individual-entrepreneurial process that
entails the ability to identify an external opportunity.

2.4.4 The Theory of Entrepreneurship - Mishra and Zachary

Mishra and Zachary (2014) highlightthat the entrepreneurial value creation theory
analyses the substance of entrepreneurial process through consideration of the
process that uses a two-stage value creation and appropriation framework. The
authors indicate that during the foundational stages of the venture creation, the key
motivation for the entrepreneur is the aspiration for entrepreneurial reward and
discovery of an external opportunity.

The prospects for the entrepreneur are then transformed into developing an
entrepreneurial competence, which becomes an asymmetric advantage for the
entrepreneur. The entrepreneur will engage in effectuation throughout the first stage
of venture formulation which can be possible if practised within and among the
entrepreneur’s social network through a phenomenon known as bricolage where
resources are shared and traded (Baker and Nelson, 2005). This infers that the
entrepreneur will be able to establish a business with the resources that are available
and request support from other entrepreneurs and customers. It is appropriate that the
entrepreneurial proficiency produced in the first stage of value creation offers a
differential advantage to the entrepreneur thus allowing the entrepreneur to move to
the second stage.

In the next level of the business monetisation, the business may acquire resources
from outside. These could be in a form of business funds or strategic partnerships.

2.5. Theories of microfinance

Microfinance is critical to development of entrepreneurship considering that in the

22
absence of access to finance the innovative ideas by micro enterprises are not useful.
The entrepreneurs, particularly the poor, can only see their ideas materialise if they
have access to micro-finance services. There are three models of micro-finance that
became popularly known, one is the Grameen Model with its origin in Bangladesh,
while the other is Banco Sol that originates in Bolivia with the last being the Interest
Free Islamic Microfinance Model.

2.5.1 The Grameen Model

The Grameen Model was developed from the work of Professor Muhammad Yunus in
Bangladesh in 1976. It concentrated on the poor and low-income households. The
principles of the Grameen Model are as follows:

2.5.1.1 The Community Banking Methodology:

The Grameen Model is based on social collateral, which implies the extension of loans
to groups of individuals as it assumes that the collective responsibility will minimise the
rate of loan defaults. By virtue of lending to groups instead of individuals, the model
increases the opportunity for high rate of loan recoveries as the members of the groups
hold each other accountable for their loans and therefore pay back on time. The group
members were only allowed to borrow again if the previous loan has been fully paid.
In the event that one member defaults in their loan repayment, the entire group would
get disqualified, which was the motivation for the group to closely monitor loan
repayment of its members (Muhinuddin. et. al, 2020).

In this scenario, the community forms different groups of five members with potential
to borrow and only two of the five are granted loans in the first instance with the aim to
alternate other members with time. The Group is therefore placed under observation
for a month in order to ascertain if participants are complying with the rules of the bank.
The other members of the group that have yet to borrow, only become qualified to
borrow if the first two that borrowed are able to pay back the principal amount plus
interest over a period of 52 weeks. This arrangement therefore compels the entire
group membership to put pressure on those that borrowed to abide by the rules and
regulations that administer the procedures of the bank.

Moreno (2010), underscores the significance of the Grameen Bank’s methodology in

23
promoting and proving the ability of microfinance in creating valuable conditions for
poverty eradication. The Grameen Bank has demonstrated this by the implementing
the expansion of services for access to credit to the poor communities across rural
Bangladesh.

2.5.1.2 The Direct Credit:

This model also provides a possibility to borrow as an individual. This direct credit
facility is provided to an individual borrower without being expected to be a member of
a group. It therefore keeps the borrower from peer pressure in order to ensure
repayment and confers such responsibility to the borrower. However, it is always

important that the lender should be cognisant of the challenges of non-repayment that
are likely to occur in this situation considering that peer pressure exerted by the group
members facilitates high repayment rates. As a result, the bank needs to fully
investigate and know the customers well enough before loans are granted
(Muhinuddin. et. al, 2020).

2.5.1.3 The Village Banking:

The community creates groups of 25-50 individuals with low income to establish a
community-based credit and savings facility in order to facilitate improvement of
standard of living for such community members. There are direct economic benefits
from the facility which include employment creation. It could be expected that the
initial capital could be sourced from a loan, following which members themselves
manage the credit and savings facility. The management of the facility involves
member being able to elect members and drawing own by-laws, allocate loans to
individuals, collect repayment and savings by themselves through the officers. Unlike
the traditional banks, the facility only expects that loans are supported by moral
collateral and the promise that the group is used as a guarantee for loan taken by other
members of the group (Muhinuddin. et. al, 2020).

Adaju (2006) presents a microfinance model that advocates for a credit lending position
of a “90-between” organisation: between lenders and borrowers. The intermediary
between the lenders and borrowers plays a critical role in providing credit awareness

24
and education among the borrowers including the importance of starting savings. The
motive of this model, therefore facilitates improvement in the credit worthiness of
borrowers which would in turn mobilise borrowers to take up more credit. The
borrowers also have an opportunity to establish an association that will enable different
microfinance activities can be introduced. However, the focus of the association should
respectively be on youth and women. The association may be a savings group,
religious group, political, cultural or professional. The attributes of membership in the
group is important as the group can be effective and work harmoniously if there are
similarities in some aspects. This promotes trustworthiness among the group
members as the expectation is that credit is taken interchangeably while other
members of the group that await their turn to take credit serve as guarantors.

2.5.1.4 The Bank Guarantees:

The lending organisation requires a bank guarantee in order for the loan to be provided.
The bank guarantee could emanate from different sources such as donors or
government agency or from members of a savings group. In this regard the guarantee
serves as credit collateral.

2.5.1.5 The Credit Union:

The credit union represents a group of people that come together to save money with
the aim of extending loans amongst the membership at a rational level of interest rate.
The union is managed by members who are commonly people that share some history,
such as working in the same place, being affiliated to the same union or living in the
same community.

2.5.2 Progressive Lending – BancoSol Model

The progressive lending concept was introduced to provide loans to the poor
entrepreneurs noting the depth of poverty and high unemployment rate in Bolivia and
became an officially regulated financial institution in 1992 (Agion and Morduch, 2003).
This access to different types of lending services by poor entrepreneurs facilitated their
growth. BancoSol initially focused on group lending but at a later stage, in 1999 re-
directed its services to individual loans. The shift to individual loans used other forms
25
of guarantees such as collateral assets and personal guarantors. The 2000s saw a
significant change in BancoSol’s service provision as it moved from providing
microcredit services to offering microfinance.

2.5.3 Microfinance – Interest Free – Islamic Microfinance Model

The practice that MFIs are providing micro lending on high interest rates reaching up
to 30% and constituting higher rates than those offered by the commercial banks has
increasingly become a concern for micro entrepreneurs. This places high level of
pressure on the borrowers that could even impact negatively on the success of their
businesses (Dhumale and Sapcanin, 2008). This results in the increasing
uncertainties on the overall desired impact of microfinance on the poor. The MFIs
however indicate that charging these high rates is mainly to offset the high institutional
costs, the cost of providing small loan amount as well as the risk factors surrounding
small entrepreneurs. The philosophy behind this model is that the entrepreneurial risk
should be shared and the poor should also be involved in the entrepreneurial activities.

The Islamic microfinance model perceives microfinance as a social business albeit the
possibilities of profit earnings though not at high rates. As such, it facilitates financial
inclusion of all people. The interest free finance for microcredit is perceived by
Raghuram Rajan (2008) as an effective mechanism to strengthen the vulnerable class.

2.6. Barriers to entrepreneurship development

There are various challenges that confront small entrepreneurs in order for them to
realise their full development potential. These include: limited access to finance, heavy
costs of compliance and lack of information, education as well as appreciation of
existing support services (Davidson, 2004).

2.6.1 Access to Finance

The key impediment to growth in entrepreneurship has been identified as poor access
to finance by the entrepreneurs. In most cases the SMMEs are reluctant to approach
financial institutions for fear of rejection in terms of eligibility to borrow (Woldie et. al,
2012). Additionally, the SMMEs generally do not possess the requisite assets that are
26
considered valuable to be considered as collaterals (Woldie et. al., 2012). In most of
the situations, the level of loans required by SMMEs is very low and generally criticised
by the financial institutions to be attracting huge administrative costs. As a result, they
are considered too costly as supported by Segrado (2005).

Beck (2007) and Chavis, et.al. (2010) established that access to capital has been a
major challenge to enterprises and Liedholm and Mead (1998) were no exception in
acknowledging this status. Tambunan (2014) reports that challenges that restrict
development of SMMEs include the financial and structural weaknesses faced by the
microfinance institutions.

2.6.2 Heavy costs of compliance

One of the related to challenges to access to finance by SMMEs is the heavy costs of
compliance they face with managing the loans from the financial institutions if they are
successful in obtaining them.

Tariq, et. al. (2015) express that the small business owners face problems during the
loan repayment phase as they may not be ready to part with the required amount. This
is magnified by the limited time that the loan repayment is required, which places
pressure on the small business owners as the business would still be progressing into
stability and sustainability. This challenge of heavy cost of compliance with the terms
of financial institutions which is indeed as a result of the size of the business restricts
establishment and/or potential growth of such businesses.

Furthermore, borrowing from commercial financial institutions requires provision of

personal securities and guarantees. Normally the SMMEs do not have adequate
capacity to provide such securities making it difficult to be eligible for securing loans
easily.

2.6.3 Education

Entrepreneurs are generally characterised by low education and skill levels which
present challenges in their ability to access different financial services offered to them.
According to Tambunan (2014), the SMMEs also face concerns of the lack of capacity

27
to develop bankable projects for financing which are usually considered not
economically visible or viable to warrant financial support. Darroll (2008) in agreement
to the challenges already highlighted express that in Lesotho, SMMEs face key
constraints relating to lack of demand or customers, inability to access finance, lack of
collateral and high interest rates on the loans as well as lack of entrepreneurial and
technical skills which has to a considerable extent hampered development of SMMEs,
which is also supported by Lesotho Times (2011).

According to Damiani and Ricci (2013) entrepreneurial education plays a significant

role in propelling the success of the business considering that the management of the
business is the heart of the success of the business, as a result, management skills
are key in building a successful business. Isaacs et. al. (2007) provides a South African
experience in highlighting that entrepreneurial education and support form a significant
component of business education.

Kerimova (2008) maintains that entrepreneurial skills including technical skills should
be prioritised when providing business skills training which is considered as formal
training. According to Richards (2006), education plays an important role in any
country, in terms of its positive contribution to the gross domestic product (GDP). The
low rate of the population with higher education credentials has been shown to result
in lack of networking, and challenges in accessing resources that are important in
attaining sustainability of small businesses. The low education rate is intensified by
geographic, cultural, or social limitations as well as lack of resources.

The low educational attainment further places challenges in the ability of entrepreneurs
to undertake the processes of requesting funding, such as completing forms for funding
applications which constrain the development of SMMEs. This therefore demonstrates
that the degree of education of the entrepreneur considerably impacts the development
of the business entity, which can improve the capability of entrepreneurs to resolve
challenges that affect their businesses. Isaacs et al. (2007) emphasise that literacy is
an important asset for the business.

This section identifies lack of finance as a key impediment to the development of

SMMEs. It therefore follows that the establishment of the possible financing modalities
or mechanisms are identified and in this regard, microfinance will be assessed as a

28
potential financing instrument for SMMEs development.

2.7. Functions of Microfinance Institutions

There are various issues that impact the growth of SMMEs, which Bekele and Zekele
(2008) define in four categories, namely, macro-economic factors, factors affecting
access to social capital, factors affecting internal efficiency of the SMME and micro
finance services. Business growth as defined by Delmar, Davidson and Gartner (2003)
relates to measurement of absolute or relative changes in physical outputs, profits and
market share. To attain these factors, the intervention of microfinance institutions
becomes necessary. Huynh and Petrunia (2010) highlight that companies that have
high intentions to grow usually have higher levels of debt than those that have a low
inclination towards growth.

The conventional financial institutions such as banks have had a limitation in providing
loans to the poor for a number of reasons including lack of guarantee or collateral as
asserted by Ledger (1999). As a result, it becomes challenging for the poor to obtain
financial assistance from these banks. This situation therefore led to the emergence
of microfinance. The development of the microfinance in most countries such as
Lesotho was to break the barrier for small businesses to access capital. The
microfinance institutions assist the underprivileged to begin and facilitate their
enterprises and to accumulate assets for their economic security and stability.

This emphasises the ability for microfinance to strengthen micro enterprises (Waithaka,
Marangu and N’gandu: 2014). However, the extent to which the SMMEs have taken
advantage has not been clear. This could be the cause of the increasing levels of
unemployment, as the foundation for industrial development of any country is
entrepreneurial activities by their central role in utilising and undertaking value addition
to local resources. According to El Hadidi (2018), one of the key reactions to the
developmental challenges that face developing countries has been the pursuit of
entrepreneurial development schemes that aim to enhance access to capital by the
SMMEs.

It has been generally noted that access to capital by SMMEs has become an
impediment to the growth of businesses in this sector. The key objective for
29
microfinance was to make capital accessible to the poor who were not privileged to get
loans from conventional sources (Das: 2018). According to Darroll (2008), in the case
of Lesotho, sixty-seven per cent of businesses have at no time made an effort to access
finance from an officially recognised institution. This presents an overall understanding
that the loans from the bank including overdraft services were not principally attainable
to small and micro-businesses. However, this segment of businesses is generally
incapable of providing the required security for the loan.

El Hadidi (2018) explains that microfinance institutions provide social support to

businesses which include the formation of groups, training in financial literacy and
developing self-confidence, indicating that microfinance institutions can provide both
financial and social interventions that are important for sustainability and profitability of
the small businesses. Gedion (2016) re-emphasises that, to avoid business failures,
microfinance institutions should provide training for entrepreneurs.

Kumar (2017) highlights the key characteristics of microfinance institutions as the

provision of small loans to the poor rural community for their working capital; they only
undertake minimal assessment of borrowers and investments in comparison to
commercial banks and their ability to settle for lower requirements in terms of
compulsory savings and group guarantees instead of collateral security as demanded
by commercial banks. Waithaka et. al. (2014) indicates that the purpose of
microfinance institutions is to provide financial services to meet the needs of the
unprivileged people in order to meet developmental goals. However, Sharma (2015)
indicates that there are not sufficient numbers of MFIs in Nepal to adequately
accommodate the financial needs of the poor.

In the same vein, the Standard Lesotho Bank administers the Entrepreneurship
Development Programme (EDP) aimed at “addressing the challenges of
unemployment, lack of finance for Small, Micro and Medium Enterprises (SMMEs),
financial inclusion for unbanked and under banked sectors of society as well as
capacity challenges that face the entrepreneurial sector in Lesotho”, (Standard
Lesotho Bank: 2018).

30
2.7.2 Challenges faced by microfinance

2.7.2.1 Unsupportive legal and regulatory environment and limited Donor

funding

The fact that there is minimal support to MFIs has an impact on the sustainability of the
institutions. Moderno (2010) asserts that microfinance institutions are compelled to
commercialise their services so as to reach the sustainability they require to minimise
their reliance on funding from government and donors.

There is need for government to ensure that there is conducive legal and regulatory
environment that would facilitate effective operation of the microfinance institutions. As
such it is critical that the government and other regulators have clarity on the
characteristics of traditional and formal microfinance in order to execute appropriate
regulations.

Carrasco (2006) highlight that there are still cases of supervisors that do not
understand the microfinance industry, while Campion (2001) express the need for such
supervisors to understand the structure of the microfinance industry in order to ensure
effective operation of microfinance institutions.

Having considered the background of microfinance institutions and their importance in

supporting the SMMEs, it becomes important to highlight how and from what sources
the SMMEs get their financing. The section that follows will identify the possible
sources to microfinance schemes available to SMMEs.

2.7.2.2 Lack of right technical skills for the managers and staff

There is a growing problem that most microfinance institutions do not have the capacity
to effectively manage their institutions. Gallado (2001) in supporting this statement
emphasises that the challenge is more acute in developing countries. The other
challenge is the staff turnover within the microfinance institutions considering the high
competition in the industry whereby institutions lose their trained staff to their
competitors.

31
2.7.3.3 High Interest Rates

The challenge faced by the SMMEs in accessing financial support is the high interest
rates required on the loans. This also impacts on the microfinance institutions as it
becomes difficult for the SMMEs to repay their loans with such exorbitant interest rates
that significantly multiply the amount of money to be repaid. This default by SMMEs
therefore leads to a collapse of most of the microfinance institutions (Woldie, et. al.,
2012).

2.8 Contribution of microfinance Institutions in Financing SMMEs

The growth of microfinance services has been substantial worldwide; however, the
impact on entrepreneurship has not been clearly defined. Microfinance has offered a
wide range of financial options to the portion of the population that is not able to access
services from traditional banks. This view is supported by Anan (2002) who illustrates
that the key values of microfinance comprise; access to financial services amongst the
poor.

Park and Ren (2001) highlight that micro financing is constructed on the premise that
the poor are able to repay loans and most importantly have the capacity to generate
savings. Randhawa and Gallardo (2013) highlight that microfinance is a useful
instrument for poverty eradication as a result, microfinance institutions’ objective isto
extend financial services to an escalating number of underprivileged people, which is
in response to the lack of accessibility to finance by the small and medium enterprises.
A number of initiatives have been considered, be it by government as well as
development partners or donors. Some of the development partners have transformed
their support to entrepreneurial development from the traditional focus on poverty
eradication model to business enhancement model. El Hadidi (2018) emphasised that
USAID employed the same approach targeting small businesses in the urban locations
to enhance “self-sufficiency and sustainability” of such businesses and lessen reliance
on donor support.

The governments have established the micro finance schemes as well as encouraging
the private sector to jointly develop poverty reduction strategies with more focus on the
development of the financial sector which covers microfinance. Furthermore, the
regulatory framework should be designed in a way that is favourable to SMMEs.
32
Complimentary efforts by other players such as donor communities are that they are
further supportive in relation to the promotion and facilitation of sustainable
development programmes which filter in the concept of microfinance that is critical to
build the competence of the communities (Latortue, 2004).

Microfinance institutions provide capital to entrepreneurs providing the means to start

businesses or expand the existing businesses as well as use the funds as working
capital to increase the potential for improved output and profit margins (Priyanka
Ramath & Preethi, 2014). This has been demonstrated by the success of microfinance
in promoting entrepreneurship in countries such as Bangladesh, Kenya and India.

Microfinance institutions do not only provide credit but opportunities for savings as well
as micro-insurance. Jegatheesan, Ganesh and Kumar (2011) add to the functions of
the microfinance institutions to include remittances as well as leasing activities to low
income customers. The institutions therefore contribute to the ability of entrepreneurs
to enter the economic mainstream. However, the effects of microfinance institutions
can lead to either positive or negative performance of the SMMES.

2.8.1 Financing

There have been various studies undertaken to assess the influence that financing
extended to SMMEs by microfinance institutions has on growth and development of
SMMEs. According to Madya (2015), while Micro finance institutions (MFIs) have made
provision for their structures to extend smaller loans in order to address the needs of
SMMEs, the loans remain inaccessible as a result of high interest rates imposed by
MFIs and as a result the is not affordable to micro establishments. There are other
factors that impede SMMEs’ access to credit which can be explained as deficiency of
experience in business management skills and scarcity of information on products that
are available to them.

The MFIs’ intervention to address the financing needs of SMMEs was met with
challenges of lack of collateral from SMMEs as well as poor legal structure which is
not appropriate for promotion of innovative lending policy coupled with limited access
to credit and financial services. The microfinance institutions in Lesotho were indicated
not to be playing a significant role, however the Non-Bank Financial Institutions play a
33
bigger role in expanding financial inclusion (Central Bank of Lesotho: 2013).

2.8.2 Financial Literacy

Financial literacy for SMEs is essential in ensuring that SMEs grow from small and
medium to large enterprises. Buchdadi, et. al. (2020) highlight the importance of

improving financial literacy has increased as a result of developments such as financial

products including the complexity of financial markets. The support of microfinance
institutions in providing educational services to SMMEs is important to facilitate access
to finance by SMMEs.

Kotzè and Smit (2008) resolved that inadequate financial literacy was the main
drawback for the success of SMEs. Davidson III et al. (2004) also established that
there is an association between financial literacy and the performance of the firm.

2.8.3 Development of Management skills

The microfinance institutions are expected to provide management services for SMEs
in order to support in the shortfalls that are experienced by SMEs. According to (Armyx,
2005) it is generally recognized that SMEs (Small and Medium Enterprises) experience
exceptional challenges, which has an effect on their development. One of these
challenges as explained by Wanjohi (2007) is deficiency in managerial skills and
experience.

2.9 Empirical Framework

Many studies were conducted on the performance of microfinance institutions as well

as on the challenges faced by SMMEs in Africa.

Manaye and Tigro (2017) undertook an empirical study on the Challenges for Small
and Micro Enterprises in Accessing Finance: Case of Wolaita Soddo Town in Ethiopia.
The main objective of the study was to evaluate access to finance by the small scale
enterprises which are perceived as key vectors for economic development. The paper
also engaged in a process of identifying the most common way in which small
34
businesses are able to access financing as well as the elements that have established
that stimulate the level at which access to financing is practiced. These would assist
in identifying the challenges that small businesses face in accessing finance from
financial institutions in Wolaita Soddo town and target population of SMEs from the
same town.
The collection of information used in the research was executed through the use of
primary and secondary sources. There were 282 respondents that were selected
through the use of stratified random sampling technique. The study adopted
quantitative and qualitative data analysis methods. Additionally, descriptive statistics,
the linear regression model were used. The outcome of the study is that participants
sourced their start-up capital from their own savings, relatives and friends considering
that they cannot meet the collateral requirements and for fear of high repayment costs
required by financial institutions. This study suggests that the institutions that provide
loans develop educational programs for MSEs in order to process the requests for
credit with ease. Furthermore, credit provider institutions should create products that
provide moderate collateral requirements for MSEs.

Woldie et. al. (2012) investigated the challenges that SMEs in Tanzania have in
accessing microfinance. The research methodology used primary and secondary data
from a purposively selected sample of SMEs. The collection of data was executed
through questionnaires and interviews which were analysed by SPSS Statistics 17.0.
The results highlight that the financial sector has not been successful in providing
adequate microfinance facilities to SMEs as a result of high transaction costs, lack of
collaterals and inadequate skills. The article advocates that introduction of strategies
aimed at streamlining accessibility of microfinance by SMEs be considered.

Mwania, (2011) conducted a study on the effect that Biashara Boresha Loan (BBL)
has on the performance of Micro and Small enterprises owned by Kenya Commercial
Bank (KCB) Ruiru branch customers. The study aimed at reviewing the processes for
providing loans by the Biashara Boresha Loan, to evaluate the effect of BBL on MSEs
performance and to establish the problems encountered in extending loans to SMEs.
The study used a case study in its exploration as a research strategy. It employed
simple random, stratified, and purposive sampling techniques. Data were gathered
using questionnaires, interview, observation and documentary review.

35
The study found out lack of access to credit and microloans were factors that prevent
SMEs growth. The study further disclosed that the majority of SMEs are experiencing
marginal or no growth as SMEs noticed a declining trend in their sales turnover
compared to the previous as a result of the escalating operating costs due to the high
interest rates on the loans provided. The study further established a positive

correlation between BBL and entrepreneurs’ business performance and concluded

that new businesses need more financial assistance in order to complement their
working capital. The study recommends that MFIs should play a facilitative role for the
SMEs to be able to access credit and microloans.

Kuzilwa and Mushi (1997) undertook a systematic review of the impact of the
Microfinance on growth of the Small and Medium Entrepreneurs (SMEs) in Morogoro
Municipality in Tanzania. The objectives of the study were to find out the degree at
which ease of access of microfinance leads to increased capacity of gross sales of
participants and to identify additional elements contributing to enhancement of SME’s
growth. The study employed the cross-sectional research design in which 150 SMEs
were selected as a sample size. The researchers used questionnaires, direct
observations and documentary reviews for data collection. Descriptive statistical
procedures including descriptive and frequency distributions were used and a Linear
Regression Model was run. The findings revealed that the output of enterprises
increased as a result of entrepreneurs’ access to credit. The results further emphasised
the importance of capacity enhancement in increasing output. The study
recommended that efforts to develop a conducive environment to facilitate ease of
access of the financial institutions by micro and small businesses.

Another systematic review of the empirical evidence on the impact of microfinance on

the growth of micro, small and medium enterprises in Namibia was conducted by
Uusiku, E.P. (2019). The study employed a cross-sectional analysis on 45 small
enterprises in Oshana region. The sample was drawn from a list of MSMEs who have
accessed microfinance services offered by the Development Bank of Namibia. It used
the multiple regressions to test the influence of a group of variables on productivity.

The research concluded that a blend of microcredit and training including the age of
the business had a substantial impact on productivity. Subsequently, microcredit as a
core variable did not significantly contribute to MSMEs growth. Thus, the study

36
contends that attaining access to microcredit on its own cannot influence growth of
small businesses but rather a combination of other important variables such as
education are crucial for MSMEs’ development. The recommendations thereto are that
Microfinance Institutions should aim to offer additional services such as advisory,
training and mentorship services.

Kinyua (2014) conducted a research on factors affecting the performance of small and
medium enterprises in the Jua Kali Sector in Nakuru town, Kenya. The study aimed
at examining the role of finance, management skills, macro-environment factors and
infrastructure on performance of small and medium-sized enterprises in the Jua Kali
sector in Nakuru town. The study used a survey research design and utilised a
stratified random simple sampling. 262 study participants were used as a source of
primary data through the distribution of structured questionnaires. The data analysis
used the descriptive and inferential methods of analysis and the presentation through
figures, tables and percentages. The findings indicate that the SMEs performance
could potentially be influenced by access to finance. However, management skills
were identified to have a positive and significant effect on performance of SMEs. The
study recommends that banks should offer better lending terms in order to improve
access to finance by SMMEs.

A study by Elhadidi (2018) investigated the impact of microfinance on entrepreneurial

development in Egypt. The research executed the questionnaire as a tool of primary
data collection. Tables and simple percentages were used for data presentation. The
researcher constructed and tested three different hypotheses through a number of
statistical tools which include; chi-square test, analysis of variance and simple
regression analysis. The study established that there is no significant effect of
microfinance institutions activities in predicting entrepreneurial development.

2.12 Summary

This section was mainly focused on the review of literature that was done in order to
distinguish similar studies on the role of microfinance on entrepreneurial development.
It was observed that the range of the literature review was wide, with various areas of

37
the review questions studied more extensively than others. However, the process of
review was useful in accomplishing the aim and objectives of the review. Moreover,
the review assisted in determining existing gaps in literature that this study intends to
address, which will guide the empirical work. These gaps can be summarized as
follows: there is a challenge of poor institutional and legal frameworks that in many
cases fail to meet the needs of the entrepreneurs by virtue of the high cost that the
SMMEs are unable to afford. Furthermore, there is a potential challenge in the extent
of education that SMMEs possess which in turn has negative implications on their
ability to access finance.

38
 CHAPTER THREE

RESEARCH METHODOLOGY

3.0 Introduction

This chapter presents the methods adopted and applied for this study in order to
respond to the research objectives. The chapter further provides explanations on

research design, sampling techniques, data collection methods and data analysis. In
addition, the chapter highlights the reliability and validity approaches for the data to be
collected as well as ethical considerations for the study.

3.1 Research Approach

The proposed study used a quantitative research approach as it provides structured

cause-and-effect relationships. The key objective of the quantitative researches is to
analyse theory (Eyisi, 2016). In this regard, they evaluate variables on a sample of
themes and articulate the link between variables using effect statistics such as
correlations, relative frequencies, or differences between means. Stainback and
Stainback (1988) highlight three principal objectives of quantitative research: to
describe, to compare and to attribute causality.

Creswell (2008) further states that the inferential analysis enables the researcher to
establish the causal impact of independent variables on one or more groups through
examining variations in the dependent variable. Furthermore, the study points out that
this method presents an opportunity to the researcher to examine data from a
representative group of the population being studied and come up with findings that
can be applicable to the general population.

The research approach assisted the researcher in identifying the cause-and-effect

relationship between the microfinance and entrepreneurial development. As such, this
method was employed to quantify the problem by way of generating numerical data
such as enumerating identified variables to produce required statistics. The statistical
nature and random process for data collection of the quantitative research design

39
removes to a large extent bias thus enabling the researcher to apply and generalise
the results to the rest of the population group under study. According to Polit and Beck
(2008), statistics refer to a prediction of a factor that is derived from data that is
representative of the relevant population. These researchers highlight that data are
utilised to test hypotheses and assess the credibility of results. It can further generalise
results from a larger population sample.

The choice of quantitative research approach is to ensure that the researcher has more
control on the modalities for data collection considering that the researcher uses a
structured method (Apuke, 2017) In the context of this study, the quantitative testing
was used based on the numeric statistics gathered through the use of questionnaires.
This research used both the descriptive and inferential statistical analysis in view of its
focus to establish the association between micro finance and entrepreneurial
development including consideration of the causal effect between the two variables.

3.2 Research Design

This section contains an account of the type of survey used in the study. It is anticipated
to provide a definition of the population, the sample size as well as the sampling
technique adopted in selecting the sample size. Sources of data collection, data
analysis and data presentation are part of the research design. This research is
designed to study the impact of microfinance institutions on the small scale businesses
to which the institutions provide services. The purpose is to assess the role of such
services in promoting SMMEs’ development. Urban Maseru constitutes the scope of
field survey.
A research design offers a set of methods that are utilised in data collection as well as
analysis so as to allow the researcher to respond to issues that are defined in the
problem statement. Churchill (2007) defines research design as a plan that is used to
guide the researcher in collecting and analysing data. In the same vein, Remenyi, et.

al. (2003) indicate that research design offers an overall direction to the research
including the way that the research has to be undertaken.

The research design further facilitates the ability of the researcher to derive accurate
evidence to ensure the ability to respond to the questions and test the theories. This
is supported by Burns and Groove (2001) in asserting that the research design is

40
important for the researcher to organise and execute the study appropriately to obtain
more realistic results. The research design can be applicable to different research
methods, such as qualitative, quantitative or mixed-methods (Creswell, 2008).

There are three possible forms of research design, namely, exploratory, descriptive
and explanatory (Robson, 2002). Robson based his classification on the purpose of
the research area as each design serves a different purpose. Saunders et. al. (2007)
defines exploratory research design as a more appropriate design in the case where
there is not enough knowledge about the phenomenon and the design’s objective is
not to provide decisive answers to the research questions, but to simply explore the
research topic. Explanatory approach is used to explain and account for the
descriptive information by looking at the actual reasons a phenomenon occurs through
identifying the causes and reasons as well as providing evidence to support or refute
and explanation or prediction (Grey, 2014).

This study adopted the descriptive research design considering that the objective of
the study is to assess the effect of microfinance on entrepreneurial development. It
therefore assisted the researcher to establish how microfinance affects entrepreneurial
development as well as to find out the correlation between microfinance and
entrepreneurial development. Descriptive research design can be defined as a way
of describing events as they are without the researcher having any influence on the
subject. It further enables the researcher to classify, analyse, compare and interpret
data. This entails that a researcher describes the state of affairs as they exist, reports
the findings as well as formulates important principles of knowledge and solutions to
significant problems (Kothari, 2004). Descriptive designs “may be used to develop
theory, identify problems with current practice, justify current practice, make
judgements or determine what others in similar situations are doing” (Grove, Burns and
Gray, 2013, p.215).

In addition, a descriptive survey is a process of gathering data by interviewing or

administering a questionnaire to a sample of individuals. It is employed when gathering
information about people’s attitudes, opinions, habits or any of the variety of
environmental and social issues which is applicable to this study.

41
3.3 Research Target Population

The target population for the study comprised the small, medium and micro enterprises
within Urban Maseru due to the high level of concentration of the establishments as
well as ease of reach by the researcher. The study comprised of small, medium and
micro entrepreneurs that have benefited from microfinance services in order to be able
to undertake a comparison on the performance of the business before and after
accessing microfinance services to determine the effect that microfinance has on
entrepreneurial performance. To be able to reach the micro entrepreneurs for the
study, the Ministry of Small Business Development as well as the Ministry of Trade and
Industry was contacted to provide a list of the relevant SMMEs. The classification of
data that the Ministry uses in registering the SMMEs identifies whether the SMMEs
have benefited or are benefiting from the microfinance support. The target population
used was 37, 273 SMMEs (Ministry of Trade and Industry annual report, 2012). The
researcher has chosen the Ministry of Small Business Development and the Ministry
of Trade and Industry as their mandate is to facilitate development of SMMEs and
register SMMEs. As such they remain custodians of information related to SMMEs.
The information is available as a resource for different groups of community such as
researchers, upon request and confirmation their credentials.

3.4 Sampling Design

The study used sampling to select the population size within the entrepreneurs. Ruane
(2005) refers to a sample as a subset of the population whose results can be
generalised to represent the whole population.

The sampling method employed for this study is non-probability convenience sampling.
The non-probability convenience sampling is the sampling method that enables the
researcher to draw the sample from the population that is readily available and that
meets the inclusion criteria (Polit and Beck, 2006). The non-probability convenience
was used as a preferred method because of its ability to provide a quick turn-around
time of the administration of questionnaires, considering the limited time of data
collection. Furthermore, this sampling method is defined to be highly efficient taking
into account that the respondents are conveniently available to participate in the study
(Sekeran & Bougie, 2013).

Non-probability sampling was selected as a preferred sampling method because the

42
population members, which in this case are the small and medium entrepreneurs in
Urban Maseru, do not have predetermined probabilities of being selected as
respondents. The non-probability sampling therefore utilises subjective methods to
select potential respondents, which is contrary to the probability sampling, whereby the
random selection of elements is done. The selection was based on the subjects that
are conveniently available to participate at the time when the researcher distributes the
questionnaires. As a result, the method becomes an appropriate approach for the
researcher by its possibility to use the first available primary data source. However, the
challenge with this sampling method is that it has a low level of generalisation of
research findings to a larger population. The findings of the sample thus cannot be
generalised to the entire Lesotho entrepreneurial population with confidence.

In consideration that quantitative testing is based on a large number of participants to

attain a minimum amount of sampling bias, the study used a sample of 400
entrepreneurs that are resident in Lesotho. The 400 entrepreneurs were sampled from
the total research population and was considered large enough to achieve reasonable
accuracy of results. It was computed using the Solvin’s formula.

3.5 Inclusion and Exclusion criteria

The inclusion criterial that applied for this study was as follows:

• The respondent had to be either a woman or man owning a small and

medium enterprise that has had access or benefited from microfinance
institutions for at least 2 years being the minimum period in which the
change in the performance of the business in terms of profit-making could
be realised (Akalp, 2015) and that the relevant information that can be
obtained from the Ministry of Trade and Industry dates back to 2016 since
the Ministry only started registering additional details such as source of
capital in 2016.

• The business should be in existence for at least 4years since the average
period in which the profitability of the business could be determined is 2 to 3
years (Akalp, 2015). Also considering that the businesses that partook in
the study have not been classified according to age. The period of focus is 2016
to 2019 as the data available was for this period

43
3.6 Sampling SMMEs

The sample size is influenced by a number of factors including the purpose of the study,
population size, the risk of selecting an unsuitable sample, and the sampling error that
can be allowed. The sample size is selected based on the size of the target population
and the desired precision of the study. The sample was therefore out of the
entrepreneurs in urban Maseru, Lesotho that have benefited from the services of
microfinance institutions. The total number of SMMEs is 76, 068 in Lesotho while the
total of 37,273 (FinScope, 2015) represent entrepreneurs in urban Maseru. In this
study, the sample of 400 SMMEs were selected using a convenience sampling
technique and by the application of Solvin’s formula as it enables the researcher to
estimate how large the sample needs to be to ensure reasonable accuracy of the
results (Ellen, 2018).The researcher does not assume that the population to be studied
is normally distributed in terms of the parameters for interpretation of their perceptions
of the effect of microfinance services on the development of their businesses. In this
context, the Slovin’s formula could be considered suitable for determining an
appropriate sample size as applied in the study by Chelangat Rono (2018) when
calculating the sample size.

The use of Slovin’s formula is as follows:

𝑛 = 𝑁 /1+𝑁𝑒²

(Source: Stephanie (2013))

n= Number of samples or sample size N= Total population e= Error tolerance

The population size of this research is 37, 273 SMMEs. According to Hussey and
Hussey (1997) no survey can ever be deemed to be free from error or provide 100 %
surety and error limits of less than 10% and confidence levels of higher than 90% can
be regarded as acceptable. We take a sampling error of 5% because the smaller the
sampling error, the more the confidence level, which was suggested by Kothari (2004),
and then the sample size will be: n = 37, 273/1+37, 273(0.05*0.05)
n = 37, 273/ 37, 274*0.0025 n = 37, 273/93.183 n = 400
The researcher has calculated a sample size of 400 SMMEs that was surveyed, at
95% confidence level and 5% margin of error.

The level of precision or confidence level is estimated at 95% considering the

44
proportion of the population size to be studied against the overall population size of
SMMEs. This means that there are 95 chances in 100 (or .95 in 1) that the sample
results represent the true condition of the population within a specified precision range
against 5 chances in 100 (or .05 in 1) that it does not (Kothari, 2004). The sample size
dictates the amount of information that would be collected and therefore, in part,
determines the precision or level of confidence that exists in the sample estimates. The
larger the sample size the more information is gathered and so the level of uncertainty
reduces.

3.7 Data Collection methods

Data collection instruments are defined by Canals (2017) as strategies utilised in the
collection of information such as questionnaires, tests, structured interview schedules
and checklists. In this research, two techniques that were used are the primary data
and secondary data. The primary data is explained by Kombo and Trompt (2006) as
the information that the researcher directly or through the research assistant gathers
from respondents. The data that was collected related to the barriers that impede
entrepreneurial development, challenges faced by entrepreneurs in accessing
microfinance services, constraints faced by microfinance entrepreneurs, contributions
of microfinance institutions in supporting SMMEs, sources of funding for business and
effects of microfinance on SMMEs growth.

This study used the questionnaires based on the cost effectiveness and time efficiency
of this method. Furthermore, it allowed the researcher to gather the information in a
quantified form and to obtain the opinions of respondents in a structured manner. The
researcher was able to analyse data collected by questionnaire more scientifically and
objectively than other forms of research which was also used by Salum (2014). It also
enabled the researcher to collect data without getting into contact with the respondents
in the advent of COVID 19 virus.

The researcher used internet-based data collection method whereby the

questionnaires were sent to the respondents through emails and fax in order to comply
with World Health Organisation’s and national COVID 19 regulations. The
respondents filled in the questionnaires and return to the researcher through email.
The researcher further distributed the questionnaires through WhatsApp messaging

45
platforms to those respondents that do not have access to internet facilities. The
respondents would then make print outs and fill the forms and sent back to the
researcher by the same mode. As a result, the researcher does not foresee any
significant challenges to the data collection processed

The secondary data is the data that is sourced from a variety of sources such as
archives, websites, books and journals including data prepared by microfinance
institutions showing the trend on financial services and credit application and uses by
participants. The secondary data is helpful in providing supportive information over the
one collected by use of questionnaire. Secondary data further assists in understanding
the contribution made by these micro-finance programs in different areas supporting
SMMEs while seeking to explore the magnitude of the problem as documented by
other researchers.

3.7.1 Questionnaire

To facilitate collection of primary data, a questionnaire was developed as an

appropriate data collection instrument to gather information about the role of micro-
finance on entrepreneurial development in Maseru Urban, Lesotho. The questionnaire
was utilised to collect data from the 400 entrepreneurs. The questionnaires have
continuously been considered as the most convenient instrument for collection of
information because they are easy to be adapted to different situations and that they
are time and cost efficient (Bell, 1999).

Furthermore, the decision to use structured questionnaire enables the respondents to

provide precise information and the researcher to reduce variability in the meanings of
the questions as a way of ensuring comparability of responses (Ruane 2005).
Additionally, the method has been chosen because it is cost effective and less time

46
consuming. The researcher will be able to either distribute the questionnaires in person
or send them through emails which allow the researcher to gather necessary
information at minimal cost. The questionnaire therefore assists the researcher to
secure standardised results that would then be analysed and interpreted. Taiwo (2012)
and Luyirika (2010) also administered questionnaires to assess the impact and
effectiveness of microfinance institutions on different aspects.

The Likert scale was also utilised to measure the attitude/opinion of SMMEs towards
the services provided by micro-finance institutions in order to enable the researcher to
assess the effect of microfinance on entrepreneurial development. The Likert scale
was further used because it is flexible and can be constructed more easily than most
other types of attitude scales (Joshi, et. al., 2015). The statements in the Likert scale
reduce the tendency of respondents to respond with a certain preconceived mental set
(Amin, 2005). The Likert scale follow the five category response continuum, namely,
very satisfied, satisfied, neutral, not satisfied and very dissatisfied (Joshi, et. al., 2015).
In this regard, each respondent will select the response that best describe their reaction
to the statement.

3.8 Data Analysis

Data analysis is the assessment of the information that has been collected from the
field to make interpretations. Kombo and Tromp (2006) suggest that data analysis
involves examining information gathered from the sample population to make
inferences. The information that was collected was quantitative through the utilisation
of quantitative instruments like questionnaires and the collected data be classified into
relevant categories, edited and calculated. The study used the descriptive statistics
to analyse quantitative data and present the results as tables, graphs or charts to be
evaluated with the Statistical Package software for Social Sciences (SPSS) as it has
broad analytical capability as adopted by Taiwo, 2012. The SPSS analysis were based
on an implicit cardinal interpretation of the Likert scale whereby for each respondent
the scores for expected and perceived views were calculated and results will be
presented in form of graphs or charts. The data was also analysed based on the
demographics and other characteristics including gender, legal structure, size of
SMMEs, annual turnover, age, marital status and educational level completed.

47
In the context of this research, the bivariate analysis that is descriptive was used in the
comparison between the independent variable which is the microfinance and the
dependent variable being entrepreneurial development. According to Bernard (2000)
bivariate analysis aims at establishing associations between variables where one
variable is dependent and the other is independent. Furthermore, bivariate analysis
can be descriptive or inferential. In addition, data was presented in percentages,
graphs, frequency distribution tables and charts for further data analysis to determine
whether there was a positive correlation or a negative correlation between the two
variables as well as the strength of the correlation. The interpretation of bivariate data
results considered that an association between two variables where the value of one
variable being an outcome variable is explained by to the values displayed by the
explanatory variable as used by Goto, et. al. (2016).

The multivariate analysis was performed to examine multiple variables

simultaneously. The regression analysis and correlation coefficients were computed
to establish the relationship between microfinance and entrepreneurial development.
The regression equation that was used was based on Clark (2018) :

𝑌ᵢ = b0 + b1Xi + Ɛi

In this model, Yi represents outcome variable Effects of Microfinance institutions on

entrepreneurial development.and Xi represents its corresponding predictor variable
Barriers that impede on entrepreneurial development, Constrains faced by SMMEs,
Contributions of Microfinance Institutions on Entrepreneurs Challenges faces by
SMMEs in accessing Finance, Sources of Funds for Business. The equation also
contains numerical relationships between the predictor and the outcome. It can be
used to assess the relationship even where there are more than one independent
variables where the relationship between entrepreneurial development and the
independent variables was analysed.

The results were presented in a statistical form. The "Pearson Chi-Square" with the p
value tells us that there is no statistically significant association when alpha < 0.05 and
when p is above alpha (alpha>0.05) there is no statistical association. The inferential
data such as analysis of variance (ANOVA) as used by Taha (2012) was also applied
to analyse data to establish if there are any significant differences between the groups.

48
This analysis is done by looking at the standard deviation (StDev) column of the one-
way ANOVA output to determine whether the standard deviations are approximately
equal. The researcher also used the F-value to calculate the p-value, which was used
to make a decision about the statistical significance of the terms and modes. Moreover,
in line with the study by Nendakulola (2015), independent t test was also used. The
test at a specific alpha (significance) level was compared with the p-value on the output
to the chosen alpha level. Alternatively, the researcher reported the p-value, rather
than reporting whether the result is statistically significant or not at an arbitrary alpha
level(s).

The Secondary data was presented in tables and graphical illustrations in accordance
with the defined variables Primary data was collected through questionnaires.
Secondary data was gathered from records of Ministry of Trade and Industry and of
the Ministry of Small Business Development, Cooperatives and Marketing as well as
from the reports of the Central Bank of Lesotho forming the basis for data triangulation.
(Taylor, Kermode, and Roberts, 2007) define triangulation as the application and
combination of several research methodologies in one study. The relationships was
therefore analysed using the linear regression model.

3.9 Validity and Reliability

Data reliability was tested by using Cronbach’s Alpha. The Cronbach’s Alpha was
employed because the study used the questionnaire that is based on a multiple Likert
questions that form a scale which the researcher intends to determine if it is reliable or
internally consistent. The same instrument was applied by Sugathadasa (2018).
Cronbach’s Alpha was also used to measure the strength of the consistency of the
scale. The Cronbach’s Alpha was run on a sample size of 15 entrepreneurs. It was
applied with the acceptable reliability of α = 0.81. According to Gliem and Gliem (2003)
the reliability coefficients range from 0 to 1.0 in which a coefficient of 0 means there is
no reliability and 1.0 means perfect reliability. The reliability coefficient never reaches
1.0 since tests have some error. In essence, if the reliability of a standardised test is
above 0.7, it is said to have good reliability while below 0.7 it has poor reliability.

The validity and reliability of the quantitative research method motivated the
investigator to use it in this study. The notion is supported by Smith (2008) in identifying

49
that quantitative research method is objective, controlled, systematic, valid and
reliable. In addition, Weinriech (2006) also indicates that quantitative research adopts
methods from the physical sciences that are intended to maintain objectivity,
generalizability and reliability. As a result, the researcher observed that the use of this
method will yield reliable results, particularly because of the ways research participants
are selected. These ways include random selection from the study population and the
use of the standardized questionnaire which yield measureable and dependable data
that are usually generalized to a larger population.

The validity of the research instruments were also tested by obtaining opinion or validity
through a pilot study.

3.10 Pilot study

A pilot study according to Hulley (2007) is a small scale preliminary study conducted
in order to evaluate feasibility, time, cost and adverse events prior to performance of a
full-scale research project. In an attempt to test data collection instruments, predict an
appropriate sample size and improve upon the research design, a pilot study therefore
be conducted in Maseru.

It was conducted among the entrepreneurs in Urban Maseru that were excluded from
the main study. The number of participants that was sampled for the pilot study was
15 to whom the objective and instructions relating to the study were explained and
handed over. The researcher selected 15 respondents using simple random sampling
as estimation for pilot trial. According to Cooper and Schindler (2003) random sampling
often moderates the sampling error in the population, which then increases the
precision of any estimation methods used. The pilot tested was used to ensure that the
questions and the language that were used were comprehensible and clear to the
participants.

The researcher used the same selection criteria for the pilot study as for the final study,
being the SMMEs that benefited from microfinance services for the past two years and
have been in existence for the past four years. Following the evaluation of the
appropriateness and clarity of the questionnaire, the main study was therefore
conducted in Urban Maseru.

50
Content validity was done by giving the questionnaire to 15 respondents who were
used to test the appropriateness of the questions and their comprehension. This
assisted in establishing clarity and adequacy of the questionnaire before it was
administered to the broader population of respondents and thus reduce biases. It
ensured that the respondents understood the questions, and there were no ambiguities
in questions El Hadidi (2018) also conducted a pilot study prior to the actual study to
assess the appropriateness and clarity of the questionnaire.

3.11 Research ethics

There is need for ethical considerations where people are considered as study
participants in any research and as such appropriate care to ensure that the rights of
such participants are protected should be exercised as described by Polit and Hungler
(1999). The researcher therefore gave due consideration to the respect to ethics of
each participants. Additionally, each participant was given the requisite privacy in
terms of adhering to anonymity by not linking the responses to participants.
Furthermore, the collected data was treated with confidentiality. Furthermore, the data
collected would not be disclosed to anyone but remain to be used for this study only.

To ensure anonymity the researcher had not included the names of respondents on
the questionnaires. Numbers were used instead to identify the questionnaires. In
addition, the completed questionnaires and the consent forms would be kept in locked
cabinets with the researcher. To ensure confidentiality of the data collected, the
researcher would keep the information secure in protected filing system through
creation of passwords for the computer and the related files. The information was filed
using codes that are created by the researcher to identify specific information collected.
After a year following completion of the research, the data will be disposed by
shredding the questionnaires.

The researcher equally sought approval from the Research Ethics Department of the
University. Furthermore, Participants were enlightened on the study and its aim to
collect data that would assist in the improvement of the relationship between MFIs and
entrepreneurship.

51
Participants were also sensitised on the liberty they have should they wish to withdraw
at any point in time during the course of the study, they were free to do so without any
threat. Curry (2010: 56) asserts that as “consideration, good researchers should
observe the right to participation of subjects and participants should never be forced at
any given point in time to participate in a study”. During the process of data collection
for communication purposes, the researcher used both English and Sesotho as these
are official languages in Lesotho to ensure clarity of issues and questions to
participants.

3.12 Informed Consent

The informed consent form was issued having been compiled by the researcher and
the supervisor. Each participant was enlightened on the nature of the research and
implored to take part in the research and fill the questionnaires. Participation in the
study would assist the participants with information and recommendations that would
guide and improve their relationship with the MFIs that could facilitate SMMEs access
to finance. Furthermore, the outcomes of the study could enlighten the SMMEs on the
potential services being offered by MFIs to contribute to the development of SMMEs.

3.13 Summary

This section considered the descriptive research design as the research design that
was applied for this study, the non-probability convenience sampling method that
assisted the researcher to draw a sample from the wide population. The questionnaire
was used as a data collection instrument and the primary data and secondary used
were considered under data collection techniques. Ethical concerns that have a
potential to impact on the smooth conduct of the study were addressed. The following
section presents the data analysis approach for the data obtained from conducting a
survey from 400 entrepreneurs in Urban Maseru.

52
 CHAPTER FOUR
DATA ANALYSIS AND PRESENTATION

4.1 Introduction

This chapter is a presentation of the results and the analysis thereof. The chapter
continues from the methodology that was tabled in Chapter 3 and discussed these
findings with incorporated tables, graphs, and descriptions. In addition to the
presentations, the analysed data was interpreted and compared to the literature in
Chapter 2. This chapter also presents the findings of the study on the role of
microfinance institutions in entrepreneurial development. The outline of the chapter is
as follows; response rate, background of respondents, and the impact of microfinance
institutions on growth and development entrepreneurship.

4.2 Response rate

The study was focused on 400 respondents in the SMMEs sector to whom 400
questionnaires were administered. However, only 385 participants were able to
complete the questionnaires, out of which 367 were properly filled while 18 were
invalid. This represented the response rate of 91% from the sample size shows a good
response because only 19% of the respondents did not turn up. Fincham (2008) affirms
that response rates reminiscent of 60% for most research should be the goal of
researchers as it only leaves the nonresponse bias of 40% rendering the research
sufficient to enable generalisation of the results to the target population.

4.3 Descriptive statistics

The survey considered the demographics and background characteristics of
participants based on gender, age, legal structure, size of SMMEs, annual turnover,
marital status and educational level completed.

53
4.3.1 Gender of the respondents

gender
300

250

200
Frequency

150

100

50

0
male female
gender

Figure: 4.1: Response by gender

Respondents were also expected to signify their gender. The research findings
revealed that the majority of the respondents were male with a score of 75.7% while
females were in the minority with 23.4%. This result illustrates the practice that the
male population assumes breadwinner responsibilities and women do not engage in
entrepreneurial activities given their household responsibilities. The dominant role
exercise by male participants in SMMEs activities was also echoed by Kamweru
(2011) highlighting cultural beliefs that men are owners of property to be one of the
reasons men are more active in entrepreneurial activities than women.

4.3.2 Age of the respondents

age
250

200
Frequency

150

100

50

0
18-24 25-34 35-44 45+
age

Figure 4.2: Response by age

54
Figure 2 presents the results suggesting that most of the entrepreneurs in Urban
Maseru are aged 35 to 44 years. The study established that the majority of the
respondents, 52% was aged between 35 and 44 years. Additionally, the study
revealed that only 6% of the respondents were within the age group of 25-34.

It shows different categories of age groups that were surveyed on the study. This
demonstrates that respondents between the age group of 35-44 years are the most
active people in this industry, representing 52% of the SMMEs in Urban Maseru. The
population within the age group of 35-44 year is at the maximum productive capacity
and have the responsibilities to support their families. This result was also found in
the similar study conducted by Simba (2013). This category is followed by respondents
within the age group of 45 years and above who account for 38% of the surveyed
population, while age group of 25-34 years represents 6% and age group of 18-24
has the least representatives with 1% of the share. This implies that the youth is not
mostly engaged in entrepreneurship rather they are engaged in other sectors of the
economy.

4.3.3 Legal structure of Respondents

legal structure

12%

formal
informal

88%

Figure: 4.3: Responses by legal structure

55
The legal structure of the SMMEs was sought to establish whether the registration or
licensing of SMMEs has an influence in the participation of SMMEs in microfinance
activities. This was also done in a similar study done by (Aladejebi,2019). The majority
of respondents indicated that their companies were registered and licensed thus being
classified as formal business establishments. Figure 3 illustrates that the majority of
SMMEs are registered or licensed. The companies with formal legal structure
constituted 88% of the respondents while the informal ones accounted for 12%. This
demonstrates that the majority of SMMEs can be eligible for microfinance services in
respect of their legal structure. The findings show high possibility for expansion of
businesses leading to enhanced job creation in the private sector in Lesotho and more
revenue collections hence increased contribution to the country’s Gross Domestic
Product.

4.3.4 Respondents by Size of SMMES

size of smmes
60

50

40
Percent

30

20

10

0
1-2 employees 3-9 employees 10-49 employees
size of smmes

Figure: 4.4: Responses by size of SMMEs

The response in figure 4 lays out the number of employees that is mainly active in
Urban Maseru from the study. This category was guided by the study done by
Aladejebi (2019). The results show that 209 SMMEs have employed 3 to 9 employees
per business and this reflects 54% of the SMMEs of the sample size of the study
(AfriScope and FinMark, 2015). However, less SMME seem to have employees
between 10 and 49 which is 38% of the SMMEs. In the minority is 24% SMMEs that
have employed 1 to 2 employees in Urban Maseru and these shows that there are

56
more small businesses than the medium and micro establishments (AfriScope and
FinMark Trust, 2015). However, this revealed that a large scale of employment exists
and businesses are growing in terms of labour considering that the more the number
of businesses are establish, the more job opportunities available..

4.2.4 Annual Turnover of Respondents

annual turnover
60
50
40
Percent

30
20
10
0
less than M200,000 less than M1,000,000 less than M5,000,000
annual turnover

Figure: 4.5 responses based on annual turnover

The respondents were requested to indicate their annual turnover as it has been
identified as a measure of output and business growth in the context of this study taking
queue from the study by Pei-Wen, et. al. (2016). The outcome of the study shows that
24 of the SMMEs accumulate less than 200,000 per annum, while the majority of
SMMEs, 202, are able to generate a turnover of less than 1,000,000 but more than
200,000 annually. Finally, 141 SMMEs generate less than M5, 000,000 but more than
M1, 000, 000 in a year. The turnover classification is based on the research by
AfriScope and FinMark (2015). This result shows that the small entrepreneurs
represent a higher number of SMMEs although the medium entrepreneurs generate
more turnover. This could be a result of interest shown by entrepreneurs to the small-
size entrepreneurship due to the affordability of the start-up capital and other related
costs required in relation to returns.
.

57
4.2.5 Marital Status of Respondents

marital status
300

250

200
Frequency

150

100

50

0
married divorced single widowed
marital status

Figure 4.6: Marital Status

The figure 6 above shows that married people participate more into entrepreneurship
with a number of 278 SMMEs that represents 75% of the survey in Maseru urban.
Divorced people are represented by a number of 53 entrepreneurs who contribute to
53% of the SMMEs. Lastly, single and widowed represent less percentage being
respectively, 8% single and 2%. This demonstrates that married people have more
inclination to engage in entrepreneurial activities in order to provide for their families.
Simba (2013) in a similar study concludes that 56% of respondents were married while
only 14% were single, which showed that women with domestic responsibilities were
considered prospective people to secure loans.

58
4.2.5 Educational Level of Respondents

educational level

5% 9%

primary school
31%
high school
diploma
54%
graduate

Figure: 4.7 Educational level

The study established that majority of 54% completed the high school educational
level, while 31% attained diploma level of education. The primary school level as well
as the graduate level respectively garnered 9% and 5%. The findings are as presented
in Figure 7.

This result indicates that due to low absorption capacity in the government structures
leading to high unemployment rate. As such, most of the population that has
completed high school and diploma education tend to engage in entrepreneurial
activities

4.3 Analysis by research questions

The quantitative analysis techniques were employed to analyse the three research
questions. The Cronbach Alpha analysis was conducted to determine the reliability of
the developed 5 Likert scale. The results are discussed in the context of the identified
demographic variables, gender, annual turnover; size of SMMEs, marital status, and
educational level on the perception of SMMEs on the effect of microfinance on
entrepreneurial development. The results are presented below:

59
4.3.1 Reliability Analysis
In this study, to ensure the reliability of the instrument, Cronbach’s Alpha was used

Table 4.2 cronbach alpha reliability statistics

Reliability Statistics
Cronbach's Alpha Cronbach's Alpha N of Items
Based on
Standardized Items
.874 .876 7

Table 4.3 cronbach’s alpha item-total statistics

Item-Total Statistics
Scale
Scale Mean Variance if Corrected Item- Squared Cronbach's
if Item Item Total Multiple Alpha if Item
Deleted Deleted Correlation Correlation Deleted
Q1A 21.99 32.576 .817 .699 .836
Q1B 23.01 35.904 .515 .276 .873
Q1C 22.46 33.981 .615 .383 .861
Q1D 22.07 32.175 .719 .585 .847
Q1E 22.57 33.710 .599 .384 .864
Q1F 22.02 32.655 .753 .626 .843
Q1G 22.46 34.156 .583 .359 .866

A Cronbach’s alpha was conducted to test the reliability which is the Cronbach’s alpha
coefficient that was derived from analysis of data collected. Table 2 indicates the level
of reliability as 0.874 calculated from the selected variables in the questionnaire.
According to Gliem and Gliem (2003), the minimum level of Cronbach to be accepted

60
has to be 0.70 to measure the level of reliability; therefore, the Cronbach alpha of this
study is above that figure which means there is a good internal consistency of factors.

4.3.2 Analysis by research questions

The quantitative analysis techniques were used to analyse the three research
questions. The results are discussed in the context of the identified demographic
variables and other variables namely Barriers that impede on Entrepreneurial
development (BED), Constrains faced by micro Entrepreneurs (CFE), Challenges that
SMMEs face in accessing capital/Finance (CSF), Contributions of Microfinance
Institutions in supporting SMMEs (CMS) and Effects of Micro finance on SMMEs
growth (SFB), and the effects of microfinance on SMMEs growth (EMG). The results
thereto are presented below:

4.3.2.1 What are the challenges faced by SMMEs in accessing microfinance

services?

Table 4.4: Challenges that SMMEs face in accessing finance

Lack of Poor Lack of right High loan

government management in technical skills interest rates
support to microfinance in microfinance
microfinance institutions institutions
institutions
Male 216 59% 173 47% 132 36% 249 68%
female 67 18% 54 14% 40 11% 75 20%
Total 283 77% 227 75% 172 46% 324 88%

Table 3 shows that with regard to challenges that SMMEs face in accessing finance;
the majority of respondents (88%) highlighted high loan interest rates as the key
challenge for SMMEs to access finance. Additionally, a significant number of
respondents (77%) identified lack of government support to microfinance institutions.
This outcome is similar to the study undertaken by (Nendakulola, 2015) which found

61
that high interest rate appeared to be one of the challenges faced by SMMEs in
accessing credit. However poor management in microfinance institutions is also
perceived as a challenge facing SMMEs in accessing finance with the least as lack of
technical skills in the microfinance institution with 46% of the respondents

The assessment of the challenges faced by SMMEs in accessing credit highlights that
the most concerning challenge that prevents SMMEs to access finance is the high loan
interest rates followed by lack of government support to microfinance institutions then
poor management in microfinance institutions and finally lack of the right technical
skills in the microfinance institutions.

This research question was analysed based on the descriptive statistics and
Independent T-Test to present data on the mean and standard deviation for different
groups as well as to identify the variables that are statistically different. Consequently,
the researcher identified whether there is a statistically significant difference between
the mean of the groups. The results are shown in Tables 4, 5, 6 and 7:

4.3.2.1.1 Independent sample test on gender

Table 4.5: Group Statistics for gender
Std.
Deviatio Std. Error
gender N Mean n Mean
BED Male 278 4.0493 .37501 .02249
female 86 3.9635 .36876 .03976
CFE Male 278 3.8957 .35997 .02159
female 86 3.8887 .35020 .03776
CSF Male 278 3.8603 .52099 .03125
female 86 3.7791 .53333 .05751

Table 4 illustrates group statistics derived from the execution of the questionnaire for
the study. The mean and standard deviation values calculated for the 3 variables,
namely, BED, CFE and CSF are in general almost identical. The mean scores show
that the BED is more important than other variables since the mean value obtained for
BED is 4.0493 being the highest value obtained from the 3 variables. CFE has been

62
identified as the second most important variable; while CSF garnered the lowest mean
score hence the least important variable. This result indicates that male respondents
account for the higher score on providing their perspective and experience on the
challenges faced by entrepreneurs based on the 3 variables. This reveals that most
male are more engaged into entrepreneurship as bread winners in their families while
female might be having tight schedules to effectively participate in the entrepreneurial
activities as they have the responsibility of looking after their families. This outcome
was in line with the one by the study undertaken by (Nendakulola 2015)

63
Table 4.6: Independent Samples Test gender

Levene's
Test for
Equality of t-test for Equality of Means
Variances 95%
Confidence
Sig. Std. Interval of the
(2- Mean Error Difference
taile Differe Differe
F Sig. T df d) nce nce Lower Upper
BED Equal .107 .744 1.863 362 .063 .08588 .04609 -.00477 .17652
variances
assumed
Equal 1.880 143.580 .062 .08588 .04568 -.00442 .17618
variances
not
assumed
CFE Equal .071 .791 .158 362 .874 .00698 .04414 -.07982 .09378
variances
assumed
Equal .160 144.895 .873 .00698 .04350 -.07900 .09295
variances
not
assumed
CSF Equal .000 .996 1.257 362 .210 .08124 .06465 -.04589 .20837
variances
assumed
Equal 1.241 138.879 .217 .08124 .06545 -.04817 .21065
variances
not
assumed

The researcher used the independent T-test to assess whether gender has an effect
on challenges faced by SMMEs in accessing microfinance services. The assessment
compared the significant difference between the mean scores of male and female.
According to Table 4 above, there is a statistically significant difference between the
mean scores of the male and female. Where variable BED t (362) =1.863, CFE t (362)
=1.58, CSF t (362) =1.241 p>0.05 (two-tailed). This shows that there is no statistical

64
significance between the assessment of males and females on the challenges faced
by the SMMES in accessing microfinance services This result shows that all the
challenges faced by both males and females seem to be equal when accessing
microfinance services. Ngugi and Kerongo (2014) have also contended that using
gender empowerment as an impact indicator for microcredit has a negative impact.

4.3.2.1.2 Independent sample test on legal structure

Table 4.7:Group Statistics for legal structure

legal Std. Std. Error

structure N Mean Deviation Mean
BED Formal 324 4.0265 .36984 .02055
Informal 43 4.0365 .42412 .06468
CFE Formal 324 3.8889 .36007 .02000
Informal 43 3.8937 .36099 .05505
CSF Formal 324 3.8346 .51656 .02870
Informal 43 3.8895 .57296 .08738

Table 6 illustrates group statistics derived from the execution of the questionnaire for
the study. The mean and standard deviation values calculated for the 3 variables,
namely, BED, CFE and CSF are almost the same. The mean scores indicate that the
BED is the variable that is considered as more important than other variables since the
mean value obtained for BED, 4.0265, is higher than those of the other variables. This
implies that entrepreneurs perceive barriers such as lack of capital, lack of collateral,
lack of knowledge as well as cumbersome loan procedures, as the fundamental factors
that impede access to microfinance and subsequently entrepreneurial development.
According to legal structure, the formal entrepreneurs constitute the majority of
entrepreneurs that view these barriers as the main impediment to accessing
microfinance. CFE has been identified as the second most important variable; while
CSF obtained the lowest mean score thus being considered as the least important
variable. This result indicates that the informal businesses were the most to assess
the challenges faced by entrepreneurs based on the 3 variables. The majority of
entrepreneurs have identified constraints such as high interest rates, lack of education,
lack of institutional support and cash flow as the key challenges that SMMEs face in

66
accessing microfinance. The similar conclusion was made by the study undertaken by
Woldie et. al. (2012).

Table 4.8: Independent Samples Test legal structure

Leve
ne's
Test
for t-test for Equality of Means
Equ 95%
ality Sig Std. Confidence
of . Mean Error Interval of the
Vari (2 Differe Differe Difference
F anceSig T df - nce nce Lower Upper
s. tail
BED Equal 1.11 .291 -.165 365 .869 -.01009 .06111 -.13025 .11007
variances 7 e
assumed d)
Equal -.149 50.838 .882 -.01009 .06786 -.14634 .12616
variances
not
assumed
CFE Equal .144 .704 -.082 365 .935 -.00480 .05846 -.11976 .11016
variances
assumed
Equal -.082 53.702 .935 -.00480 .05857 -.12224 .11265
variances
not
assumed
CSF Equal .645 .423 -.647 365 .518 -.05492 .08494 -.22195 .11212
variances
assumed
Equal -.597 51.472 .553 -.05492 .09197 -.23951 .12968
variances
not
assumed

The researcher used the independent T-test to assess whether gender has an effect
on challenges faced by SMMEs in accessing microfinance services. The assessment
compared the significant difference between the mean scores of the male and female.
According to Table 3 above, there is a statistically significant difference between the

67
mean scores of the male and that of female. Where variable BED t(365)=0.165,CFE
t(365)=0.82,CSF t(365)=0.647 p>0.05 (two-tailed). This shows that there is no
statistical significance on the perception of males and females on the challenges
faced by the SMMES in accessing microfinance services, which implies that
challenges faced by both male and female do not differ in relation to access to
microfinance services. Taiwu et. al. (2016) also concluded that there is no favouritism
of a particular gender as the male and female gender had almost equal shares in the
study.

4.3.2.2 What are the impacts of micro-financing on the output of SMMEs in

Urban Maseru?

Table 4.9: Response on the impact of microfinance on SMMEs output

provision of support development facilitate facilitate facilitate

financial in of increase increase general
support financial management in output in growth of
literacy of skills for turnover SMMEs
SMMEs SMMEs
Male 249 68% 248 68% 106 29% 254 69% 224 61% 231 63%
female 82 22% 81 22% 40 11% 75 20% 76 21% 77 21%
Total 331 90% 329 89% 146 40% 329 89% 300 82% 308 84%

Table 8 was used to determine the degree to which microfinance influences the output
of SMMEs. The outcome of the study highlight that the respondents scoring 90%
observe the provision of financial support is the most important contributor to the
output of the SMMEs. The second scored attribute that has an effect on output of
SMMEs is support in financial literacy of SMMEs that scored 89% while development
of management skills for SMMEs garnered the least score 40%. Ngugi and Kerongo
(2014) confirmed that loans enhance the level of income, assist in the expansion of
business, improves the competitiveness, escalates the volume of sales volume and in
so doing increases profits.

68
The research question was analysed based on the one-way ANOVA to explore if there
is any effect of microfinance on the output of SMMEs based on the size of SMMEs in
relation to the number of employees as well as the annual turnover. Table 7 presents
the results of the ANOVA analysis to establish if there was a statistically significant
difference between the mean scores of the two variables, namely the CMS and SFB
based on the size of SMMEs. The tabulated significance value was 0.05 (p=0.05).

4.3.2.2.1 One way ANOVA on Size of SMMEs

Table 4.10: ANOVA on size of SMMEs

Sum of Mean
Squares Df Square F Sig.
CMS Between .104 2 .052 .321 .726
Groups
Within Groups 59.059 364 .162
Total 59.163 366
SFB Between .318 2 .159 .633 .532
Groups
Within Groups 91.602 364 .252
Total 91.920 366

It was observed that the significance value for CMS [F(2,364)=0.321, p˂0.726] while
SFB has a significance value of [F(2,364)=0.633, p˂0.532] are greater than 0.05,
which indicates that there is no statistically significant difference in the mean scores
relating to the variables CMS and SFB in respect of the size of SMMEs. Based on
these results, there is no statistically significant difference on the impacts of micro-
financing on the output of SMMEs in Urban Maseru.

The results prove that the microfinance does not have any effect on output based on
the size of SMMEs. This therefore indicates that even if SMMEs have accessed
microfinance services, the growth of the size of SMMEs is not solely influenced by
services rendered by microfinance institutions, such as provision of financial support,
support in financial literacy for SMMEs and development of managerial skills for
SMMEs. Ahiabor (2013) asserts that while entrepreneurs acknowledge the

69
contribution of microfinance in promoting their growth, factors such as professional
advice and training are key in enhancing growth of SMMEs.

Table 4.11: ANOVA Multiple Comparisons on size of SMMEs

Scheffe
95%
Confidence
Mean Interval
Dependent (I) size of (J) size Differen Std. Lower Upper
Variable smmes of ce (I-J) Error Sig. Bound Bound
CMS 1-2 smmes
3-9 .06119 .08697 .781 -.1526 .2750
employees employee
s
10-49 .03812 .08894 .912 -.1805 .2567
employee
3-9 s
1-2 -.06119 .08697 .781 -.2750 .1526
employees employee
s
10-49 -.02307 .04420 .873 -.1317 .0856
employee
10-49 s
1-2 -.03812 .08894 .912 -.2567 .1805
employees employee
s
3-9 .02307 .04420 .873 -.0856 .1317
employee
SFB 1-2 s
3-9 .05700 .10831 .871 -.2092 .3232
employees employee
s
10-49 .10446 .11077 .641 -.1678 .3767
employee
3-9 s
1-2 -.05700 .10831 .871 -.3232 .2092
employees employee
s
10-49 .04746 .05505 .690 -.0878 .1828
employee
10-49 s
1-2 -.10446 .11077 .641 -.3767 .1678
employees employee
s
3-9 -.04746 .05505 .690 -.1828 .0878
employee
s

The multiple comparisons were undertaken to identify which groups differ from one
another based on size of SMMEs. The results revealed that there is no statistically
significant difference between the sizes of SMMES in Urban Maseru in relation to the

70
impacts of microfinance on the output of SMMEs. This reveals that irrespective of the
category of the SMMEs by size, the services extended by microfinance institutions to
SMMEs are the same. Ngehnevu and Nembo (2010) findings in their study show that
size adversely affect SMMES chance of securing credit. The reason for this disparity
in the research results could be that in the case of microfinance institutions in Urban
Maseru provide standard procedures and similar opportunities for extension of
microfinance services for the SMMEs regardless of the size. Nonetheless, the
microfinance services are provided to all qualifying SMMEs irrespective of the size.

4.3.2.2.2 One-way ANOVA on Annual Turnover

Table 4.12: ANOVA on annual turnover

Sum of Mean
Squares Df Square F Sig.
CMS Between .104 2 .052 .321 .726
Groups
Within Groups 59.059 364 .162
Total 59.163 366
SFB Between .318 2 .159 .633 .532
Groups
Within Groups 91.602 364 .252
Total 91.920 366

Furthermore, a One Way ANOVA was conducted to assess the impact of micro-
financing on SMME development based on the annual turnover. The results
discovered that insofar as annual turnover is concerned, no significant differences on
the variables CMS and SFB were observed. The results illustrate that CMS [F (2,364)
= 0.321, p<0.321] and for SFB [F (2,364) = 0.633, p<0.532] which are greater than
0.05. These results reveal that there is no statistical significance difference on the
impacts of micro-financing on the output of SMMEs in Urban Maseru based on annual
turnover. The results show that microfinance has no effect on output when the level of
annual turnover of SMMEs is considered. This therefore means that microfinance
services do not represent the sole factor that can contribute to the output of SMMEs.
This indicates that even if microfinance institutions do not inject or provide credit to
SMMEs, output can still improve.

71
 Table 4.13: Multiple Comparisons on annual turnover
Scheffe
95% Confidence
Mean Interval
Dependent (I) annual (J) annual Differenc Std. Lower Upper
Variable turnover turnover e (I-J) Error Sig. Bound Bound
CMS less than less than .06119 .08697 .781 -.1526 .2750
M200.000 M1.000.000
less than .03812 .08894 .912 -.1805 .2567
M5.000.000
less than less than -.06119 .08697 .781 -.2750 .1526
M1.000.000 M200.000
less than -.02307 .04420 .873 -.1317 .0856
M5.000.000
less than less than -.03812 .08894 .912 -.2567 .1805
M5.000.000 M200.000
less than .02307 .04420 .873 -.0856 .1317
M1.000.000
SFB less than less than .05700 .10831 .871 -.2092 .3232
M200.000 M1.000.000
less than .10446 .11077 .641 -.1678 .3767
M5.000.000
less than less than -.05700 .10831 .871 -.3232 .2092
M1.000.000 M200.000
less than .04746 .05505 .690 -.0878 .1828
M5.000.000
less than less than -.10446 .11077 .641 -.3767 .1678
M5.000.000 M200.000
less than -.04746 .05505 .690 -.1828 .0878
M1.000.000
The multiple comparisons were therefore undertaken to identify which groups differ
from one another. The results revealed that there is no statistically significant difference
between the different levels of annual turnover in relation to the impacts of microfinance
on the output of SMMEs in Urban Maseru. This reveals that irrespective of the level of
the annual turnover of the SMMEs, the services extended by microfinance institutions
to SMMEs are the same. Therefore, there are no effects of microfinance on SMMEs
output based on the level of annual turnover with regards to growth of the business

72
Based on the results, for most of the SMMEs respondents the provision of financial
support was found to be not significant to the level of output in their businesses.
The process of accessing credit was defined as cumbersome. Additional challenges
facing SMMEs include: Inability to provide the collateral securities in cases where they
are demanded and high interest rate, which escalates the inability of SMMEs to pay
back their loans.

4.3.2.3 What is the contribution of microfinance on business growth of selected

SMMEs in Urban Maseru?

Table 4.14: Responses on the contribution of microfinance on business growth

Job creation stability of Better Provide new Competitive

in SMMEs operations access to opportunities advantage in
credit for SMMEs the industry
Male 207 56% 236 64% 186 51% 218 59% 199 54%
female 68 19% 73 20% 59 16% 69 19% 66 18%
Total 275 75% 336 92% 245 67% 287 78% 265 72%
The contribution of MFIs in the growth of SMEs

To determine the contribution of microfinance in entrepreneurship growth and

development, we used metrics defined by Muthama, et. al. (2013); recruitment of new
employees and better access to credit were tested. Also, the study used stability of
operations and competitive advantage in the industry as factors that can affect the
contribution of microfinance on business growth. The majority of the respondents
have experienced stability in their operations, represented by 92%. Those that realised
new opportunities were shown by 78% while 75% is experiencing increasing rate of
employment creation. The competitive advantage of SMMEs in the industry with 72%
of respondents as well as the better access to credit constituting 67% were the least
factors that the respondents perceived as tools that microfinance used to contribute
towards entrepreneurship growth. The result that shows that SMMEs realised stability
in operations implies that microfinance has contributed in upgrading the operational

73
functions such as management and training of SMMEs which shows a positive impact
on entrepreneurial growth.

4.3.3 Pearson Correlation analysis

Pearson correlations (r) were utilised to determine the relationships between the
variables and the results are as indicated in table 21. Table 21 illustrates that the
correlation between microfinance and entrepreneurial development based on the six
variables is relatively strong. Microfinance is represented by variables CSF and CMS
while entrepreneurial development is represented by BED, CFE and SFB. All the five
variables were reported to be statistically significant; BED (p <0.05; r=.166), CFE (p
<0.05; r=.243), CSF (p <0.05; r=.237), CMS (p <0.05; r=.189) as well as SFB (p <0.05;
r=.177). However, the significance of the relationship between the variables varies
between none and weak.

74
Table 4.15 Correlations
BED CFE CSF CMS SFB EMG
BED Pearson 1 .184** .225** .231** .213** .166**
Correlation
Sig. (2- .000 .000 .000 .000 .001
tailed)
N 367 367 367 367 367 367
CFE Pearson .184** 1 .243** .292** .150** .243**
Correlation

Sig. (2- .000 .000 .000 .004 .000

tailed)
N 367 367 367 367 367 367
CSF Pearson .225** .243** 1 .177** .212** .237**
Correlation
Sig. (2- .000 .000 .001 .000 .000
tailed)
N 367 367 367 367 367 367

CMS Pearson .231** .292** .177** 1 .321** .189**

Correlation
Sig. (2- .000 .000 .001 .000 .000
tailed)
N 367 367 367 367 367 367

SFB Pearson .213** .150** .212** .321** 1 .177**

Correlation
Sig. (2- .000 .004 .000 .000 .001
tailed)
N 367 367 367 367 367 367
EMG Pearson .166** .243** .237** .189** .177** 1
Correlation
Sig. (2- .001 .000 .000 .000 .001
tailed)
N 367 367 367 367 367 367

**. Correlation is significant at the 0.01 level (2-tailed).

75
4.3.3.1 The relationship between barriers to entrepreneurial development (BED)
and SMMEs growth.

The results in the table above revealed a significant and positive relationship between
the SMMEs growth and the barriers that impede on entrepreneurial development
(r=0.166. **, p<.01). The results illustrate that the more barriers on entrepreneurial
development are experienced, the more the risks for improvement on SMMEs growth.
This implies that if entrepreneurs encounter more barriers such as lack of capital,
cumbersome loan procedures as well as lack of collateral, there will be negative impact
on their growth. Nendakulola (2015) confirm that some of the SMME respondents
find the process of accessing credit as cumbersome and unable to provide the
collateral securities in cases where they are demanded.

4.3.3.2 The relationship between constraints faced by SMMEs (CFE) and SMMEs
growth

According to the results in Table 18, the constraints faced by SMMEs were also
perceived to be significantly and positively related to SMMEs growth (p <0.05; r=.243).
The outcome is suggestive of the fact that the more the constraints that the SMMEs
face in accessing microfinance services, the higher the risk for SMMEs to attaining the
desired growth. The implication of the result is that entrepreneurial growth would be
realised if the constraints that SMMEs face such as lack of education, high interest
rates and cash flow could be eliminated. In support, Pei-Wen et. al. (2016) believe that
SMEs who attend a business course may use the knowledge to increase their business
income.

4.3.3.3 The relationship between challenges facing SMMEs (CSF) in accessing

capital and SMMEs growth
Table 18 above illustrates that there is significant and positive relationship between the
challenges faced by SMMEs in accessing capital and the SMMEs growth (p <0.05;
r=.243). The results explain that more the challenges that SMMEs face in accessing
capital, the more the possibilities to start or expand business are restricted. As a result,
when SMMEs continue to face challenges such as high loan interest rates, lack of
government support to microfinance institutions as well as poor management in
76
microfinance institutions it will be difficult for such SMMEs to attain the desired growth.
Christanto and Prasetyo (2019) express that while there could be support provided by
the government, it usually is insignificant to enable entrepreneurs to significantly
growth. Nendakulola (2015) also indicate that high interest rate represented one of
the challenges that confronted SMMEs in accessing credit which is perceived to lead
to failure of SMMEs to repay their loans.

4.3.3.4 The relationship between the contribution of microfinance institutions

(CMS) in supporting SMMEs and SMMEs growth
In line with the results shown in Table 18 above, the contribution of microfinance
institutions in supporting SMMEs and SMMEs growth have a significant and positive
relationship (p <0.05; r=.189). This implies that the more support that can be extended
to SMMEs by the microfinance institutions, the higher the potential for the SMMEs to
grow. It indicates that the provision of financial support, support in financial literacy and
development of managerial skills of the SMMEs could contribute towards the growth
of SMMEs. Nendakulola (2015) in support highlights that MFIs have contributed
immensely towards the development of the SMME sector where a significant number
of SMMEs indicated that they have been beneficiaries of business, financial and
managerial training activities of MFIs.

4.3.3.5 The relationship between the sources of funding (SFB) and SMMEs
growth
The results in Table 18 illustrate the significant and positive relationship between the
sources of funding and SMMEs growth (p <0.05; r=.177), which implies that the
broader the base for source of funding, the higher the possibilities for SMMEs growth.
The result demonstrate that SMMEs have a higher potential to grow when there are a
wide range of financial sources which is critical in improving the business. These
sources could include salaries, friends or family and savings group. Collins (2009)
attests that microfinance is mostly used in developing economies where SMMEs do
not have access to other sources of financial assistance. Aladejebi (2019) further
highlights that owners of small businesses source their capital from personal savings,
funds from friends and families, cooperative societies, business associates and
partners.

77
4.3.4. REGRESSION ANALYSIS

In examining the contribution of microfinance on business growth, The research

question was analysed based on the Regression Analysis to determine the extent to
which the predictors, namely, the barriers to entrepreneurial development, challenges
that face microenterprises in accessing microfinance services, sources of funding for
business, constrains faced by micro entrepreneurs, and contributions of microfinance
institutions in supporting SMMEs can explain the dependant variable, effects of
microfinance on SMMEs growth. The model was created to assess the proportion of
the variation in the dependent variable that can be attributed to the independent
variables which was also adopted by (Nendakulola, 2015).

Table 4.16: Model Summaryb

R Adjusted R Std. Error of
Model Square Square the Estimate
1 .338a .114 .102 .47870
a. Predictors: (Constant), mean_SFB, mean_CFE,
mean_BED, mean_CSF, mean_CMS
b. Dependent Variable: mean_EMG

Table 4.17: ANOVAa

Sum of Mean
Model Squares Df Square F Sig.
1 Regressio 10.654 5 2.131 9.298 .000b
n
Residual 82.726 361 .229
Total 93.380 366
a. Dependent Variable: mean_EMG
b. Predictors: (Constant), mean_SFB, mean_CME, mean_BED,
mean_CSF, mean_CMS

The results displayed that the predictors have a potential to explain up to 10.2% of the
EMG or SMEs growth variable since the Adjusted R Square = .102. In addition, the
regression model was significant considering that sig. F Change = .000. The
regression model below was used to determine the extent to which the predictors i.e.

78
Loan accessibility, Inadequate capital and Business location can explain the
dependant variable i.e. SMEs growth as (Malasiya, 2016 and Nendakulola, 2015).

Table 4.18: Coefficientsa

Standardize
Unstandardized d
Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) 1.646 .388 4.245 .000
BED .086 .070 .064 1.223 .222
CFE .225 .075 .160 3.013 .003
CSF .148 .051 .153 2.909 .004
CMS .092 .069 .073 1.338 .182
SFB .083 .054 .083 1.548 .123
a. Dependent Variable: mean_EMG

A multiple regression analysis was conducted to test if there is a relationship between

Barriers that impede entrepreneurs’ development (BED), Constrains faced by micro
entrepreneurs (CME), challenges that SMMEs face in accessing finance (CSF),
Contributions of microfinance institutions in supporting SMMEs(CMS), sources of
funding for business(SFB) and Effect of microfinance on SMMEs growth (EMG). The
five independent variables explain 10.2% of the variation in the dependent variable.

The results in Table 16 illustrates that there is a positive and statistically significant
relationship between Constrains faced by micro entrepreneurs (CFE) and Effects of
Microfinance on SMMEs Growth and Challenges faced by SMMEs in access in
Finance and Effects of Microfinance on SMMEs Growth. This suggests that an
increase in CSF and CFE results in improved SMMEs growth as shown by positive
and significant coefficients. Nendakulola (2015) also ran the same model and found
that the variables had a positive statistical significance. However, the coefficient of
BED was positive and not statistically significant (B=-0.86, p>0.05) meaning that
EMG not influenced by BED. Moreover, CMS and SFB were also found to be
statistically insignificant (B=0.92, p>0.05) implying that the change in EMG is not
explained by CMS and SFB. Ojo (2009) ran the similar model and established that
79
there was no significant effect of microfinance institutions activities in predicting
entrepreneurial development.

These results showed that SMMEs growth proxied by Effects of Microfinance on

SMMEs Growth (EMG) is not influenced by the Constrains faced by micro
entrepreneurs (CFE), Challenges that SMMEs face in accessing finance (CSF) and
Contributions of microfinance institutions in supporting SMMEs (CMS).

4.3.5 CHI-SQUARE FOR INDEPENDENCE

The Chi-square for independence was applied to assess the association between age,
marital status and educational level.

4.3.5.1 AGE * MARITAL STATUS

Table 4.19: Chi-Square Tests

Asymptotic
Significance
Value Df (2-sided)
Pearson Chi-Square 30.274a 12 .003
Likelihood Ratio 28.085 12 .005
Linear-by-Linear 6.777 1 .009
Association
N of Valid Cases 366
a. 13 cells (65.0%) have expected count less than 5.
The minimum expected count is .02.

A chi-square test of association was conducted to establish if an association exists

between age and marital status on this study. However, there is a statistically
significant association between age and marital status with regards to the role of
microfinance on entrepreneurial development 2(12) =28.085, ρ<0.05. Therefore,
marital status is dependent on age in terms of the role of microfinance on
entrepreneurial development. The age influences the marital status in relation to the
classification of the prerequisites of the microfinance institutions in accessing the
microfinance services. Fatoki and Asah (2011) also indicate that age and marital
status influence the ability of the SMMEs to access credit.

80
Table 4.20: Symmetric Measures
Approximate
Value Significance
Nominal by Phi .288 .003
Nominal Cramer's .166 .003
V
N of Valid Cases 366

The Phi statistic shows that the strength of the association is small (0.288) between
age and marital status in this regard. This association means that age and marital
status are considered when participants request for microfinance services. However,
considering that the strength of the association is not strong, it does not pose a
significant effect on the SMMEs when accessing services from microfinance
institutions.

4.3.5.2 AGE*EDUCATIONAL LEVEL

Table 4.21: Chi-Square Tests

Asymptotic
Significance
Value Df (2-sided)
Pearson Chi-Square 16.662a 12 .163
Likelihood Ratio 19.057 12 .087
Linear-by-Linear .077 1 .781
Association
N of Valid Cases 367
a. 10 cells (50.0%) have expected count less than 5.
The minimum expected count is .05.

Moreover, a chi-square test of association was also conducted to determine if an

association exists between age and level of education. The results illustrate that, there
is no significant association between age and marital status with regards to the role of
microfinance on entrepreneurial development 𝜒2(12) =,19.057 ρ>0.05. This shows that
level of education has no association with age in terms the role of microfinance on
entrepreneurial development. This impliesthat age and educational level do not have
any relationship in terms of accessing services from microfinance institutions. It also
shows that the two variables cannot influence the effect of microfinance services

81
simultaneously. Furthermore, this indicates that level of education is independent on
this study, implying that the educational level of the SMME owner does not assist in
their ability to obtain credit as also indicated by Mutoko and Kapunda (2017).

Table 4.22: Symmetric Measures

Approximate
Value Significance
Nominal by Phi .213 .163
Nominal Cramer's .123 .163
V
N of Valid Cases 367
The Kramer’s V statistic shows that the strength of the association is small (0.123).

4.4 Summary

The research findings attained from 367 participants, out of 400 questionnaires that
were disseminated to SMMEs in Urban Maseru were reported. The format of the
questionnaire was followed to report these results. Data analysis was conducted based
on the sequence of the questions. The descriptive statistics are similarly reported and
a comprehensive discussion from the primary data is given. This revealed a positive
relationship between the effects of microfinance and entrepreneurial development.
The conclusions drawn based on the findings, and the suggested recommendations
are presented in the next chapter.

82
 CHAPTER FIVE
DISCUSSION, SUMMARY OF THE FINDINGS, CONCLUSION AND
RECOMMENDATIONS

5.1 Introduction
This study investigated the effect of microfinance on entrepreneurial development. It
further assessed the challenges faced by SMMEs in accessing finance as well as the
impact of microfinance on output of the SMMEs. The critical assessment of the results
indicates that in addition to better access to credit, variables such as institutional
support and training provided to entrepreneurs, good management and requisite skills
in the microfinance institutions, loan interest rates, broad microfinance sources base
as well as business registration remain a challenge for SMMEs to be able to access
finance that is most need for start-up or expansion of their businesses. The discussion
by research questions is presented in the section on summary of findings.

5.2. Summary of the findings

5.2.1. Profile of SMEs in Urban Maseru

The study highlights that about 54% of the selected population of SMEs in Urban
Maseru is at their micro level since they employ between three to nine people in their
businesses and have a turnover of less than M1, 000,000 per annum. This could be a
demonstration that although there is growth potential in the sector, the challenges and
constraints faced by SMMEs still play a great role in preventing their capability to grow.
In relation to start-up capital, the research reveals that Financial Institutions are
significant contributors towards development of SMMEs considering that most
respondents report to have experienced a significant impact in terms of provision of
financial support extended by financial institutions to increase their business start-up
and expansion capital.

5.2.2 The challenges faced by SMMEs in accessing microfinance services

The study considered the challenges that are faced by SMMEs in accessing
microfinance services. The reviewed literate emphasises the challenges that
microfinance institutions are faced with (Cooper, 2013) such as legal and regulatory

83
environment that is not supportive to microfinance institutions, minimal support from
the government and lack of appropriate technical skills for the managers and staff of
microfinance institutions as well as high interest rates. The respondents perceive that
there are challenges that SMMEs face in accessing microfinance services, of which
high interest rates that are imposed by the microfinance institutions have become the
key challenge. While the government has developed some programmes to enhance
the competence of SMMEs in business management through different institutions
such as BEDCO, entrepreneurs still face deficiencies in business skills to propel their
businesses from the start-up to the growth phase (SMME Support Network-Lesotho,
2007).

The majority of respondents (88%) identified high loan interest rates as the key
challenge for SMMEs to access finance. Furthermore, 77% of respondents identified
lack of government support to microfinance institutions as one of the challenges that
prohibit SMMEs to access finance. Respondents further identified poor management
in microfinance institutions as a challenge facing SMMEs in accessing finance with the
least as lack of technical skills in the microfinance institution with 46% of the
respondents.

The literature that the study has reviewed further express that the high interest rates
being charged by microfinance institutions continue to become a concern for micro
entrepreneurs (Dhumale and Sapcanin, 2008). This presents high level of pressure
on the borrowers that could even impact negatively on the success of their businesses.
Lack of government support has also garnered a high score as a challenge that
prevents SMMEs from attaining growth. Furthermore, there is a challenge relating to
the availability of appropriate skills set at the microfinance institutions, however
respondents do not feel it is significant to restrict growth of their businesses.

5.2.4 The impact of microfinance on output of SMMEs

The study aimed at establishing the association between microfinance and output of
SMMEs in order to appreciate the effect of microfinance on entrepreneurial
development. The literature that was reviewed in this study highlight that there is a

84
linear relationship between credit extension and demand, thus the need for capital
increases with the increasing demand for output.

The outcome of the study highlight that the respondents scoring 90% perceive
provision of financial support as the most important contributor to the output of the
SMMEs. The other factor that respondents feel is important to the performance of
SMMEs output is support in financial literacy of SMMEs which scored 89% while
development of management skills for SMMEs garnered the lowest score 40%.

The result findings revealed that the output of SMMEs is positively related to access to
the credit as output increased with access to credit. The results further emphasised
that the business owners that received financial training and advice saw their output
increase over those that did not benefit from training. The study further expressed
that the output level of enterprises improved as a result of availability and contribution
of credit thus emphasising the positive relationship between microfinance and output.

5.2.5 The effects of microfinance on SMMEs growth

The effects of microfinance on SMMEs through the primary activity of provision of

capital can be seen to have possible impact on better access to credit by the SMMEs.
It further enhances expansion of SMMEs through increased job creation in the
company and within the SMMEs sector, thus improving the stability of operations within
the company. This in turn will enhance the competitive advantage of the SMMEs and
provide new business opportunities.

The majority of the respondents, 92%, indicated that their businesses operations have
been on stable trajectory while those that felt microfinance enshrined new
opportunities for their businesses accounted for 78%. The other 75% expressed the
effect of microfinance to have influenced an increase in employment creation.
Furthermore, 72% of the respondents noted that their comparative advantage with the
industry has improved from contribution by microfinance services. The respondents
constituting 67% identified better access to credit as one of the key problem for
SMMEs to fully realise growth. The literature reviewed in the study confirms that the

85
inability to access finance remains a key factor that constrain growth of business
(AfriScope and FinMark Trust, 2015).

The study therefore has revealed that there is positive relationship between
microfinance and SMMEs growth that can be augmented by focusing on easing the
barriers and constraints in order to enhance the ability for SMMEs to have access to
credit. The findings also revealed that most respondents indicated that the intervention
of MFIs had a positive effect on their businesses, with particular reference to the
provision of financial support thus impacting positively on their general growth.

Nonetheless, the study shows that notwithstanding the input of MFIs in supporting the
activities of SMMEs, SMMEs still face some challenges in the process of accessing
credit. A number of SMME respondents indicated that the procedure for accessing
loans is ungainly. The challenges include: Inability to provide the collateral securities
in cases where they are demanded. High interest rate was mentioned as one of the
challenges faced in accessing credit. The high interest rates predominantly lead to
increased defaults in payments by the clients.

5.3 Conclusion

Microfinance is deemed an important instrument for development of entrepreneurship,

however the study has noted that SMMEs development is not only dependent on
access to credit but also the creation of conducive business environment.
Furthermore, there is a critical need that in order to achieve entrepreneurial growth,
measures such as appropriate legal framework that would assist the improvement of
the services within the MFIs are also provided. The study also established that in the
majority of cases, the MFIs appraise their achievement rate by considering aspects
like high repayment, outreach and financial sustainability, which in the context of
SMMEs may not reflect success if their activities do not contribute towards the growth

86
of SMMEs. Furthermore, the MFIs reach would not be possible in the SMMEs sector
as the SMMEs face challenges such as high interest rates, leading to failure to repay
loans and requirement for collateral which then prevents SMMEs to access loans. The
provision of business training was also perceived to have a positive impact of the
growth of SMMEs. Therefore, MFIs have immense responsibility of ensuring the
proper facilitation of the provision of loans which is an imperative resource in business
improvement.

5.4 Recommendations

In view of the findings made and conclusions drawn from the study, the following
recommendations are provided to help improve and sustain growth in the SMME
sector.
 In order to address the rate of default, diversification is key and government should
be prepared to assist SMMEs through various training methods to follow different
product lines. In the same vein, MFIs need to ensure that their financing methods
and resources are focused on the most essential determinants of growth in focal
sub-sectors, with the objective of enhancing access to the most needed resources
and overcome the disadvantages that SMMEs face. Furthermore, SMMEs should
be encouraged to practice group financing and MFIs adopt the microfinance group
model so that they can avert loan defaulting.

 The institutional and policy framework should be developed by the government to

extend support for SMMEs in those aspects that would be beneficial to attain SMME
growth. On the similar note, MFIs should review their credit lines and provide soft
loans that would be affordable to SMMEs.

 To accomplish this, credit should focus on the needs of the consumer rather than
on the qualities of the product. Appropriate monitoring facilities should be
established for SMMEs who are granted loans. It is also important that training on
financial literacy is provided for the SMMEs in order to gain knowledge on how to
account for the resources provided to them.

87
 It is important that Microfinance institutions also review their policies on the
maximum amount of loans provided to SMMEs that is sufficient and further set
affordable interest rates in order to allow and encourage SMMEs to participate in
entrepreneurial activities and enable those already in business to expand their
business activities thus generating employment.

 The provision of microcredit cannot on its own be sufficient to reduce the

challenges that micro entrepreneurs face and improve their productivity and
income. It therefore becomes imperative that additional interventions that support
microfinancing are implemented, which could include making available the working
space for SMMEs such as market cubicles as well as facilitating market
development and availability for the products the trade with.

 The Government should introduce measures that will encourage Microfinance

institutions to extend loans to SMMEs in a form of reduction of risks and
transaction costs of lending. This could assist in enhancing competition within the
financial sector and strengthen the capabilities to better service the SMMEs. The
Government could provide guarantees for SMMEs that the financial institutions are
reluctant to provide loans to because of the potential risks they observe.

5.5 Areas for Further Study

The future studies should involve the entire country instead of concentrating in one
region. Future studies can further investigate how to address the challenge of
insufficient capital among SMMEs as well as attainment of entrepreneurial and
management skills within the SMMEs in order to enable SMMEs to understand and
participate in, and take full advantage of microfinancing activities. Furthermore, there
is need to undertake focused studies on the operations of the MFIs towards SMMEs
that would have potential growth impact on SMMEs.

88
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FACULTY OF ECONOMIC AND MANAGEMENT SCIENCES (DEPARTMENT OF
CENTRE FOR DEVELOPMENT SUPPORT)

APPENDIX G

Dear participants

The researcher is a student at University of Free State and currently studying Master
of Development Studies in the Faculty of Economic and Management Sciences.
Please note that you have been selected from entrepreneurs in Urban Maseru to
determine The role of micro finance on entrepreneurial development: The case
of Urban Maseru. The data collection from the questionnaire will be treated as
confidential and will be used for academic purpose only. Lastly there is no requirement
to provide names in the questionnaire

INSTRUCTIONS (Please tick the appropriate answer)

Part A Demographics and Other characteristics

Gender Male 1 Female 2

Legal Formal 1 Informal 2
Structure
Size of SMME 1-2 1 3–9 2 10–49 3
employees employees employees
Annual Less than M 1 Less than 2 Less than 3
Turnover 200,000 M1,000,000 M5,000,000
Age 18 – 24 1 25-34 2 35 – 44 3 45+ 4
Marital Married 1 Divorced 2 Single 3 Widowed 4
Status
Educational Primary 1 High school 2 diploma 3 graduate 4
level school
completed
Part B

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1 = Strongly Disagree, 2 = Disagree, 3 = Neutral, 4 = Agree, 5 = Strongly Agree

(1) What are the barriers that impede entrepreneurial development

A Non Registration 1 2 3 4 5
B Lack of Collateral 1 2 3 4 5
C Lack of Business Experience 1 2 3 4 5
D Lack of Knowledge 1 2 3 4 5
E Bureaucracy 1 2 3 4 5
F Cumbersome loan Procedures 1 2 3 4 5
G Lack of capital 1 2 3 4 5

(2) What are the constrains faced by Micro Entrepreneurs

A Lack of education 1 2 3 4 5
B Business risk 1 2 3 4 5
C High interest rate 1 2 3 4 5
D Family problems 1 2 3 4 5
E Lack of institutions support 1 2 3 4 5
F Sourcing capital 1 2 3 4 5
G Cash Flow 1 2 3 4 5

(3) What challenges do SMMEs face in accessing finances/capital

A Lack of government support to microfinance institutions 1 2 3 4 5
B Poor management in microfinance institutions 1 2 3 4 5
C Lack of right technical skills in microfinance institutions 1 2 3 4 5
D High loan Interest Rates 1 2 3 4 5
(4) What are the contributions of Microfinance Institutions in supporting
SMMEs
A Provision of financial support 1 2 3 4 5
B Support in financial literacy of SMMEs 1 2 3 4 5
C Development of management skills for SMMEs 1 2 3 4 5
D Facilitate increase in output 1 2 3 4 5
E Facilitate increase in turnover 1 2 3 4 5
F Facilitate general growth of SMMEs 1 2 3 4 5

(5) What are the sources of funding for business

A Salary 1 2 3 4 5
B Friends/Family 1 2 3 4 5
C Government grant 1 2 3 4 5
D Personal Loan 1 2 3 4 5
E Pension/Retirement policy 1 2 3 4 5
F Savings group 1 2 3 4 5

(6) What are the effects of microfinance on SMMEs growth

A Job creation in the SMMEs 1 2 3 4 5
B Stability of operations 1 2 3 4 5

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C Better access to credit 1 2 3 4 5
D Provide new opportunities for SMMEs 1 2 3 4 5
E Competitive advantage in the industry 1 2 3 4 5

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 University of the Free State
Telephone: +266 62001932
Email: [email protected]

1 august 2020

Dear Participant,

RE: INFORMED CONSENT

I am a master’s student at the department of Centre of Development Support at the

University of the Free State. I would like to invite you to take part in my research
entitled: The role of micro finance on entrepreneurial development: The case of Urban
Maseru

The study is aimed at objective of the study is to assess the role of micro finance on
entrepreneurial development in Urban Maseru.

Study procedures: The study involves compiling the dimensions into a questionnaire
and administering it to SMMEs in Lesotho.

Benefits: There are no direct benefits for participating in this study, however the
information that you provide might contribute towards an understanding of the role of
microfinance on Entrepreneurial Development in Lesotho

Confidentiality: The information that I will obtain from you will be stored safely,
although it will be shared with my supervisor and the department who are involved in
this study. Excerpts from the interview may be included in the final dissertation and
may also be published in journals. The questionnaire will be filled at your convenient
time and your name will not be written down or recorded anywhere. Furthermore, the
study does not require you to disclose or name any specific individuals and you do not
have to discuss any personal information that you do not feel comfortable talking
about.

Risks: There is no major anticipated risk that will be encountered by your participating
in this study.

Voluntary participation: Participation in this study is voluntary and you are under no
obligation to conduct the interview. If you have any concerns with the way the research
is being conducted, please feel free to contact and discuss it with my supervisor,
whose contact details are given below.
Please feel free to ask any questions on any aspect of this study that is unclear to you.

Yours sincerely,

Motsoeli Tau
Supervisor: Dr Edson Vengesaie
Email: [email protected]
Email: [email protected]

105
 P. O. Box 11090
Maseru, 100
Lesotho

1st September, 2020

The Principal Secretary

Ministry of Trade and Industry
P. O. Box 747
Maseru

RE: REQUEST OF DATA AND INFORMATION

Dear Sir,
My name is Motsoeli Tau, I am pursuing a Master in Business Management Degree at
the University of the Free State at Republic of South Africa, from the faculty of
Economic and Management Sciences in the department of Centre for Development
Support. In partial fulfilment of my Degree, I am currently undertaking a research
entitled “The Role of Microfinance on Entrepreneurial Development”. In this regard, I
wish to request your institution to assist with the provision of relevant data and
materials that could provide more information on the SMMEs to facilitate successful
completion of my research. May I assure you that the information will be kept
confidential and used solely for academic purposes, although it will be shared with my
supervisor and the department who are involved in this study.

There are no direct benefits for the Ministry in this study, however the information that
you provide might contribute towards an understanding of the role of microfinance on
Entrepreneurial Development in Lesotho

It is my ambition to produce a comprehensive study that would be beneficial to SMMEs

and financial institutions as well as your Ministry in the quest to better address the
related trade development challenges and reinforce policies for better service to
SMMEs in areas such as business mentoring and financial management.
A copy of my finished work will be shared with your institution at the soonest possible
time it is available.

Your approval of my request is highly anticipated. Should you need further clarification,
please do not hesitate to contact me at +266 6200 1932/ [email protected] or my
supervisor Dr Edson Vengesaie at [email protected]

Yours Sincerely,

106
Motsoeli TAU (Mr)

107