Title:
THE NEXUS BETWEEN MICROFINANCE AND FINANCIAL PERFORMANCE IN SMALL ENTERPRISES: CASE OF HARARE, ZIMBABWE

Authors:
Hosho Norbert , Gumbo Victor , and Pamu Emmanue Mulenga

Abstract:
The study derives from the notion that small enterprises (SEs) could be the drivers of the Zimbabwean economy, after many large companies have either closed down or downsized in the past two decades. This study also constitutes the third phase of the research aimed at examining how the financial performance of small firms can be influenced by microfinance services offered by MFIs. The purpose of the current study is to determine if there is any change to SEs’ financial performance after acquiring microfinance from MFIs. The research employed both the quantitative and qualitative designs, whereby the population for the study comprised the many SEs in and around Harare Central Business District. The researchers purposively sampled twenty SEs from each sector from within the population of SEs operating in Harare on condition that: (1) the SE had obtained microfinance from an MFI and is currently indebted to at least one MFI, (2) The SE meets the operational definition of an SE; that is it has between six and forty employees, annual turn-over of $50 000 to $500 000 and assets valued at between $50 000 to $1 million. Questionnaires were used as a data collection tool. The key findings of the study were that microfinance has had a positive impact on SE financial performance. We however note that both SEs and MFIs in Harare generally have not yet adopted contemporary bankruptcy prediction models meant to ensure that SEs do not collapse abruptly due to indebtedness and lack of information on the direction of their businesses. Thus, whilst we conclude that microfinance could be a driver of SE sustainability and development, we recommend the use of modern day financial analysis techniques in monitoring SE financial soundness.