Microfinance Intervention and Enterprises Growth: An Application of Structural Equation Modelling

Abstract

The purpose of this paper was to assess the impact of microfinance services on growth of micro and small enterprises structural equation modelling (SEM) in Tanzania. Specifically, sales revenue, assets levels and number of employees were used as indicators of MSEs growth. On the other hand loan received, loan invested, interest rate and repayment time were used as indicators of microfinance services. Through the use of SEM, the findings revealed that while the loan amount (i.e. amount received and amount invested affected growth positively, loan conditions (interest rate and repayment time) affect growth negatively. It is thus recommended that microfinance institutions (MFIs) should find proper conditions that will not hinder the growth of enterprises owned by their clients.