Influence of Group Based Micro-financing on Business Performance of Rural Based MSMEs in Tanzania

Abstract

Following on-going debate among scholars and researchers on influence of group based micro-financing on rural based businesses some Tanzanians are afraid of group loans. For that case a study was undertaken in Tanzania in 2020. The general objective of the study was to determine influence of group based micro-financing model on business performance of rural based Micro, Small and Medium Enterprises (MSMEs) in Tanzania. It was guided by the theory of group based micro-financing (GBM) model. Data were collected using a structured questionnaire from 279 group based borrowers of financial institutions. Multiple Linear Regression Analysis (MLRA) was conducted to estimate the influence of the Model on business performance of rural based MSMEs. The study found out that group based micro-financial services and borrower qualities had significant positive influences on business performance while nonfinancial services had insignificant positive influence. Mandatory loan servicing costs and transaction costs had significant negative influences. Furthermore, the study confirmed that group based micro-financing model in general had significant positive influence which implied that it was essential and a panacea for the rural poor. It is therefore recommended for smallholder farmers in rural Tanzania to enable them engage in income earning businesses in their respective areas.