Abstract:
Small and medium scale enterprises (SMEs) play a substantial role in the global economy. This study sought to determine the effect of Microfinance Institutions (MFIs) on the performance of SMEs in the Bawku Municipality. Specifically, the study determined the contribution of MFIs on the entrepreneurial activities that lead to sustainable growth, finding out the challenges SMEs in the Bawku Municipality face in accessing credit from MFIs and examining the effect of penalty charges on the performance of SMEs in the Bawku Municipality. The study was conducted in the Bawku Municipality. In total, 70 SMEs were sampled purposively for the study. The data were analysed with SPSS version 23. It was found that the operations of MFIs in the Bawku Municipality positively affect the performance of SMEs. This is mostly so when they give credit to SMEs on time. However, factors like time constraint and access to collateral securities are the major challenges SMEs face in their deals with MFIs. SMEs which are not able to pay back their loans are punished mostly by selling their assets. The study therefore recommended that SMEs which have inadequate capital should take credit from MFIs and also take up credit management training from MFIs. MFI should be efficient to be able to give out credit to SMEs within the shortest possible time. This can enable SMEs to get the required funds for their operations at the time they are in need. Lastly, the Ministry of Trade and Industry should support SMEs in getting credit from MFIs by insuring the security of the credit they take from MFIs.
