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This chapter contains the review of related literature used in this


According to Otero (1999), microfinance is the provision of financial

services to low-income poor and very poor self-employed people.

Microfinance refers to provision of small loans and other facilities like

savings, insurance, transfer services to poor low-income household and

micro-enterprises. Microfinance is the attempt to improve access to small

deposits and small loans for poor households neglected by banks.

Therefore, Microfinance is the provision of financial services such as

savings, small loans and insurance to poor people in the urban and rural

areas who are not able to obtain such services from the banks (Schreiner

& Colombet, 2001).

According to Simanowitz and Brody (2004), microcredit refers to

small loans, whereas microfinance is appropriate where NGOs and

Microfinance institutions supplement the loans with other financial

services (savings, insurance, etc.). Therefore microcredit is a component of

microfinance in that it involves providing credit to the poor, but

microfinance also involves additional non-credit financial services such as

savings, insurance, pensions and payment services. Littlefield, Murduch


and Hashemi (2003), micro-credit is a key strategy in reaching the MDGs

and in building global financial systems that meet the needs of the poorest


Ngehnevu and Nembo (2010) conducted a study on The Impact of

Micro Finance Institutions (MFIs) in the Development of Small and

Medium Size Businesses (SMEs) in Cameroon. Microfinance is a term used

by many in different domains to fight poverty. Poverty is a syndrome that

is affecting the developing countries and especially in sub Saharan Africa.

The external environment of every enterprise is defined as that which

consists of such factors that affect its business from outside. These include

competition, the behavior of its targeted customers and suppliers, the

influence its owners, especially those who do not participate in its

management, macroeconomic dynamics, and government policy (Alkali,

2012; & Pearce 2011). Porter (2008) describes the competitive dimension

of this environment in terms of five forces: the power of buyers, the power

of suppliers, rivalry, substitutes, and barriers to entry. According to Pearce

and Robinson (2011), rivalry connotes the behaviour that an enterprises

competitors exhibit in terms of winning the market by seeking, on a

continuous basis, to gain advantage over each other. This behaviour is

expressed in terms of the number of companies competing in the market,

product differentiation, and type of technology used, provision of better

services, competitive prices, and value for money. An enterprise is unlikely

to succeed when its management fails to develop strategies needed to


effectively counter its competition (Simon & Svejnar, 2007). These

observations suggest the failure to develop strategies needed to fight rivalry

can lead to failure to succeed in the market. According to Pearce and

Robinson (2011), not only do these entities include those that supply an

enterprise with human resources, required equipment, technologies,

materials and office supplies. They also include the entities from which the

enterprise borrows and/or mobilizes equity finance to fund its operations.

Economic systems tend to go through periods of faster and slower

economic activities, high and low monetary and banking transactions, and

varying degrees of volatility in respect of interest and exchange rates

(Alkali, 2012; & Beal, 2000). Businesses prosper when the economy is

booming, when the monetary and fiscal system is favorable, when the

purchasing power is high and when living standards are generally rising

(Pogarska & Edilberto, 2013).

Mosley (2001), using data from Latin American countries, found a

positive growth of income and assets of the borrowers than control group.

The growth of income of the better-off borrowers was larger. However, he

could not find any evidence of impact of microfinance on extreme poverty.

Banegas et. al. (2002), employing Log it model, found positive impact on

the income of borrowers.

Arif (2006) reviewed poverty reduction programs in Pakistan. He

found that various have been used for targeting the poor by different

organizations. His review portrays that microfinance organizations use a

loose criterion to identify poor and non-poor households. He further

pointed out that evidence on the targeting efficiency of microfinance is slim

(Robinson, 2011).

Shirazi (2008) estimated that micro credit has increased the return

to investment of the borrowers. In his study, using Pakistan Gallop data,

2005, he found that micro credit has increased the returns to investment

of 79 percent of the borrowers in the range of 15 to 89 per cent per year.

The average weighted rate of return to investment was 4.57 percent per

month or uncompounded rate of 54.89 per year (Mason, 2007; & Yunggar,

2005). He found that female borrowers were making more return than

their male counterparts.

Due to a lack of suitable data, there exists only a small number of

studies that analyze the impact of microfinance loans. There is a detailed

micro-survey of households in Taiwan, including information on assets,

loans, and savings. Besley and Levenson (1996) use this survey and that

a household's participation in an informal savings group (a rotating

savings and credit association) has a positive impact on household


Small businesses tend to have a poor collateral base and therefore

get excluded from the credit market (Kimuyu & Omiti, 2000). Among other

for poor access to credit facilities are lack of information of credit sources,

weak contract enforcement mechanism and access for business expansion

and capital investment are out of reach for MSMEs for the same reasons

given above.

Women often lack education, skills, capital and access to credit

(Peterson, 2008) and there appears to be a tendency for women to

participate in less profitable sectors such as food vending whereas men

are more representative within markets of non-food items (Skinner, 2008).

Female entrepreneurs in Tanzania face several challenges such as lack of

property and ownership status of assets which often impede access to

financial credit due to a lack of collateral. This is further deepened by the

societal principle which states that women are only capable of managing

small-scale businesses. As a result, women tend to be found in enterprises

which reflect traditional gender roles such as businesses of sewing,

handicrafts and food production (Stevenson & St-Onge, 2005).

It dates back in the 19th century when money lenders were

informally performing the role financial institutions. The informal financial

institutions constitute; village banks, cooperative credit unions, state

owned banks, and social venture capital funds to help the poor. These

institutions are those that provide savings and credit services for small

and medium size enterprises. They mobilize rural savings and have simple

and straight forward procedures that originates from local cultures and

are easily understood by the population (Germidis et. al. 1991).


According to Consultative Group to Assist the Poorest (CGAP, 1999),

typical microfinance clients are the poor and low-income people who do

not get access to formal financial institutions loans. These clients are

mostly self-employed, household-based vendors who operate small retail

shops, street vending, artisanal manufacture and service provision.

The result was contradicted to Kauffman Index of Entrepreneurial

Activity (2012), almost a quarter of new businesses were started by

entrepreneurs 55 and older, a spike from 14 percent in 1996. According

to Deeb (2014), the average entrepreneur is 40 when they launch their

startup. People over 55 are twice as likely as people under 35 to launch a

high-growth startup. The average age of a successful startup with over $1

million in revenues was 39. Age was less of a driver to entrepreneurial

success than previous startup and industry experience. Research shows

that older people are more likely to be successful when they start a

business. Dont let your age deter you from pursuing your dream.

Ultimately, a solid business idea paired with flawless execution, not a fresh

face, is what leads to success in business (Brown, 2013).

In the study of Owusu (2013), it was realized that females save or

do business with Microfinance institutions more than males as a result of

economic activities they normally undertake. Most females engage in petty

trading which is a major target of Microfinance institutions. This reflects

the gender distribution in Ghana who engage in business. According to


Population census (2000), males constitute 48.7% of the population of

Ghana while females make up 51.3%.

Most married women starts their own business to provide additional

flexibility and life balance in managing their traditional responsibilities as

wife and primary caretaker of children. Through continuous struggles and

battles, there have been many stories of the success of most women

entrepreneurs who make it big in the business world (Nguyen, 2005).

According to Manta and Henderson (2013), higher education doesnt

get particularly high marks as a key factor in the business success or as

a criterion for hiring. While 69% of business owners surveyed had attended

college (well above the national average), only 68% of this college graduate

group said they believed this education made a difference in their success.

Manarang (2016), 93% of Filipino sari-sari store owners set up shop

outside their homes. They spend on doing minor renovation work to create

access to storage facilities inside the house. A sari-sari store can be a good

source of income if managed properly. On average, a sari-sari store can

average a net profit margin of 20%. Stories of families who were able to

send their children to college with the earnings from a sari-sari store


Entrepreneurs wishing to start a small retail business can find it to

be a lucrative venture, if they organize the operation correctly in the initial

start-up. Entrepreneurs should look to products they are familiar with and

plan accordingly for start-up costs, such as advertising, inventory, build-

out, lease obligations, and permit and licensing fees. To start a small retail

business, you will need to locate store space, establish a relationship with

supply vendors, get a business plan and financing, and register the

business with the state and/or locality in which the business is located

(Richason, 2016).

In the observation of Belisle (2012), the following reasons that small

business owners prosper are: they have or acquire a strong working

knowledge of business basics; they have a strategic profit plan; they build

their strategic profit plan around a clear value propositions for the

customer; They are committed to marketing and selling their product;

They concentrate their sales efforts to a niche rather than trying to sell to

every possible customer; and They develop a way to make their product

something their customer must have rather than something that would be

nice to have. It takes about six years of hard work to become an overnight

success (Godin, 2013).

Strokes and Watson (2010), said that Small Businesses (SBs) are

firms formed and managed solely by their owners with relatively small

capital base, have comparatively small market share and operates in well

specialized niches.

CARD credit programs provide loans to small businesses which the

members undertake. These give them the opportunity to save and build

up their own capital, thereby enhancing their credit-worthiness (CARD,


2014). CARD, Inc. provides microfinance loans, SME loans, and other

loans tailored-fit to the evolving needs of its clients. CARD Bank, Inc.

provides different loans that suit the different needs of its members which

are Microfinance Loan, SME Loan and other loans such as solar, health,

salary, educational, mobile/cellphone, and calamity loans. Because of

their services, it is not surprisingly that they got the trust of the


Machakos Municipality of Machakos District in Kenya (2012); &

Munyao (2012), revealed that MFIs play a major role in credit provision to

the SMEs, and this credit has contributed to the growth of businesses in

terms of number of employees, asset base, level of stocks, and services of

the businesses. It also indicated that the credit services in businesses

which do not show increased profitability, changes in stock levels and

services are used to sustain the business and avoid possible collapse.

Karlan (2011), research from other studies increasingly suggests

that actually microfinance loans do not have that huge an impact on

business productivity anyway, and that much of their benefit is to help

smooth out unpredictable income for day-to-day spending. Microloans can

have a positive impact even without new business investment or dynamic

entrepreneurism. Entrepreneurism is sexy in America. According to

Karnani (2007) argued that the best way to alleviate poverty is to create

jobs and increase worker productivity but not through microcredit.


Doug and White (2016) interviewed the owners of more than 100

small and midsize businesses. More than a few had made a conscious

decision not to expand their companies any further. Growing their

businesses is simply not something they wish to do or feel they can do.

They found three primary reasons that small business owners decided not

to grow. The three primary reasons are to avoid risk and maintain their

lifestyle, to avoid regulation, and to avoid having to delegate


Kebede (2011) on his study, the top four challenges they faced are:

Lack of space - adapted premises; financial difficulties lack of access to

capital and credit; Sale of product - lack of customer; and Lack of

equipments. Due to competition street vendors sometimes as a way of

attracting customers, they sell their products at low prices which in turn

a lead to reduced profits (Sekar, 2007; Bhat & Nengroo, 2013, Mmusi,

1995; Mokgosi, 1997; Jimu, 2004; & Fuller-Love, 2006).

The varying interpretation of success by the vendors were, for some

vendors success is defined as getting enough income for their current and

future consumption, for some vendors they would feel successful if they

accumulate saving, for some vendors changing and expanding their

business is success (Kebede, 2011). In addition, the factors that contribute

to economic performance of the vendors are knowledge of market-

knowledge on products in demand, price fluctuation, production process,


good relationship with other people- other vendors and state officials,

availability of social capital, Own capital, and Family support (Teilhet-

Waldorf 1978; Moser, 1980; Loprayoon, 1991; Norapallop, 1993;

Sirisamphand, 1994; Nirathron 1996; & Nophirun, 1997).

On the study of Kebede (2011) the failure factors for the vendors

were lack of financial planning (cost-profit calculation), over spending, bad

pricing, and high interest rates to pay. In the case of unsuccessful vendors,

some research studies indicated contributing factors such as lack of family

support, lack of capital, and having dependent children (Loprayoon, 1991;

& Nirathron, 1996). Being unsuccessful meant that the vendors were not

able to earn enough income and had to give up their businesses

(Nirathron, 2006).