Assessment Of The Effect Of Village Savings And Loan Associations On The Performance Of Small And Medium Enterprises In Lilongwe District, Malawi

Abstract

Small and Medium Enterprises play a significant role in the socio-economic development of economies, ranging from poverty reduction to employment creation. However, SMEs are confronted with numerous challenges. Notable among them, as documented in the literature, is limited access to formal financing. This has prompted SME owners in sub-Saharan Africa to seek affordable credit and savings services outside the formal banking sector through Village Savings and Loan Association (VSLAs). The purpose of the study was to assess the effect of VSLAs on the performance of SMEs in Lilongwe district. The study adopted a mixed-methods approach. There were many SMEs in Lilongwe at the time the study was being conducted and their population was not known. A Sample size of 666 was determined using the formula by Cochran (1977) of which 333 were SMEs whose owners were members of VSLAs and the other 333 were non-VSLA members. A total of 666 Semi-Structured questionnaires were administered to the respondents but only 596 were filled and returned, representing a response rate of 89%. Systematic random sampling method was used in selecting the respondents. Data were analyzed using Stata 14 with correlation analysis, independent sample t-test and multiple linear regression analysis. The results revealed that VSLA loans and savings facilities have a positive effect on the performance of SMEs in Lilongwe district. Furthermore, the study revealed that SMEs that were accessing loans from VSLAs experienced a higher increase in the number of employees, a higher positive change in the value of business assets and revenue compared to SMEs whose owners were not members. The study also confirmed that age of the business owner, education level, business experience and number of employees were statistically significant (at 95% confidence interval) in influencing performance of SMEs. The study recommends that SME owners should be encouraged to Join VSLAs as a way of improving the performance of their enterprises.