A borrowing cost model for effective performance of SMEs in Uganda

Abstract

Purpose – The purpose of this paper is to develop an effective cost borrowing model of qualitative factors that are relevant to micro and small enterprises (SMEs) better performance. Design/methodology/approach – A valid research instrument was utilized to conduct a survey on 359 SMEs (131 retail businesses, 125 service businesses, 48 farming businesses and 55 other businesses) and 897 respondents that are representative of 397 SMEs and 1,087 respondents. Correlation and regression analysis were conducted to ascertain the validity of the hypotheses. Findings – It was established that cost of borrowing elements (interest rate and loan processing costs) are associated with SME performance. Furthermore, cost of borrowing as a whole accounts for 31.1 percent of the variation in performance Uganda’s SMEs. Research limitations/implications – Only a single research methodological approach was employed, future research through interviews could be undertaken to triangulate. Multiple respondents in SMEs (owner, manager and cashier) were studied neglecting others. Furthermore, the study used the cross-sectional approach – a longitudinal approach should be employed to study the trend over years. Finally, cost of borrowing was studied and by the virtual of the results, there are other factors that contribute to SME performance that were not part of this study. Practical implications – There is need to intensify initiatives to encourage greater understanding and acceptance of cost of borrowing, select appropriate elements that includes interest rate and loan processing costs in order to have affordable source of financing to establish and grow SMEs, provide employment, competitive and contribute to countries GDP. Originality/value – This is the first paper in Sub-Saharan Africa to test empirically the relationship between cost of borrowing and performance of SMEs in the Ugandan context.

CEO Duality and Financial Performance: Testing the Moderating Role of Firm Age: Evidence from a Developing Economy

“…It is has for overtime been measured differently, But for this study, we focused on capital growth, asset base, return on assets (ROA), return on investments(ROI) profit after tax (PAT) and firm revenues as measures of financial performance. (Hofmann & Lampe, 2013;Bathula, 2008;Tumwine et al, 2015). For instance, Return on investment is a particular metric used to measure the firms profitability, it specifically measure the amount of returns on a particular investment in relation to the initial investment costs (Mutambi, 2011;Nkundabanyanga, 2016).…”

“…In this study, we mainly investigate the moderating role of firm age on the relationship between CEO duality and financial performance among manufacturing firms in a developing economy perspective. Most Manufacturing firms in sub-Saharan Africa provide a fulcrum around which their host economies turn (Kamukama, Kyomuhangi, Akisimire, & Orobia , 2017;Mutambi, 2011;Tumwine et al, 2015). In Uganda for instance, the industrial manufacturing sector is one of the economic pillars of the economy with a GDP contribution of 20%, generating over 80% of manufactured output (UNIDO, 2013;UBOS, 2017).…”

“…Comparing the level of economic performance with the government efforts in developing industrialization, this sector should be performing better. Thus, for the economy to prosper there is need to put emphasis on this sector because; in addition to its GDP contribution, the sector creates employment for both the skilled and unskilled labor as well as providing value addition to the agricultural output for both local consumption and export purposes (Nalukenge et al, 2018;Tumwine et al, 2015). Despite their great importance, most manufacturing firms have had challenges of poor financial performance and this sometimes leads to firm failure (Mutambi, 2011;Nkundabanyanga, 2016;Akisimire et al, 2016).…”

Board Member Age Diversity and Financial Performance of Manufacturing Firms: A Developing Economy Perspective

“…Firm Financial Performance: Although there are different perspectives of looking at firm performance, this study focused on financial performance. Financial performance of a firm can be assessed differently including turn over and liquidity which measures the ability of a business to meet financial obligations as they come due, without disrupting the normal, ongoing operations of the business (Kamukama, 2011;Abdelmohsen et al, 2013;Tumwine et al, 2015). Profitability is another dimension of financial performance which indicates the extent to which a business generates profit from the factors of production such as labor, management and capital (Kreusel & Christian, 2008;Hofmann & Lampe, 2013).…”

“…Different scholars view financial performance differently. For example; while establishing a borrowing cost model for effective performance of SMEs in Uganda, Tumwine et al (2015) measured financial performance in terms of liquidity, sales level and Asset base. According to Ishengoma and Karpel (2008), growth over a period of time can be used as a measure of performance in manufacturing firms.…”