Determinants of small scale entrepreneurs’ demand for microloans from microfinance institutions: a case study of Moshi municipality

The purpose of the study was to examine the determinants of small-scale entrepreneurs’ demand for microloans from MFIs in Moshi Municipality, identify the types of MFIs and assess their efficiency in services provision in Moshi Municipality. Primary data were collected by using questionnaires distributed to 200 respondents selected randomly from eight microfinance institutions in Moshi Municipality. The study used descriptive statistic and quantitative analysis to analyze the data from the field with help of SPSS and STATA software programmes. The study revealed that majority of borrowers from MFIs were female (61 percent) and the main activity conducted was business (64 percent). The average age and monthly income of borrowers were 40 years and Tshs. 355,462 respectively. Again, most of them lived in urban areas. The level of education attained by most of respondents was the primary level. MFIs operating in Moshi Municipality include formal institutions, semiformal institutions and informal financial providers. The study found out that MFIs have not attained their maximum efficiency in service provision as there are challenges which need to be addressed. Among the challenges include high interest rate and short repayment schedules. OLS regression results show that gender, age of respondents and time lag in the lending process were significant at 10 percent. Income and transaction costs were significant at 1 percent and education was significant at 5 percent level. However, marital status and economic activities were statistically insignificant to determine the demand for microloans from MFIs by small scale entrepreneurs. The study recommends that MFIs should reduce interest rates, adjust loan repayment schedules and provide awareness trainings to borrowers to equip them with useful knowledge on the use of loans. Moreover, it is recommended that MFIs should expand their branches to serve more people in both rural and urban areas.