THE EFFECT OF MICRO-FINANCE ON THE SOCIO-ECONOMIC

WELFARE OF LOW-INCOME COMMUNITIES IN MAYUGE DISTRICT.

BY

MUTESI ESTHER PERUTH

123-035083-31688

TABLE OF CONTENTS
List of Acronyms

Abstract

CHAPTER ONE

1.1 Introduction

1.2 Background of the study

1.3 Statement of the problem

1.4 Purpose of the study

1.5 Objectives of the study

1.6 Research questions

1.7 Research hypothesis

1.8Conceptual framework

1.9 Scope of the study

1.10 Significance of the study

Definition of key Terms

List of Acronyms

AMFIU Association of Microfinance Institutions Uganda

BRAC Bangladesh Rural Advanced Committee

FINCA Foundation for International Community Assistance

MFIs Micro Finance Institutions

MOFPED Ministry of Finance, Planning and Economic Development.

NGOs Non-Government Organisations

PRIDE Promotion of Rural Initiative Development Enterprises

UMRA Uganda Microfinance Regulatory Authority

UNDP United Nations Development Program

UWFCT Uganda Women’s Finance and Credit Trust

ABSTRACT
Microfinance has been widely promoted as one of the most successful tools for poverty
alleviation and social economic development in low-income communities. This study aims to
examine the effect of microfinance services on the social economic welfare of communities
in Mayuge district. This study further focuses on aspects such as income levels, access to
education, health care access, employment and its social impact on gender equality. The
different forms of lending include group lending and individual lending so as to extend credit
to various groups of people in the community. The study employs both qualitative and
quantitative methods to analyse the effectiveness of microfinance programs on the economic
and social development of communities in mayuge district. The study also assesses the role of
microfinance in supporting borrowers to cope up with financial constraints arising from covid
pandemic. The study finds that microfinance has a significantly positive effect on the social
economic welfare of households. However, borrowers face challenges like high interest rates,
unfavourable repayment period and the need for collateral security as a requirement for
obtaining micro-credit which often results to sale of household assets in failure of loan
payment.

Key terms

Microfinance, socio-economic welfare, low- income communities, micro-credit.

 CHAPTER ONE

1.1 INTRODUCTION
This chapter consists of the background of the study, statement of the problem, purpose of
the study, research objectives, research hypothesis, significance of the study and conceptual
framework.

1.2 Background of the study.

Microfinance refers to banking services provided to low-income individuals who otherwise

wouldn’t have access to financial services like micro-loans, micro-savings, micro-insurance
and financial education. Microfinance refers to a development tool that provides financial
services and products to assist the very poor in expanding or setting up their businesses. It is
commonly used in developing economies where SMEs lack access to other sources of
financial assistance (Robinson,2003). According to (Germidis,1991), microfinance refers to
the provision of financial services to low-income communities including the self employed
who may lack access to banking services. Contrary to formal lending institutions that limit
the poor due to collateral security, high transaction costs and information asymmetry
(Armendariz & Labie,2011), microfinance institutions are focused on the core objective of
bringing financial services to resource constrained communities. Microfinance according to
Otero (1999, p8) is the provision of financial services to low-income poor and very poor self-
employed people. These financial services according to Ledgerwood (1999) generally include
savings and credit but can also include other financial services such as insurance and payment
services. Schreiner and Colombes (2001, p339) define microfinance as the attempt to
improve access to small deposits and small loans for poor households neglected by banks.

Poverty and financial instability have always remained major concern in the world.
approximately 2.4 billion people are facing extreme poverty conditions across the globe.
(World bank,2018). The developing world is facing high level of poverty as one out of every
five individual is suffering from extreme poverty (UNDP,2017). The household social-
economic welfare is more unstable in developing countries as compared to the developed
ones. For this reason, the household social-economic status has become a concern in
developing countries. (Al-Mamun el al,2018).

Microfinance gained global coverage through the work of Dr. Muhammad Yunus and
Grameen bank in Bangladesh who was awarded the Nobel peace price in 2006. The concept
of microfinance was pioneered in Bangladesh by Nobel Laureate, Muhammad Yunus with his
formation of the Grameen Bank (Morduch,1999). In the early 1970’s, Yunus was a professor
of economics at Chittagong university, where he conducted research of rural poverty. In 1976,
he visited a village in Bangladesh where he provided a small loan of $27 to a group of
women to free them from the restriction of loan sharks. (Yunus et al,2010). Its from there that
he dedicated his life’s work towards developing the idea that even the poor are creditworthy.
Yunus established the Grameen Bank in 1983 which became the first microfinance bank in
the world. (Dowla,2004). Under his leadership, the bank has helped millions of impoverished
people to start small businesses and improve the social and economic welfare. Due to his
contributions, Yunus was named “The banker to the poor”.

According to the Global Findex Database,2021,1.4 billion adults globally are considered to
be unbanked and the majority of them are women. Due to this, microfinance directly
addresses this problem by providing financial services to poorest in society. The primary
intention of microfinance is to serve as a socially beneficial method of tackling poverty
through financial inclusion. Microfinance has been appreciated globally as one of the most
influential tools of poverty alleviation in developing countries. Several studies show that
programs rendered by MFIs play significant role in the advancement of small and micro-
enterprises .(Chliova et al,2015, Afroze et al,2014).Many MFIs have developed their products
to meet the growing needs of their clients by offering supplementary financial services such
as saving accounts ,education and skill based training to its borrowers.(Brau & Woller,
Khandker,2005).MFIs were originally financed entirely by grants, low interest loans and
support from NGOs.(Zeller & Mayer,2002). Previously, micro-credit was predominantly
provided by NGOs led MFIs (Afronze et al,2014). However, government policy makers have
started provision of micro-credit services (Hulme & Moare,2006) in the formal sector.

Though the microfinance programmes have been applauded for their positive impact on
improving the living standards of low-income people, the scope of micro-credit programs has
evolved from human development and provision of social services to being more profit and
business focused. MFIs charge high interest rates so as to cover the costs that are necessary
for profit generation and business survival (Fernando,2006) hence hindering the long term
social and economic sustainability of low-income communities.

Microfinance in Uganda

The microfinance industry in Uganda is made of formal and informal microfinance

institutions (Hanning,2000). The evolution of MFIs in Uganda was due to failure by
government and Donar funded credit programmes to reach the poor families and households
within the rural areas (Abbink,2002). The segregation by Uganda commercial banks on small
businesses and low-income households from access to financial services led to the rise of
informal activities inform of microfinance. Uganda is generally seen as the country with the
most vibrant and successful microfinance industry in Africa. Some MFIs have experienced
strong growth and are now reaching a considerable number of clients. (Bategeka,1999).

The microfinance in Uganda is regulated by Uganda microfinance regulatory authority

(UMRA) which expected to promote a sound and sustainable non-banking financial
institutions sector to enhance financial inclusion, financial stability and financial consumer
protection among the low-income population in Uganda together with the Ministry of
finance, planning and economic development. The Uganda microfinance sector aims at
contributing to the growth of the national economy as well as reduction of poverty
(AMFIU,2013). The majority of people in Uganda are using microfinance services for social
and economic development. According to MS. Edith Namugga Tusubira, the executive
director of UMRA, 80% of Ugandans operate under microfinance. (The microfinance journal,
issue 01,2019). The commencement of significant microfinance services can be traced in the
establishment of UWFCT in 1984 Uganda Women’s Finance Trust Bank which is now
Uganda Finance Trust Bank, PRIDE formed in 1995, Informed in 1992,which mainly focused
on women so as to empower them.

Microfinance in Mayuge district

Mayuge district is found in Busoga sub-region in eastern Uganda. Busoga sub-region is

reported as one of the regions with high poverty levels in Uganda. According to the (Uganda
Bureau of Statistics report,2022), Busoga’s poverty levels stood at 29.2% compared to the
national average of 20.3%. back-to-back studies have indicated that Busoga sub region is
living in abject poverty which is visible and physical within the Busoga communities.
According to the Uganda National Household Survey (UNHS,2016/17 Report) released by
Uganda Bureau of Statistics. (UBOS). The findings show that 74.8% of people in Busoga
sub-region are considered poor. For many years communities in Busoga region have suffered
prevailing rates of poverty especially in rural communities. The population in mayuge district
depends more on agriculture for income survival. The key indicators of poverty in mayuge
district include low household income, low education, poor health among others.

Microfinance has been used as a development tool in mayuge district to tackle the problem of
poverty. The government of Uganda has supported the low-income communities in mayuge
by introducing different programs like Emyooga, Parish Development Model (PDM), Uganda
women empowerment program (UWEP) so as to improve the socio-economic welfare of the
people in Busoga sub region. NGOs have also come in to support low-income individuals
like Willmart Development Foundation (WDF). This has formed village saving and loan
associations (VSLAs) in mayuge district of (10-35) members to do voluntary saving as way
of pooling their resources and later access them inform of loans. Villages like Igunda,
Lukone, Maine have benefited from the VSLAs. The groups can now access loans of up to 1
million UGX. This has increased the household income, enabled access to education and
health services, entrepreneurial development and solving emergency issues. Some of the
microfinance institutions in Mayuge include Bugadde SACCO, PRIDE, BRAC among
others. In 2024, daily monitor reported that Bugadde SACCO savings have grown from shs 6
million to shs. 28billion.Bugadde SACCO currently has nine branches in eastern Uganda
with its headquarters in mayuge district. In 2022, Mayuge district was named the best
performing district in Busoga region in the implementation of the presidential initiative on
job and wealth creation commonly known as Emyooga program. Through the efforts of
government initiatives, NGOs and MFIs, the microfinance services have played a positive
significant impact on the social and economic welfare of communities in mayuge district.

1.3 Problem statement.

Access to credit is a major concern among the low-income communities in mayuge district
and microfinance targets poverty using the strategy of financial inclusion by providing key
services to the unemployed, low-income individuals and groups who otherwise would have
no other access to financial services. (Ledgerwood,1998).

Despite the significant role played by microfinance towards social and economic
development, there is a great conflict among researchers regarding its impact on poverty
alleviation. Some researchers are of the view that microfinance does not help the poor but
rather it increases their vulnerability hence failing to achieve its main objective of serving the
poor (Mader,2013). Some studies have shown a positive impact of microfinance on women
empowerment and household’s economic well being. (Al-Manum et al ,2018). The
microfinance institutions have provided micro-credit, micro-savings, financial education to
borrowers but still the socio-economic welfare is still low amongst communities in mayuge
district.

However, the issue of interest rate remains a major factor influencing microfinance services
and the borrowers which needs to be analysed. High interest rates have led to over
indebtedness, repayment challenges and acquisition of multiple loans which have affected the
poor from improving the social and economic welfare. the different interest rates charged by
MFIs have also affected the effectiveness of microfinance programs hence the role of interest
rates towards sustainable development amongst low-income communities in mayuge district
remains a big gap that needs to be investigated. Therefore, the study seeks to examine the
effect of microfinance on the socio-economic welfare of low-income communities in Mayuge
district.

1.4 Purpose of the study

The general objective of the study is to examine the effect of microfinance on the socio-
economic welfare of low-income communities in mayuge district.

1.5 Objectives of the study

The specific objectives of the study are;

To analyse the effect of microfinance services on household income and employment level of
low-income households in Mayuge district.

To examine the influence of interest rates on the effectiveness of microfinance services and
the socio-economic welfare of borrowers in Mayuge district.

To assess the impact of microfinance services on access to social services and gender
empowerment amongst low-income communities in Mayuge district.

1.6 Research questions

How do microfinance services affect the income and employment level of low-income
households in Mayuge district?

To what extent do interest rates influence the effectiveness of microfinance services and the
socio-economic welfare of borrowers in Mayuge district?

What impact do microfinance services have on access to social services and gender
empowerment amongst low-income communities in Mayuge district?

1.7 Research hypotheses

There is a positive significant relationship between microfinance services and income and
employment of low-income households in Mayuge district.

There is a positive significant relationship between interest rates and effectiveness of

microfinance services on the socio-economic welfare of borrowers in Mayuge district.

There is a positive significant relationship between microfinance services on access to social

services and gender empowerment amongst low-income communities in Mayuge district.
CONCEPTUAL FRAMEWORK

1.9 Scope of the study

1.9.1 Geographical scope

The study will be carried out amongst low-income communities in Mayuge district. Mayuge
district is located in eastern region specifically in Busoga sub region. Busoga sub region is
reported to be among the regions in Uganda that are facing high level of poverty and mayuge
district is one of the districts where the socio-economic welfare is low. However, reports
indicate that communities in mayuge district have benefited from microfinance services and
there is an improvement in living standards of households in mayuge district. Mayuge district
is bordered by Iganga district to the north, Bugiri district to the northeast, Namayingo district
to the east, Republic of Tanzania to the south, and Jinja district to the west.

1.9.2 Content scope

The study will be limited to the effect of microfinance on the socio-economic welfare of low-
income communities in Mayuge district, Uganda. The study will analyse the impact of
microfinance services like micro-credit, micro-savings and financial education on the socio-
economic outcomes of households and individuals. The study will assess the socio-economic
indicators including income and employment, access to social services and gender
empowerment especially on women. The study will analyse the influence of interest rates on
the effectiveness of microfinance programs and socio-economic outcomes.

1.9.3 Time scope

The study will be limited to a period of 1 year because its long enough to analyse
microfinance effectiveness and socio-economic outcomes.

1.10 Significance of the study

The study will provide basic information to policy makers like ministry of finance, planning
and economic development and UMRA on how to improve the effectiveness of microfinance
programs.

Results from the study will provide deeper understanding on the role of micro finance
towards economic and social development.

The findings will be useful to academicians and researchers because they will function as a
base for further research in a similar area.

Definition of key terms.

Microfinance. Refers to a broad range of financial services such micro-credit, savings insurance to
the poor and low-income households for their microenterprises and small businesses to enable them
to raise their income levels and improve their living standards.

Socio- economic welfare. Refers to the overall wellbeing and quality of life of individuals and
communities.

Low-income communities. Refers to groups of individuals and households that experience hardship
and have limited financial resources.

Micro-credit. Refers to small amount of money loaned to a client by a bank or other institution.
 CHAPTER TWO
LITERATURE REVIEW
2.1. INTRODUCTION
This chapter presents a review of related literature concerning micro finance and the services
provided like micro credit, micro savings and financial literacy. The chapter also discusses
the social economic indicators of micro finance. The literature was reviewed from journals,
text books publications, internet sources and the reports related to micro finance.
2.2. THEORETICAL REVIEW
System’s theory of financial inclusion.
Financial inclusion means the provision and use of essential financial products and services
that meet the needs of the population which are delivered in a responsible and sustainable
way. (Fomum, T,A and opperman,2023).
Recently, policy makers and reseachers have shifted their attension toward financial inclusion
to control poverty, the black economy, tax collection and financial development. (shahaid
Manzoor shah, Amjad Ali, 2022).
Financial inclusion is a development policy initiative and a key enabler towards reducing
extreme poverty. (The World Bank, 2022) and has been identified as fulfilling some of the 17
united nations sustainable development goals (Kara, A, Zhou, H and Zhou,Y, 2021).
The potential benefits of the financial inclusion include poverty reduction, financial
independence, economic empowerment, building resilience increased shared prosperity and
economic growth (Park, CY and Mercado. R, 2015) for achieving the desired level of
financial inclusion, there must be easy regulation and flexible financial policies (Huang et
al….2020, Haumenkowa , 2019 , Beck et al 2016).
System’s theory is an interdisciplinary frame work that views complex entities as wholes
made up of interconnected parts.
Systems theory has evolved significantly its early conceptualization by Ludwing Von
Bertalanffy in the 20th century. It emphasizes understanding phenomena through interactions
and relationships between parts rather than just the parts themselves (Mele,
Pels,&Polese,2010,Friedman & Allen, 2014).
Systems theory of financial inclusion states that the financial inclusion outcomes can be
achieved through existing sub-systems that require financial inclusion to be attained as a
necessary condition before service can be offered (Ozili, Peterson k, 2020)
The systems theory of financial inclusion argues that when unbanked adults want to achieve
certain out comes, they will seek out the existing sub system that can help them achieve those
outcomes.
When financial inclusion takes place, it will have positive spillover effects on existing sub-
system and the larger economic system while meeting the needs of the financially included
individuals and firms (Ozili, Peterson k, 2020)
The existing sub-system that offer a service depend on the individual or firm attaining
financial inclusion. The system theory of financial inclusion considers unbanked adults to be
part of the large system which has many sub systems each with its own conditions that enable
financial inclusion to occur for unbanked adults and when financial inclusion occurs, it
benefits all parts of the system involved in the financial inclusion process. (Peterson K, Ozili,
2025).
2.3. CONCEPTUAL REVIEW
MICROFINANCE.
Microfinance has become an effective financial development tool in the economic credit
market and targets deprived people who cannot gain access to credit (sayed samer Ali Al-
shami, Mohammad M. Razali, Izaidin Majid, Ahmed Rozelan and Nurulizwa Rashid,2016)
It is a financial development tool for those deprived of access to financial services especially
women.
Many microfinance institutions (MFIs) have developed their offering to meet the growing
needs of their clients by offering supplementory financial resources such as saving accounts
and money transfer facilities as well as education and skill based training to its borrowers
(Brau and Woller, 2004, khandicer, 2005). Microfinance activities are focused on reducing
poverty level of community people.
The poor, disadvantaged, marginalized and women are in mainstream of microfinance
programs (Chandra Prasad Dhakal and Govinda Nepal, 2016). It is mostly used in developing
economies where SMES do not have access to other sources of financial assistance
(Robinson , 2003).
Microfinance is generally considered as a means of tackle poverty and enhancing household’s
wellbeing ( Sameretal,2015) and is also an important tool that empowers households by
providing themselves employment and helping them to generate more income
(Elhadidi,2018) and also provides better and sustainable livelihood by enhancing the quality
of life. (Garkipati, 2000). Microfinance typically refers to a broad range of financial services
including credit, savings, insurance, money transfers and other financial products provided by
different service providers targeted at poor and low-income people. (Solomon J kagaba, Julia
Kirya, AMFIU, 2013).
There has been a movement in microfinance from socially oriented non-profit microfinance
institutions to profit microfinance. Commercial investment is necessary to fund the continued
expansion of the microfinance but institutions with strong social missions, many taking
advantage of subsides remain best placed to reach and serve the poorest customers. ( Robert
Cull, Asli Demirguc-Kunt, Jonathan Morduch, 2009).
However some researchers see microfinance as a useful service but not a transformative
social and economic intervention (Massman, 2015)
According to Hulme and Moitrot , ( 2014), microfinance has lost its moral objectives by
focusing more on the profitability of lenders than on the poverty of customers.
2.4 MICRO –FINANCE SERVICES
2.4.1 MICRO- CREDIT
Micro finance services assist poor households in smoothening and generating more income
thus enhancing their capacity to deal with future economic vulnerability. (Robinson,2001).
Micro-credit as the key financial services is considered very crucial for individuals in
improving the Social economic outcomes(Al- Shami etal,2024).
Shreiner & Colombet,2001) defines micro – credit as an attempt to improve access to small
deposits and small loans for poor households neglected by banks.
Awojobi and Bein, (2011) also define micro- credit as the mobilization of savings and
disbursement of micro- credit to the economically active poor so as to provide employment
and means of sustainability to improve the living standards in an economy.
Micro- credit has been undeniably successful in opening up financial services to poor people
across many countries. In presence of proper financial capital, poor households have more
capacity to avail and utilize maximum opportunities, thus enhancing their social economic
performance (Elhadidi,2018). Al-mamum etal,2018) argues that income inequality and
poverty can be reduced through micro- credit programs. According to Garikipat,2008) micro-
credit services are helpful for poor women in enhancing their capabilities thus building their
confidence to take cultural asymmetries.
Generally, microdot is aimed at extending small loans to the poor to enable them generate
income to develop their business and care for their families(Taha,2012). Compared to loans
from traditional banks, micro credit loans are offered with higher interest rates (Jaffer 1999).
Although micro financing maybe larger and extends to providing other financial services like
insurance, savings and training in addition to credit 9Taha,2012) both programs are founded
on the same theory of using loans and credit to enhance development with payment of
interest to microfinance providers. However Yunus,1999 argues that credit creates economic
power that would generate into social power lifting the poor out of poverty.

2.4.2. MIRCO- SAVINGS

Micro- savings are viewed as a source of security for the households as these help in
strengthening capabilities to secure viable financial capital decrease lending costs thus
dealing with future uncertainties (Léger wood, 1998). Managing savings accounts facilities
households in availing large loans and easy repayment hence improving their ability to tackle
future economic weakness. (Al-shami etal-,2014). Savings are integral to poor households to
cope with the external stocks, emergencies and lifecycle events to which they are so
vulnerable and they play a crucial role in allowing the poor to take advantage of productive
investment opportunities (orosh and somolekae, 1996).
Saving services offered by MFLs can be delivered into forced and voluntary saving with
forced savings far exceeding voluntary savings (mourse 2001, montogomery,1996)
morduch(2007) argues that with savings households can build up assets to use as collateral,
smooth seasonal consumption needs, self-insure against major shocks and self-finance
investments.
2.4.3: financial literacy
Chen and yolpe(1998) defines financial literacy as the knowledge to manage finances in
financial decision making. Lack of financial literacy causes a person to be more likely to have
problems with debt , more involved with higher credit costs and less likely to plan for the
future (lusuard, et al, 2010). Hilgert et al (2003), and cude et al (2006) also stated that
knowledge on how to manage finances and how is the technique in investing cannot be
ignored anymore as previous times.
Financial literacy helps to improve the efficiency and quality of financial services; Otaritas
Jasa Kejangan indoesia (2003). Defines financial literacy as the level of knowledge , skills
and confidence related to the financial institutions and its products and services.
Financial literacy is a basic need for every individual to avoid financial problems. Financial
literacy distress is not only a function of income (law –income), financial distress can also
arise from the errors in financial management (miss- management such as the misuse of
credit and lack of financial planning; financial problems can cause stress and law self-esteem
(Muizzudin, Taufik,R,Q,HEONITA PUTRI & MOHAMAD ADAM, 2017). Garman et al
(1996) found that beside of giving negative impact to the individuals, poor financial decisions
can affect the productivity of the work place.
Oliaton,(2006) argues that most of small scale business entrepreneurs possess limited
business skills and do not keep complete financial records and have every little information
on how to access to credit services. Therefore walter,(2004) suggested that the training
program is designed to respond to the areas of potential improvement and focuses on basic
principles of running a private practice and credit management and argues that informal
training may have a positive effect on growth of small scale businesses.
Orton(2007) argues that financial literacy had become inseparable thing in life because it’s a
useful tool in making informed financial decisions. Bryne(2007) also found that low financial
knowledge will result in the creation of wrong financial plan and lead to bias in the
achievement of prosperity in the non- productive age.
Monticone(2010) stated that the factors that can determine financial literacy are demographic
characteristics (gender, education and cognitive skills), family background , wealth , time
preferences. Capuano and Ramsay(2011) explains that the personal factor (intelligence and
cognitive abilities, social and economic can determine the financial literacy and financial
behavior of a person.
2.5: MICRO FINANCE AND SOCIAL-ECONOMIC WELFARE
Social welfare is the satisfaction of fundamental human needs of all members of society.
(max-neef et al, 1986) . In underdeveloped societies micro finances is generally considered
an important tool to boast the social and financial inclusion of low- income individuals and
households (morduch, 1999) because it provides the unbanked people with the benefits form
banking services 9Yunus, 1999) with access to financial services , individual are expected to
improve their well-being and self-confidence.
Van Rooyen et al, 2012 argues that by providing financial services to the poor inform of
credit or savings, they manage their money differently, investing, acquiring productive assets,
increasing their skills level and opening new businesses hence improving their social
economic welfare. The social economic impacts have been broadly divided into three
categories; poverty alleviation , women empowerment and impacts on other subjects
including rural financial inclusion, education, nutrition, health, consumption level and
building assets (Tedeschi 2010, Garikipati, 2012, Deloach and Lamanna 2011, Gankipati et
al, 2017).
FN Okurut, M Kagisa, No Ama, ML Okurut, (2014) study of micro finance on household
welfare in Bostwand suggested that microfinance on household welfare in Botswana
suggested that microfinance had no siginificant effect on household welfare which is
consistent with Okurut and (Bategeka ,2006); Banerjee et al (2013); coleman (1999). The
study finds that household welfare is positively and significantly influenced by education
level, household assets and being in paid employment in the public or private sectors.

2.6L MICROFINANCE AND INTEREST RATES

In microfinance , interest rates play a fundamental role in determining the affordability and
accessibility of capital for small scale enterprises (T.S, Msomi,2013). Interest rates services
as compensation for the use of money and reflect various economic factors including time
preference, liquidity preference, default, inflation risks and administrative costs
9T.Gorbacheya & T. Barkova, 2023).
In the study of interest rates in microfinance. Hailu Abebe Wondirad,92022) analyzed what is
a fair interest rate when lending to the poor, He argued that a fair interest rate is affordable to
the poor and at the same time could enable MFIs to be sustainable and allow them to provide
a permanent financial service to low- income households
According to (Nabayinda 2014) , MFLs would lower its interest rates, collateral requirements
and simplify all services to enable the low income people to improve their standards of living
and save for the children education Karma, 2007) indicates that there also personal factors
like multiple loans, misallocation of loan fund, resting, transfer/ migration, sickness , giving
birth and death which may hinder clients from proper utilization of their loans.
2.7: MICROFINANCE AND INCOME AND EMPLOYMENT
With regard to poverty alleviation, microfinance creates employment and generates income
thus stimulating social- wellbeing among the poor segments of society and serving as an
important tool for poverty reduction in both developing and developed economies. Although
due to its special features microfinance is more pronounced in developing economies (Allias
et al,2015, ziakova and verner, 2015). Microfinance services such as micro- credit have been
shown to improve the living standards of people, increase income and generate employment
through entrepreneurship and smoothen seasonal consumption among various societies in the
developing world (Littlefield et al ,2003 & Ali et al, 2014) Poor individuals can take
advantage of increased earning to build assets and improve their living conditions,
consumption level, and health (Appoh et al, 2012, Leatherman et al 2012).
Morduch, (1999) argues that micro – credit provides employment to impoverished
individuals by supplying them with the means to create their own business. This has spil over
effects of providing further employment to family and community members, moreover, it
enables individuals to retain a profit and increase their household income . However,
Berger(1989) observed that microfinance tend to stabilize rather than increase income and
tend to preserve rather than create jobs.
2.8 MICROFINANCE AND GENDER EMPOWERMENT
Generally, empowerment is known as the expansion in people’s ability to make strategic life
choices in a context where this ability was previously denied to them (Kabeer, 2001).
Many MFIs specially target women as a key borrowing demographic. Hulme and mosley
(1996); identify women to be a good credit risk and found that simply enhancing a borrowers
income encourage them to escape the cycle of poverty. Pit and Khandker(1998) validate this
by demonstrating that providing to women has more of an impact on household welfare than
lending to men.
In addition to that , micro finance schemes have the ability to empower women from rural
communities and improve their lifestyle . in doing so the concept actively works towards the
united nations 5th sustainable development goal of gender equality (UNCDF , 2023). The
financial and intellectual resources that women gain through microfinance empowers their
say in family and households economic decision making (Gangadhar, 2015, Jamal et al
2016).
FN Okurut, M Kagiso, No Ama, Ml Okurut, 2014, argue that women’s access to
microfinance has led to their empowerment through participation in household expenditure
decisions making being respected by family members and the community and participation in
local leadership activities which addresses the strategic needs of women.
Gender empowerment can take many forms one of the most prominent ways is through
gaining financial autonomy. Microfinance achieves this by providing women with capital and
the opportunity to earn an income. Economic security can give women the financial freedom
to escape form domestic domination and violence (schuler and Hashcemi,1994).

2.9: MICROFINANCE AND ACCESS TO SOCIAL SERVICES.

Microfinance has facilitated them access to social services like education and health .
Chowdury et al92004) evaluated key methodologies used to analyze wider impacts of
microfinance and determined that these spillover potentially have more significance on key
development indicator that’s to say education and health. This is because a general increase in
income enables an individual to access and afford better quality education and healthcare,
not only for themselves but also their wider household. Samuel, (2016) discussed that
microfinance supports people to get the access to education and make their lives better.
Bechetti & Conza(2014) argued that there is a strong relationship between the income of pole
and their education level. The researcher further discusses that the first thing parents invest in
when they get credit is ensuring that they educate their children as they understand that the
investment in human capital will give the unlimited future returns hence microfinance helps
in access to education indirectly. (Samuel ,2016).
Ewines edron odero,(2018) observes that microfinance also improve the healthcare and
medical services. In addition to that the researcher argues that when people have funds they
care about their health and emphasizes that when people are healthy. The participate in the
workforce hence when more workforce is available, it boasts the economy.
CHAPTER THREE
METHODOLOGY
3.1: Introduction
This chapter presents the procedures and techniques used to collect data. It covers the
research design, study population, sample size, sampling techniques, data collection
instruments, data quality control methods , data analysis techniques and ethics considerations.
3.2. Research design
The research shall adopt data a correlational research design to gather data . according to
Bhandari (2003) , the research design examines associations between two variables without
the researcher influencing or controlling any of them to ascertain the relationship’s strength
and or direction, which may be either positive or negative. Aaker et al (2002) defines a
research design as the detailed blue print used to guide a research study towards its
objectives.
The study will employ a mixed paradigm that combines qualitative and quantitative methods.
According to (reswell(2014), a mixed methodologies approach offer a greater grasp of the
issue or subject than either approach alone.
3.3: study population
Population is the total aggregate or group of individuals or objects to which a research is
intended in generalizing the conclusions of a research (Best and Karn, 1996). The study will
comprise of a total of 120 respondents. The target population consists of 80 beneficiaries both
men and women, 30 loan officers , 10 community leaders. The beneficiaries are the primary
recipients of the microfinance services, loan officers have in depth knowledge about the
financial behaviors and needs of the beneficiaries as they interact with them regularly,
community leaders provide a broader view of the impact of micro finance services on the
social economic welfare of the community and act as advocates.
3.4: sample size
A sample is a set of cases , participants, events or records consisting of a portion of the target
population carefully selected to represent the population (cooper & schindler,2008) A total
sample size of 100 comprising of 70 beneficiaries, 25 loan officers and 5 community leaders.
Table 1 sample size and distribution
Respondent Target Sample Sampling techniques Instrument
population size
Beneficiaries 80 70 Simple ransom sampling Questionnaire
Loan officers 30 25 Simple random sampling Questionnaire
Community leaders 10 5 Purposive sampling Interview guide
120 100

Source : Krejcie & Morgan’s population table (1970)

3.5: Sampling techniques
Sampling technique is defined as the process of selecting samples to represent the population
(Kothari,2009) . The researcher shall use purposive sampling and sample ransom sampling.
3.5.1. Purposive sampling
Purposive sampling will be used to obtain information form community leaders. The
participants shall be purposefully selected because the community leaders provide a broader
perspective on the community wide impact of microfinance and will offer insight into how
microfinance initiative have influenced community development and social economic welfare
of people.
3.5.2. simple random sampling
According to cohen et al(2000), simple random sampling appears when each unit of the
sample has been selected entirely by chance where each subject or unit in the population has
an equal chance of being selected . The researcher shall use this technique to select
beneficiaries and loan officers from the selected microfinance institutions. Simple random is
preferred because of its power to minimize biasness and maximize sample representative.
3.6: date collection instruments
The researcher shall use both quantitative and qualitative methods to collect data and will use
questionnaires, interviews and focus group discussions.
3.6.1: questionnaire
A questionnaire is defined as a list of questions which are designed to solicit specific
responses that are required 9Sarantakas,2005). A questionnaire will be chosen to enable the
researchers to collect vast information from many respondents in a short time and at allow
cost (Bowling, 2005). The researcher shall design self-administered questionnaire with closed
ended questions for collecting primary data form beneficiaries and loan officers. A
questionnaire is preferred because there is less enhance of any bias with a standard set of
questions to be used for the sample size.
According to Mugenda and Mugenda,(1999) , a questionnaire is appropriate for large samples
and respondents can fill them at their own convenience as recommended. The questionnaire
shall be developed on a five point- Linkert scale where 1 = strong disagree9SD), 2 = disagree
(DA), 3 = Neutral (N), 4= agree (A), 5 = Strongly Agree (SA).
3.6.2: Interviewing guide.
According to Gubrium (2012), an interview is essentially a structured conversation where one
participant asks questions and the other provides answers. Commonly the word “ interview”
refers to a one on one conversation between an interviewer and interviewee. Interviews are
discussions usually one on one between an interviewer and an individual meant to collect
information on a specific set of topics (Gubrium ,2012). The researcher shall use semi-
structured questions in which a list of predetermined questions will be asked to the
community leaders and focus discussion groups interview give the researcher an opportunity
to revisit some of the issues that have been over looked in other methods and yet they are
deemed vital for the study. The interviews allow for brooder explanations of questions and
enables the researcher to correct any misconceptions and give clarity 9Amin,2005).
3.6.3: focus group discussions (FGDs)
This will involve the use of the interview guide to facilitate and ensure that the discussion are
not off track. The FGDs will be constructed based on the theme and sub themes such as the
effect of microfinance on income and employment, gender empowerment, access to social
services and interest rates. The FGDs will involve about 2 groups of (5-10) beneficiaries. The
FGDs help in getting detailed and comprehensive data for comparative purposes since it
allows serious brain forming with the participants.
3.7: Data quality control
The study shall strive to ensure the validity and reliability of data.
3.7.1: validity of the instruments
Validity refers to quality of data gathering instrument or procedures that enables it to measure
what it sought to measure.(Best and kahn,2004). To ensure the validity of the questionnaire
and interview guide, these shall be developed with the assistance of experts in the field of
study . The following formula will be used to compute the content validity index (CVI).
CVI = Total number of relevant items ( R)
Total number of items in the instruments.
If the CVI is above 0.7 which is recommended by Amin (2005) then the tool shall be deemed
appropriate and valid to be used for data collection.
3.7.2: reliability of instruments
Reliability means the degree of consistency and precession in which the measuring
instruments demonstrates. Reliability of the instrument is the measure of consistency over
time and over similar sample (cohenet al,2007).Data will be entered using SPSS, to generate
cronbach alpha coefficient which will be used to determine reliability.
Cronbach Alpha coefficient of greater than 0.7 will be considered appropriate.
Ahuja(2000), argues that the research instrument is reliable, acceptable and worth being used
for data collection if found above 0.7.
3.8 Data collection procedure.
This shall involve the defense of the research proposal and after approval the research will
get a letter of introduction form Islamic university of Uganda to the respective community
leaders and microfinance institution representatives seeking permission to collect data . after
acceptance form the community leaders and MFIs representatives the researcher shall
introduce herself to the respondents and explain the purpose of the study to them and to seek
their convent.
3.9: data analysis
The analysis of the data shall be in line with the specific objectives of the study.. data analysis
is a systematic process involving working with organizing data and breaking them into
manageable unties ( Bagdor & Biklen, 1992) it is also concerned with systematizing data
searching for partners discovering what is important, what is to be learnt and deciding what to
tell others (cohen et al, 2007).
3.9.1: quantitative data analysis
The study shall involve the collection of quantitative data. Data collection tools and items
will be coded and entered using the statistical package for social sciences.(SPSS) for analysis
and cleaned for error. Data will be analyzed using descriptive statistics frequencies ,
percentages , means, grapts frequency distribution table will be generated for data
presentation. This will be presented in percentages, tables and figures .
A Pearson product moment correlation coeffeint shall be used to determine the relationship of
the independent Variable on the dependent variable.
3.9.2: qualitative data analysis
Qualitative data form interviews will be analyzed through thematic analysis. The researcher
shall closely examine the data to identify common themes, topics , ideas and partners of
meaning that come up repeatedly. This will involve familiarization, coding generating
themes, reviewing themes, defining and naming themes, writing up. The findings will be
analyzed and the discussed, conclusion will be drawn from the observations based on the
thematic data analysis. According to Amin (2005), the strength of qualitative data is based on
researching people in their natural setting stressing interpretations and meanings and
achieving a deeper understanding of the respondents knowledge of the study.
3.10: ethical consideration
Research ethics refers to moral principles guiding research 9Horman, 1991)it means
conducting research in a way that goes beyond mere by adopting the most appropriate
research methodology but conducting research in a responsive and morally defensible way.
Therefore the researcher shall observe ethical issues during data collection and reporting.
Informed consent shall be obtained from the respondents and assure them that the data to be
provided is strictly for purpose of study.
A consent form stating the purpose , nature and benefits of the study will be given to the
respondents and it is upon sighing it that the respondents shall participate in the study.
The researcher shall respect the rights of the respondents. Respondents will be guaranteed the
right to withhold information , liberty to access results, right to privacy, right to ask questions
where necessary and right to withdraw from the study.