Dagnachew Tamene Ano

https://doi.org/10.64823/ijcaf.2601002

This study investigates the role of microfinance institutions (MFIs) on the performance of Small and Medium Enterprises (SMEs) in Hossana Town, Central Ethiopia. A primary data-driven quantitative research approach was adopted, utilizing an explanatory research design. Data were collected via self-administered questionnaires from a stratified random sample of 292 manufacturing, service, and urban agricultural SMEs. Reliability tests using Cronbach's alpha confirmed the internal consistency of the survey instruments, with all values exceeding acceptable thresholds (α > 0.70). Multiple linear regression analysis was executed using SPSS Version 25 to evaluate the collective and individual capacities of key microfinance indicators loan amount, loan repayment period, training services, loan accessibility, frequency of loan disbursement, and collateral requirements to explain variations in SME performance. The regression model demonstrated robust explanatory power, with an adjusted R^2 value of 0.756, indicating that 75.6% of the variance in SME performance is accounted for by the microfinance variables. The ANOVA framework validated the overall significance of the model (F = 151.328, p < 0.001). Individually, training services (β = 0.494, p < 0.001), frequency of loan disbursement (β = 0.367, p < 0.001), collateral requirements (β = 0.144, p < 0.001), loan accessibility (β = 0.117, p < 0.001), and loan amount (β = 0.097, p < 0.001) exhibited statistically significant positive impacts on performance. Conversely, the loan repayment period exerted a significant negative effect (β = -0.181, p < 0.001). The study recommends that MFIs tailor loan amounts to specific enterprise needs, simplify application workflows, establish predictable disbursement cycles, and incorporate continuous capacity-building programs.