THE MUNAFA FUND AS A MEANS FOR SMEs GROWTH IN SIERRA LEONE: A CASE
STUDY OF SMES THAT HAVE OBTAINED THE FUND
Abstract
The growth of SMEs is directly and significantly related to economic growth. However, access to adequate
and the right type of finance has not only been known as a motivating factor but also an inhibitor of SMEs
growth. Munafa Fund was implemented to address the financial constraint faced by SMEs and it is in the
second phase of implementation. So, this study was done to investigate the Munafa Fund as a means for
SMEs growth, examining the factors that are limiting SMEs access to this Fund, the effect of the Munafa
Fund on SMEs access to finance and how access to finance can lead to SMEs growth. To achieve this, the
study adopted a descriptive research survey design. Both primary and secondary data were used in this
study. Primary data were collected from the sample size of twenty-five (25) SMEs that have obtained this
fund. Members of the sample size were chosen using purposive and convenience sampling techniques. Data
were collected using questionnaires and analysed using SPSS v26. The study found out that some criteria
are unfavourable for SMEs to obtain this fund. The Chi Square tests done revealed that the Munafa Fund
has no statistical significant association with SMEs access to finance and also the Munafa Fund has no
statistical significant association with SMEs growth. However, the study found evidence that access to
finance is statistically significantly associated with SMEs growth. The study further recommended that
SMEDA should reduce the interest rate, extend the loan duration for FSPs, communicate and educate clients
about the contents of the fund, provide proper clients’ data to FSPs and increase the maximum and minimum
loan amounts given to SMEs. Also, FSPs should collaborate with one another and provide assistance to
SMEs in financial management. Finally, SMEs should apply best practices in managing this fund and ensure
that they repay the loan during the stated period.
Keywords: Munafa Fund; FSPs; Profits; turnover; Access-to-Credit
1.1 Introduction
The development of economies especially developing one’s hinges on entrepreneurial activities, which is
coined into the important role of SMEs in economic development. Thus, SMEs have become a major
concern to governments and other policy makers. This ranges from their ability to absorb much of the
unemployed population to their contribution to GDP growth. In countries where a large proportion of the
workforce are by necessity self-employed, the informal sector plays a vital role in poverty alleviation,
economic growth and in fostering the new market economy [1]. Besides, their large number as well as the
challenges they face have motivated governments to embark on programs that could foster their growth.
The existence of SMEs can contribute also to tax-incomes growth for the government and in the long run,
enables the government to invest the money [2]. The growth of SMEs is directly and significantly related
to economic growth. SMEs provide job opportunities, create wealth and contribute to GDP growth.
However, all these are impossible if they fail to grow. Thus every government in the world focuses on the
development of the SME sector to promote economic growth. This is because they are important in a
number of key economic areas, such as the distribution of income, the absorption of labor and the alleviation
of poverty [2].
Over the years, successive Governments of Sierra Leone have supported the growth and development of
entrepreneurship and private sector through the implementations of targeted programs such as Automated
System for Customs Data (ASYCUDA++), ASYCUDA World, tax regime, National Microfinance
Program, that aimed at creating a more vibrant private sector. According to [3], SMEs are the backbone of
all economies and are also globally considered as the stepping stone for industrialization.
Nevertheless, SMEs in Sierra Leone have been constraint by limited access to finance. This is because they
rely on savings from friends and family members. Besides, commercial banks do not provide loan to them
because they lack the collateral required as well as high interest rates charged on these loans. Banks are
reluctant to provide financing facilities to SMEs because they require collaterals for obtaining the loan [4].
It is common among SMEs in Sierra Leone and has affected their development. So, in realization of the
importance of access to finance in promoting the growth of SMEs and the constant financing challenge
faced by these SMEs, many interventions have been made by the Government of Sierra Leone through their
recent monetary policy and financial sector reforms. For instance, a special tax regime has been created for
SMEs in addition to some tax incentives. This regime is known as SMEs Tax Regime.
In 2021, the Government of Sierra Leone through Small and Medium Enterprises Development Agency
(SMEDA) implemented the National Microfinance Scheme (Munafa Fund). The Munafa Fund was
implemented to address the financial constraint faced by SMEs. This program was implemented with a seed
capital of one hundred billion Leones (Le 100 billion) for a three-year period [5]. The program is in the
second year of implementation. Although the program was implemented by SMEDA, financial service
providers are responsible for providing on-lending of this fund to SMEs.
The official schemes are often set up with the primary motive of increasing the flow of finance and credit
to SMEs to enable them increase their operational capacities, productivity and competitiveness in the local
and international markets [6]. These official schemes are set up by governments or international bodies to
provide finance to SMEs. With all these initiatives, SMEs still lack access to financial resources to expand,
grow and transform into larger enterprises. Lack of access to credit is acknowledged as the top priority that
hinders SMEs development in some countries [8]
The need is therefore felt to investigate to what extent this scheme has increased SMEs access to finance
or has addressed SMEs financial constraints.
1.1 Specific objectives
I.
II.
III.
IV.
To determine whether the lending criteria for the Munafa Fund are favorable for SMEs in Sierra
Leone.
To establish whether the Munafa Fund has enhanced SMEs access to finance
To ascertain the relationship/association between access to finance and SMEs growth (profit and
turnover)
To assess the effect of the Munafa Fund on SMEs growth in Sierra Leone in terms of turnover and
profitability.
1.3 Hypotheses of the study
H01 There is no significant association between the Munafa Fund and SMEs access to finance.
H02 There is no significant relationship between access to finance and SMEs growth (profit and turnover).
H03 There is no significant relationship between the Munafa Fund and SMEs growth (profit and turnover).
2.0 Theoretical Framework
This study was anchored on the pecking order theory and the trade-off theory. Both theory explain the
reasons enterprises will consider which source of financing is most suitable.
Pecking Order Model
Donaldson propounded the Pecking Order theory in 1961. The Pecking order theory or model postulates
that the cost of financing increases with asymmetric information [9]. He further noted three sources of
financing exists; these sources are internal, debt and new equity. Financing structure has an impact on
companies’ growth and liquidity level, so companies prioritize their sources of financing. Companies prefer
to start with internal financing, then move to debt financing and end with raising equity. According to this
theory, companies adhere to a hierarchy of financing sources. They prefer internal financing when available,
whereas debt is preferred to equity, if the need arises for external financing.
[10] argued that equity is less preferred means of raising capital. The reason is that issuing of equity
produces a signaling phenomenon, since investors may believe that firm managers consider the current
stock as overvalued and that managers are taking advantage of the overvalued equities (cited in the work
of [9]). Explaining further, he said that if retained earnings are insufficient, they will go for debt rather than
equity finance, because debt providers, with a prior claim on the firm’s assets and earnings, are less exposed
than equity investors to errors in valuing the firm. So managers only choose equity finance when no other
source of financing is available. This implies that equity financial is the last resort. Besides, there is no
optimal debt ratio [10].
Trade-off Theory
Trade-off theory or model of financing explains that to attain optimal capital structure, a balance should
exist between the cost and benefit of issuing debts. It is expected that a firm analyses the benefits from
interest payments and the costs of issuing the debts so that it may have the optimal level of leverage. [11]
accentuate that the trade-off theory is in support of the leverage to construct capital structure by assuming
leverage-benefits. This is so because it predicts the cost and benefit analysis of debt financing to achieve
optimal capital structure. They further propose that the trade-off theory also shows the positive relation
between leverage and profitability It also shows that the high profitable firms prioritize their investments
with external finance to shield the income from taxes with the help of leverage.
In order to hit the ideal level, the benefits of debt issuance should countervail the increasing present value
of costs related to more debt issuance [12], as the major benefit of debt is to minimize the interest payments,
which stimulates firms to use debt [11]. On flip side, investors become mindful that the equity issuance
could result either in to a situation where it is fairly prices or mispriced. Accordingly, equity issuance leads
investors to react negatively and management is not eager to issue equity. Firms attain optimal capital
structure when they trade off the costs of debt and equity against the benefits. Trade-off theory assumes
that profitable firms issue more debt so that they can reduce their taxable income, which is quite in
disagreement with pecking order theory of financial model.
2.1 Problems Faced by Small and Medium Enterprises in Accessing Finance or Credit
Having access to financial resources remains a challenge for SMEs even though many microfinance
institutions and commercial banks operate in every country including Sierra Leone. Lack of access to
finance or funds means micro entrepreneurs cannot inject money into their businesses (say, to buy more
resources or hire more people) to grow them after observing a surge in demand [7].
[8] points out that access to finance is insufficient for SMEs. This is because commercial banks are the
main source of funding for SMEs. He further stresses that the biggest challenge SMEs are facing is that
financial institutions that offer finance to SMEs cannot offer long-term financing and the interest rates are
very high.
[3]examined the impacts of financial loans on the growth of small scale enterprise in Uganda and
underscored that because of lack of collateral and information to track use of funds by micro and small
enterprises, financial institutions become risk averse in funding small-scale businesses.
[15] also found out that the availability of collateral security increases SMEs access to finance. Besides,
collateral requirements are overly demanding, which most SMEs lack, even though SME owners depend
on external source, such as bank loan, overdraft, because of lack of equity capital to invest in their
businesses
[16] also observe liquidity constraints make the informal financial sector, such as borrowing through
personal contacts like from friends, family relations, corporative, landlords, money lenders, is a very
important source for SMEs. [16] observe that access to finance is one of the most important problems for
Italian SMEs, which make Italian SMEs to perform poorly.
In a study done by [2], they observe that banks lend on a short-term basis mainly to low risk activities and
they offer collateral-backed loans. They further found out that the ability to provide collateral, good
business plans and also the profitability of the business are very important in addition to the applicant’s
credit history, business experience and the type of business activity.
[16] claims that in most cases, SMEs experience financing gaps because of a combination of reasons
originating from both the supply and demand sides. [19] highlighted that the reasons, as cited in the work
of [16] are the existence of market informational asymmetries between SMEs and lenders or outside
investors; the intrinsic higher risk associated with small-scale activities; and the existence of sizeable
transactions costs in handling SME financing.
[9] examined the sources of finance and the limitations of sourcing finance by SMEs in Nigeria and found
out that high interest rates, stringent bank conditions, lack of financial records, lack of sincerity of the
business owners, burdensome lending process, business location, ignorance and illiteracy and government
bureaucracy are limitations of sourcing finance by SMEs.
2.2 Empirical Review
In a study done to determine the influence of access to finance and government policies on the growth of
SMEs in Kenya, [10] found out that favorable access to finance conditions are key to successful SME
business. The outcome of the study revealed that while access to finance is a major factor that influences
the development and growth of SMEs across all groups, the impact is more significant impact among the
youth. They further suggested that youth seeking to start and establish SMEs face more difficulties and
resistance from banks owing to lack of collaterals.
[11] carried out a study that established the factors related to access to finance that influence the competitive
growth of the SME sector in Lesotho. The factors identified include financial information access, bank and
business support services, the structure of banks, and the collateral requirements of the financial sector.
their study concludes that access to finance significantly affects the competitive growth of SMEs in
Lesotho.
[12] examined the key factors in the success of SMEs in Lahore, Pakistan. The author conducted the study
on 201 sample size. Data were collected from the study participants using questionnaires and then fed into
SPSS for analysis. The study concluded that business success does not mean improving access to finance.
They author suggested that grow staff training and innovation with proper access to finance are the proper
way for achieving success in business and it should be focused for greater effect in business.
2.3 Research Gap
Only a few studies have been done to investigate the influence of access to finance on the growth of SMEs
[10] [1]. However, there is lack of research undertaken to investigate how access to finance will lead to
SMEs growth in terms of profitability and turnover. This study attempts to fill this gap.
Second, no study has been conducted to investigate the impact of Munafa Fund on the growth of SMEs.
Therefore, this study sheds light on the impact of Munafa Fund on SMEs growth. Third, previous studies
have been done to investigate the influence of access to finance on SMEs growth, for example, the study
done by [10] and [1]. However, none has been done in Sierra Leone, with focus on SMEs. So this study
seeks to fill this void and augment the available literature relating to SMEs access to finance.
This study is therefore undertaken to investigate the impact of Munafa Fund on the growth of SMEs in
Sierra Leone, establishing how it can enhance SMEs access to finance and how access to finance can lead
to SMEs growth.
3.0 Material and Method
The study adopted a descriptive research design to investigate the impact of the Munafa Fund on the growth
of SMEs in Sierra Leone. Descriptive research design was adopted because the study aimed at describing
a phenomenon as its exists, through identifying and obtaining information.
At first, the Munafa Fund Operations Manual was obtained from SMEDA. This manual provided the
lending criteria, the name of FSPs that have provided this fund and other relevant information were
obtained. This informed who should be targeted for the study.
Target population
[13] defines target population as the total number of objects that a study is concerned with and wants to
draw its findings from. The study had a population consisting of SMEs that have obtained this fund. These
SMEs are found in all the districts of Sierra Leone since this fund has also been given to SMEs that operate
outside the capital city (Freetown).
Sample and sampling
Since the population was large, the study was conducted on a few number of elements in the population.
A sampling strategy is more than often required in situation where it is not always possible to collect data
from all the units of the population. [25] define a sample as a representative of the population that the
researcher is interested in. The study was conducted on 35 SMEs that have obtained this fund.
The study participants were chosen using purposive and convenience sampling techniques. At first, the
researchers approached SMEDA for provide the list of SMEs that have obtained this fund. However,
SMEDA just provided the list of FSPs. These FSPs then provided the lists of SMEs that have obtained this
fund. Purposive sampling was used to include only SMEs that have obtained this fund. Since, some SMEs
were proven to be difficult to access, convenience sampling was then adopted.
Data collection
The study collected both primary and secondary data. Primary data were collected using questionnaire.
The questionnaire was divided into five sections. The variables measured based on the lending criteria
were obtained from the Munafa Fund Operations Manual, 2021. SMEs growth were based on profit and
turnover. Secondary data were obtained from literature related to the study and the Munafa Fund
Operations Manual 2021.
Data analysis
Analysis of data was done using SPSS V26 wherein both descriptive and inferential analyses were done.
Descriptive analysis provided the mean and standard deviation as well as the percentages and frequencies.
Inferential analysis was done to test the hypotheses. Chi square test of statistics was done to either reject
or not reject the null hypotheses.
4. Results and Discussions
4.1 Results
The study had a response rate of 71.4%, which is acceptable for data analysis. Table 1 below gives the
demographic information of respondents. From the table, majority of respondents (22) representing 88.0%
of the respondents operated small enterprises. A large number of respondents (14) representing 73.3% of
the respondents had at most 9 employees. The highest number of respondents were youths, 25,0% for
respondents who were at most 25 years and 29.2% for respondents who were 26 years to 30 years. 76.0%
of the respondents which was the highest percentage operated small enterprises. A good number of
respondents representing 56.0% have been operating their enterprises for at most 5 years. The main activity
of majority of respondents was trade.
Table 1. Demographic information of Respondents
Response
Frequency
Percentage
Type of enterprises
Small
22
88.0%
Medium
3
12.0%
Total
25
100.0%
Number of employees
At most 9
14
73.7%
10 to 19
5
26.3%
Total
19
100.0%
Age bracket of respondents
At most 25 years
6
25.0%
26-30 years
7
29.2%
31-35 years
5
20.8%
36-40 years
2
8.3%
Above 40 years
4
16.7%
Total
24
100.0%
Legal status of respondents’ businesses
Sole proprietorship
19
76.0%
Partnership
5
20.0%
Limited liability company
1
4.0%
Total
25
100.0%
Years of operating the enterprise
At most 5 years
14
56.0%
6-10 years
5
20.0%
11-15 years
3
12.0%
Above 15 years
3
12.0%
Total
25
100.0%
Main activity of enterprises
Trade
17
68.0%
Services
6
24.0%
Manufacturing
2
8.0%
Total
25
100.0
Field Data (2022) processed by SPSS V26
Table 2 below shows the criteria for the Munafa Fund to determine those that the respondents thought were
unfavourable for SMEs. those presented on table were chosen by at least a respondent. Others that were
not chosen were not captured by the table. For each criterion, the code was 0 for no and 1 for yes. No
implied that is favourable and yes implied that it is unfavourable. Out of the 8 criteria, 7 criteria were
chosen by respondents. The percentage, mean., standard deviation and rank of each respondents were
provided below. Business should be registered with an appropriate government body had a tie with be
registered with SMEDA. They both occupied the 1st position with 16.0% andX =0.16. Should have been
in business for at least 6 months was ranked 2nd with 12% andX=0.12. Start-up enterprises may be
considered on a case by case basis, especially those that present viable business ideas and they may have
the capacity to repay and a good credit history were ranked 3rd, having 8% andX =0.08. Must be at least
18 years but not more than 65 years and should possess a valid national identification document were
ranked 4th, having 4.0% andX=0.04.
Table 2. Criteria for the Munafa Fund
Criterion
Percentage
Mean
Std.
Deviation
0.20
Must be at least 18 years but not 4.0%
0.04
more than 65 years
Should have been in business for 12.0%
0.12
0.33
at least 6 months
Start-up enterprises may be
8.0%
0.08
0.28
considered on a case by case
basis, especially those that
present viable business ideas.
Should possess a valid national
4.0%
0.04
0.20
identification document
they may have the capacity to
8.0%
0.08
0.28
repay and a good credit history.
Business should be registered
16.0%
0.16
0.37
with an appropriate government
body (OARG, FCC etc.).
16.0%
0.16
0.37
Be registered with SMEDA
Field Data (2022) processed by SPSS V26
Rank
4th
2nd
3rd
4th
3rd
1st
1st
Table 3 shows the reasons others are not applying. Each reason was coded as 0 for no and 1 for yes. Yes,
implied that it is a reason and no implied that is not a reason. Based on the results, the percentage, mean,
standard deviation and ran were given. Don’t know was ranked 1st (28.0% andX=0.28). Interest rate is
unfavourable was ranked 2nd, having 24.0% andX=0.24. Size or maturity period of the loan is insufficient
was ranked 3rd (20.0% andX=0.20). Both they don’t know about the fund and application procedures for
loan are complex were ranked 4th, with 16.0% andX=016. Refuse to answer and no need for a loan were
ranked 5th (4.0% andX =0.04).
Table 3. Reasons others are not applying for the loan
Reason
Percentage Mean Std.
Deviation
Don’t know
28.0%
0.28
0.46
They don’t know about the fund
16.0%
0.16
0.37
Refuse to answer
4.0%
0.04
0.20
No need for a loan
4.0%
0.04
0.20
Size or maturity period of the loan is
20.0%
0.20
0.41
insufficient
Interest rate is unfavourable
24.0%
0.24
0.44
Application procedures for loan are
16.0%
0.16
0.37
complex
Field Data (2022) processed by SPSS V26
Rank
1st
4th
5th
5th
3rd
2nd
4th
Table 4 shows whether respondents had access to finance before obtaining the Munafa Fund. 8.0% of the
respondents had access to fiancé before obtained the Munafa Fund and 36.0% of the respondents were
indifferent in their responses. However, 56.0% of the respondents did not have access to finance before
obtaining the Munafa fund. It is assumed that SMEs that have obtained this fund did not have access to
finance prior to obtaining the Munafa Fund.
Table 4. Before obtaining the Munafa Fund, did you have access to finance?
Response
Frequency
Percentage
Yes
2
8.0%
Undecided
9
36.0%
No
14
56.0%
Total
25
100.0%
Field Data (2022) processed by SPSS V26
Table 5 shows whether the finance of respondents has increased. Based on the results, 50.0% of
respondents acceded that their finance has increased, 33.3% of the respondents were indecisive and 16.7%
of the respondents did not accede to this question. It can therefore be assumed that the finance of SMEs
that have obtained this fund, has increased.
Table 5. Has the finance of your enterprise increased?
Response
Frequency
Percentage
Yes
12
50.0%
Undecided
8
33.3%
No
4
16.7%
Total
24
100.0%
Field Data (2022) processed by SPSS V26
Table 6 shows whether access to finance has been the major constraint to the operation of respondents’
businesses. Based on the result, 54.2% of the respondents accepted completely and 45.8% of the
respondents accepted to some extent that access to finance has been the major constraint to the operation
of their businesses. It can therefore be inferred that access to finance has been the major constraint for
SMEs that have obtained the Munafa Fund.
Table 6. Has access to finance been the major constraint to the operation of your business
Response
Frequency Percentage
Yes
13
54.2%
Somehow
11
45.8%
Total
24
100.0%
Field Data (2022) processed by SPSS V26
Table 7 shows the amount that respondents obtained as loan from the Munafa fund. Based on the data, 8.3%
of the respondents obtained at NLe 1,000; 29.2% of the respondents obtained NLe 1,001 to NLe 2,000;
33.3% of the respondents obtained NLe 2,001 to NLe3,000; 4.2% of the respondents obtained NLe 3,001
to NLe4,000; 12.5% of the respondents each obtained NLe 4,001 to NLe 5,000 and also above NLe 5,000.
Table 7. How much did you obtain as loan from the Munafa Fund
Response
Frequency Percentage
At most NLe 1,000
2
8.3%
NLe 1,001 to NLe 2,000
7
29.2%
NLe 2,001 to NLe 3,000
8
33.3%
NLe 3,001 to NLe 4,000
1
4.2%
NLe 4,001 to NLe 5,000
3
12.5%
Above NLe 5,000
3
12.5%
Total
24
100.0%
Field Data (2022) processed by SPSS V26
Table 8 shows whether the turnover of respondents has grown from 2021 to 2022. Based on the information,
62.5% of the respondents accepted, 33.3% of the respondents were indecisive and 4.2% of the respondents
refuted that their turnover has grown from 2021 to 2022. Thus it is assumed that turnover of SMEs that
have obtained this fund, has grown from 2021 to 2022.
Table 8. Has your turnover or sales grown from 2021 to 2022?
Response
Frequency
Percentage
Yes
15
62.5%
Neutral
8
33.3%
No
1
4.2%
Total
24
100.0%
Field Data (2022) processed by SPSS V26
Table 9 shows whether the profit of respondents has increased from 2021 to 2022. Based on the results,
63.6% accepted that their profits have increased, 27.3% of the respondents were indifferent and 9.1% of
the respondents were of the opinion that their profits have not increased from 2021 to 2022. The study thus
assumed that the profits of SMEs that have obtained this fund, have increased from 2021 to 2022.
Table 9. Has your profit increased from 2021 to 2022?
Response
Frequency
Percentage
Yes
14
63.6%
Neutral
6
27.3%
No
2
9.1%
Total
22
100.0%
Field Data (2022) processed by SPSS V26
Hypotheses Testing
H01 There is no significant association between the Munafa Fund and SMEs access to finance.
Table 10 below shows the chi square test result obtained when they study sought to ascertain the association
between the Munafa Fund and SMEs access to finance. Based on the result, X2=11.601, df=10 and p=0.313.
the likelihood Ratio = 11.940; df =10 and p=0.289. 18 cells have expected frequencies less than 5, which
is 100%. Thus the assumption that no cell should have the expected value less than 5 is violated.
Table 10. Association between the Munafa fund and SMEs access to finance
Value
Df
p-value
X2
11.601
10
0.313
Likelihood Ratio
11.940
10
0.289
Field Data (2022) processed by SPSS V26
Decision Rule
Accept the null hypothesis when p>0.05
The p-value for the likelihood ratio is used because the assumption that no cell should have the expected
value less than 5 was violated. From the table, the p value for the likelihood is 0.289. This is greater than
0.05. So the null hypothesis is accepted, stating that there is no significant association between the Munafa
Fund and SMEs access to finance. This implies that SMEs access to finance is independent from the Munafa
Fund.
H02 There is no significant relationship between access to finance and SMEs growth (profit and
turnover).
Table 11 below shows the chi square test result obtained when they study sought to ascertain the relationship
between the access to finance and SMEs growth (profit and turnover). Based on the result, X 2 for
turnover=10.158, df=4 and p=0.038. The likelihood Ratio = 11.201; df =4 and p=0.024. 7 cells have
expected frequencies less than 5, which is 77.8%. Thus the assumption that no cell should have the expected
value less than 5 is violated. Also, the X2 for profit =8.041, p=0.090; the likelihood ratio=9.529, p=0.049
and df=4. 8 cells have expected frequencies less than 5, which is 88.9%. so the assumption that no cell
should have expected value less than 5 is violated.
Relationship between Access to finance and SMEs growth (profit and turnover)
Variable
Turnover
Profit
X2
p-value
Likelihood
Ratio
10.158 0.038
11.201
8.041
0.090
9.529
Field Data (2022) processed by SPSS V26
pvalue
0.024
0.049
Df
4
4
Decision rule
Accept H02 if P>0.05
The p-value for the likelihood ratio is used because the assumption that no cell should have the expected
value less than 5 was violated. From the table, the p value for the likelihood ratio turnover is 0.024. This is
less than 0.05. So the null hypothesis is rejected, stating that there is significant association between access
to finance and increased in turnover. This implies that SMEs access to finance has related to increase in
turnover. Also, the p-value for the likelihood ratio is used because the assumption that no cell should have
the expected value less than 5 was violated. From the table, the p value for the likelihood ratio of profit is
0.049. This is less than 0.05. So the null hypothesis is rejected, stating that there is significant association
between the SMEs access to finance and SMEs profitability. This implies that access to finance is related
to increase in profitability.
H03 There is no significant relationship between the Munafa Fund and SMEs growth (profit and
turnover).
Table 11 below shows the chi square test result obtained when they study sought to ascertain the relationship
between the Munafa Fund and SMEs growth (profit and turnover). Based on the result, X 2 for
turnover=10.433, df=10 and p=0.403. The likelihood Ratio = 11.838; df =10 and p=0.296. 17 cells have
expected frequencies less than 5, which is 94.4%. Thus the assumption that no cell should have the expected
value less than 5 is violated. Also, the X2 for profit =10.327, p=0.412; the likelihood ratio=11.414, p=0.326
and df=10. 18 cells have expected frequencies less than 5, which is 100.0%. so the assumption that no cell
should have expected value less than 5 is violated.
Table 12. Relationship between Munafa Fund and SMEs growth (profit and turnover)
Variable
Turnover
Profit
X2
p-value
Likelihood
Ratio
10.433 0.403
11.838
10.327 0.412
11.414
Field Data (2022) processed by SPSS V26
pvalue
0.296
0.326
Df
10
10
Decision Rule
Accept H03 if p>0.05
The p-value for the likelihood ratio is used because the assumption that no cell should have the expected
value less than 5 was violated. From the table, the p value for the likelihood ratio turnover is 0.296. This is
greater than 0.05. So the null hypothesis is accepted, stating that there is no significant association between
the Munafa Fund and increased in turnover. This implies that the Munafa Fund has no relationship with
increase in turnover. Also, the p-value for the likelihood ratio is used because the assumption that no cell
should have the expected value less than 5 was violated. From the table, the p value for the likelihood ratio
of profit is 0.326. This is greater than 0.05. So the null hypothesis is accepted, stating that there is no
significant association between the SMEs access to finance and SMEs profitability. This implies that access
to finance is related to increase in profitability.
4.2 Discussions
4.2.1 The Criteria for the Munafa Fund
The study investigated whether the criteria set for the Munafa fund is favourable for SMEs to obtain this
fund. Questions were asked on the eight criteria set. Based on the result on table 2, the criteria identified as
being unfavourable for SMEs were must be at least 18 years but not more than 65 years, should have been
in business for at least 6 months, start-up enterprises may be considered on a case by case basis, should
possess valid national identification document, they may have the capacity to repay and good credit history,
business should be registered with an appropriate body and be registered with SMEDA. The criteria that
were considered as the most important were be registered with SMEDA and with an appropriate body. This
is because these institutions require the almost the same information and perform almost the same function.
Respondents were also asked to select the reasons others are not applying. Among the reasons, the study
revealed that others are not applying because interest rate is unfavourable, size or maturity of the loan is
insufficient, application procedures for the loan are complex and they don’t know about the fund. The study
also found out that the minimum loan size to be granted to SMEs is not fixed and not the same and the
maximum loan size is uniform and it does not exceed Le 10,000,000 (NLe 10,000). Also, the interest rate
pa paid by FSPs to SMEDA is 3% (reducing balance method and fixed for the loan period) while the interest
rate pa paid by MSMEs to FSPs is 9% (flat method and fixed for the loan period).
4.2.2
The influence of the Munafa Fund on SME Access to Finance
The study ascertained the influence that the Munafa fund has on SMEs access to finance. table 4 shows that
respondents did not have access to finance before obtaining the Munafa fund. Since then, upon obtaining
the Munafa fund, the finance of enterprise has increased from 2021 to 2022. the target number of borrowers
for the SLL 26,050,000,000 disbursed to FSPs was 4,100 and the total number of loans disbursed as of
|June 30, 2022 was 6,075 (representing 148% of the target number of borrowers). FSPs have disbursed a
total amount of SLL 31,176,698,000 as of June 30, 2022. The total number of loans disbursed as of June
30, 2022 was 6,075. The number of active borrowers was 4,328 as of June 30, 2022. The number of active
borrowers was 4,328 and 3,310 of the active borrowers are female (representing 76% of the total number
of active borrowers). The total loans disbursed to female and male were SLL 7,591,185,957 and
SLL1,920,802,762 respectively. The amount of loan that has been recovered from SMEs is SLL
21,664,709,028 and the amount of loan that is outstanding is SLL 9,511,988,719. The chi square test
revealed that there is no statistically significant association between the Munafa Fund and SMEs access to
finance.
4.2.3 Association between Access to Finance and SMEs Growth (profits and turnover)
Table 6 shows that access to fiancé has been the major constraint to the operations of SMEs businesses in
Sierra Leone. However, Tables 8 and 9 show that from 2021 to 2022, the turnover and profits of SMEs that
have obtained the Munafa Fund have increased, although the percentage increase is unknown. Chi Square
test revealed that there is a statistically significant association between access to finance and SMEs growth
in terms of increase in profitability and turnover.
4.2.4 The Relationship between the Munafa Fund and SMEs Growth (profits and turnover)
The chi square test performed between Munafa fund and SMEs growth in terms of profit and turnover
revealed that there is no statistically significant relationship between the Munafa Fund and SMEs growth
in terms of profit and turnover.
5.0 Conclusion and Recommendations
The study concludes that the Munafa Fund has not led to SMEs increase in profit and turnover. The H01
and H03 were accepted while H02 was rejected. Although the study found strong evidence that explained
that access to finance lead to SMEs increase in profit and turnover, the study did not find any evidence that
explained that the Munafa Fund has led to SMEs access to finance nor did it find any evidence that the
Munafa Fund has led to SMEs growth in terms of profit and turnover.
Also, it was found out that SMEs that have access to finance can grow. This was also what [10] found out
that favourable access to finance conditions are key to successful SME business. This is because access to
finance is a major factor that influences the development and growth of SMEs. Therefore, microfinance has
become an important policy tool for transitional economies in stimulating small business sector
development, although there is no clear empirical understanding of how it drives entrepreneurial behavior
[1].
Based on the findings that informed the conclusion arrived at, the study makes recommendations to the
three target populations. SMEDA should reduce the inters rater charged on the loans obtained by SME.
Also, SMEDA should extend for FSPs and improve communication and education about the contents of
the fund. SMEDA should further properly collect client’s data needed by FSPs and should increase the
maximum and minimum loan amounts based on type of sector. FSPs should collaborate to have a standard
amount for the minimum loan size they should give and should provide assistance to SMEs in the area of
financial management and advice. SMEs should apply best practices in managing this fund and ensure that
they repay the loan during the stated period.
Further study can be conducted on the topic after the three years of implementation of the Munafa Fund
has elapsed. This will give a complete analysis and result of the impact it has on SMEs growth. Also, a
study can be conducted on this same topic using large sample size.
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