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By Ghaida Alaskar
ID: 16210174
Supervised by Mr. Liam Hourihane
Master’s in finance
Dublin City University
24 July 2018

SMEs are not only significant in a country’s GDP Growth but also in improving the lives of its citizens. Particularly in the United Kingdom, the economic development significantly appreciates the roles of SMEs such as in the creation of employment. The financing of these sectors has equally fascinated academicians and finance professionals. Since 2008, microfinance has been a crucial tool towards financing the European economy. Microfinancing involves availing a set of financial services like cash deposits, credit facilities, fund transfers and insurance services to small businesses. It also involves making available financial services to small businesses that are usually not catered for by the commercial banks. The mechanism has been especially significant in steering the growth of enterprises in Europe. The paper explores the roles of micro-financing in the development of small-scale and medium enterprises in the case of the UK. The study uses secondary data drawn from previous studies and research.
The conclusion supports the role of microfinance in the life cycle of SMEs as a means to facilitate access to financial services and essential development strategies that facilitate commercial development. Further, the thesis supports such features as capacity building on the roles of MFIs in the economic development, recapitalization of the microfinance institutions as a means to enhance their capacities to facilitate the growth and development of SMEs.

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Microfinance banks, Microfinance Institutions, Small and Medium Enterprises

Table of Contents
TOC o “1-3” h z u Chapter one: Introduction PAGEREF _Toc519003625 h 11.0 Introduction PAGEREF _Toc519003626 h 11.1 Overview of the study PAGEREF _Toc519003627 h 11.2 Definition of Terms PAGEREF _Toc519003628 h 21.2.1 Small and Medium Enterprises (SMEs) PAGEREF _Toc519003629 h 21.2.2 Microfinance Banks and Institutions PAGEREF _Toc519003630 h 21.2.3 Business Growth PAGEREF _Toc519003631 h 31.2.4 Small business PAGEREF _Toc519003632 h 31.2.5 Microcredit PAGEREF _Toc519003633 h 31.3 The difference between microfinance banks and microfinance institutions PAGEREF _Toc519003634 h 41.4 Statement of the research problem PAGEREF _Toc519003635 h 41.5 Significance of the study PAGEREF _Toc519003636 h 51.6 Research aims and objectives PAGEREF _Toc519003637 h 61.6.1 Objectives PAGEREF _Toc519003638 h 61.6.2 Research questions PAGEREF _Toc519003639 h 61.7 Overall Justification of the research question PAGEREF _Toc519003640 h 61.8 Paper Structure PAGEREF _Toc519003641 h 71.9 Chapter Summary PAGEREF _Toc519003642 h 7Chapter Two: The Literature review PAGEREF _Toc519003643 h 82.0 Introduction PAGEREF _Toc519003644 h 82.1 History of Microfinance Institutions PAGEREF _Toc519003645 h 82.2 SME portfolio in the UK PAGEREF _Toc519003646 h 92.3 Challenges faced by SMEs in their growth process PAGEREF _Toc519003647 h 102.4 Sources of funding for SMEs PAGEREF _Toc519003648 h 112.5 The Concept of Microfinancing in the Development of SMEs PAGEREF _Toc519003649 h 112.5.1 The relevance of microfinancing in the success of SMEs PAGEREF _Toc519003650 h 122.5.2 Services Offered to SMEs by MFIs PAGEREF _Toc519003651 h 122.6 Theoretical Framework PAGEREF _Toc519003652 h 152.6.1 The Pecking order theory, 1984 PAGEREF _Toc519003653 h 152.6.2 Bank Capital Channel Theory PAGEREF _Toc519003654 h 162.6.3 Business Growth Theory PAGEREF _Toc519003655 h 162.6.4 Financial intermediary Theory PAGEREF _Toc519003656 h 162.7 Conceptual Framework PAGEREF _Toc519003657 h 172.8 Research Gaps PAGEREF _Toc519003658 h 182.9 Chapter Summary PAGEREF _Toc519003659 h 18Chapter Three: Research Methodology PAGEREF _Toc519003660 h 183.0 Introduction PAGEREF _Toc519003661 h 183.1 Methodology PAGEREF _Toc519003662 h 183.2 Population PAGEREF _Toc519003663 h 193.3 Data Collection PAGEREF _Toc519003664 h 193.3.1 Advantages of secondary data analysis PAGEREF _Toc519003665 h 193.3.2 Disadvantages and limitations of secondary data analysis PAGEREF _Toc519003666 h 193.4 The process of data collection and analysis PAGEREF _Toc519003667 h 203.4.1 Identifying the datasets PAGEREF _Toc519003668 h 20Chapter Four: Data Analysis, Results and Discussions PAGEREF _Toc519003669 h 214.0 Introduction PAGEREF _Toc519003670 h 214.1 The Big Picture PAGEREF _Toc519003671 h 214.2 The GDP Growth PAGEREF _Toc519003672 h 214.3 Start-up business landscape PAGEREF _Toc519003673 h 234.4 The surrounding ecosystem PAGEREF _Toc519003674 h 244.5 Source of Funding PAGEREF _Toc519003675 h 254.6 The British Business Bank (BBB) PAGEREF _Toc519003676 h 254.7 Local Enterprise Partnerships and economic zones PAGEREF _Toc519003677 h 264.8 Regional Growth Fund (RGF) PAGEREF _Toc519003678 h 274.9 Loans borrowed from Microfinance Institutions PAGEREF _Toc519003679 h 284.10 Business Performance before taking loans from MFIs PAGEREF _Toc519003680 h 284.11 Loan rating PAGEREF _Toc519003681 h 294.12 Other services sought by SMEs from MFIs PAGEREF _Toc519003682 h 294.13 The influence of microfinance institutions on the growth of SMEs PAGEREF _Toc519003683 h 294.13.1 Training Programs PAGEREF _Toc519003684 h 304.13.2 Advisory services PAGEREF _Toc519003685 h 304.13.3 Business idea generation PAGEREF _Toc519003686 h 304.14 Discussions PAGEREF _Toc519003687 h 31Chapter Five: Synopsis of Findings, Conclusions, and Recommendations PAGEREF _Toc519003688 h 325.0 Introduction PAGEREF _Toc519003689 h 325.1 Summary of Finding and Discussions PAGEREF _Toc519003690 h 325.2 Limitations to the interpretations PAGEREF _Toc519003691 h 325.3 Conclusion PAGEREF _Toc519003692 h 335.5 Suggestions for future research PAGEREF _Toc519003693 h 35References PAGEREF _Toc519003694 h 36

List of Tables
TOC f F h z “Heading 5” c Table 1: SME Definition in different regions PAGEREF _Toc514917669 h 6Table 2: Conceptual Framework PAGEREF _Toc514917670 h 17Table 3: Birth and Death Rates of enterprises in the UK by region PAGEREF _Toc514917671 h 21Table 4: Businesses broken down by the amounts of workforce PAGEREF _Toc514917672 h 21Table 5: Respondents source of capital PAGEREF _Toc514917673 h 22Table 6: Private Business in the UK since 2000 PAGEREF _Toc514917674 h 24Table 7: The performance of selected SMEs after the introduction of SMEs PAGEREF _Toc514917675 h 25
List of Figures TOC h z “Heading 6” c
Figure 1: United Kingdom, Quarter 4 2007 to quarter 4 2017………………………………….. PAGEREF _Toc514917713 h 20Figure 2: The size of the UK economy PAGEREF _Toc514917714 h 23Figure 3: Share of businesses in the UK private sector, 2017…………………………………… PAGEREF _Toc514917715 h 25Figure 4: Loan borrowing from microfinance institutions………………………………………26

Chapter one: Introduction1.0 IntroductionThe section is an introduction to the topic of study, defining key terms to be used across the text. The chapter explores the scope of the research, giving an overview of the research aims, objectives and questions presented by the researcher.

1.1 Overview of the studySmall and medium-sized enterprises (SMEs), particularly “growth-oriented SMEs,” are considered to be significant in the overall development of a country (Ahmadani, Shaikh and Shaikh 2012, p. 44: Mason and Brown 2013, p. 225). SMEs range from retail outlets, food stores, clothing and fashion and so on. The effects of proper management of these enterprises on the UK economy include business sustainability, increased revenues, increased employment, increased capital size and outlets and advanced business practices among others.

The United Kingdom has up to 5.4 million SMEs, employing 24.3 million people and account for 98% of the total businesses in the country. These commercial enterprises represent about 60% of the total employment and approximately 50 % of the private revenues. The British Banking Authority reported that the banking by SMEs is over 2 billion euros in revenue and commercial loans balancing at about 90 billion euros (Chalmers 2016). The report demonstrates that this is a significant sector that provides substantial incentives for lending institutions. Thus, microfinance was established to support small businesses through tailored programs which make available credit and other financial services in an essentially collaborative, “bottom-up” way. Microfinance institutions come into play to help these small businesses mobilize and manage their resources.

Kachembere (2011) posits that SMEs are significant in shaping the economy from the grass root levels and in supporting sustainable development. According to Hessels and Parker (148), there is no reservation that small businesses require help from microfinance institutions to achieve sustainability and competitive advantage.

1.2 Definition of Terms
1.2.1 Small and Medium Enterprises (SMEs)A series of descriptions have based their arguments on the physical size of the business, number of staff, amounts, and volumes of sales or the nature of operations. A significant number of studies cluster SMEs as those businesses with employee numbers of bellow 250. The term “SME” comprises a wide range of descriptions. The definitions differ from one region to another; some cases use the underlying frameworks by assets, headcount or output. SMEs are identified in Egypt as “having more than 5 and fewer than 50 employees” (Akorsu Agyapong and Author 2012, p. 147). Table 1 bellows highlights the different regions and their descriptions of SMEs.

Table 1: SME Definition in different regionsRegion Description Source
Vietnam between 10 and 300 employees (O. Idowu, S. Kasum and Mermod, 2014)
United States of America maximum of 500 employees and less than $3 million in revenue Europe workforce fewer than 250 employees Source: Author 2018
As a general framework, the World Bank describes Small and Medium Enterprises as those businesses with employees not more than 300, 30 million euros in yearly revenues and assets (Pandya et al.2012, p. 426).

1.2.2 Microfinance Banks and InstitutionsMajority of these definitions agree that microfinancing is an excellent way of financing SMEs. Bogan (2012) argues that microfinance institutions help produce savings in the economy, attract foreign investments, enhance entrepreneurial culture and foster economic development in the country (1046). According to Rakodi (2014), microfinancing is the delivery of financial support to the less privileged, specifically those with challenges of accessing formal financial services (p.44). Lützenkirchen, Weistroffer, Speyer and AG (2012) also describe it as banking for the underprivileged (p.2).

Microfinance banks are certified institutions established to take care of the under-served but working population in the economy through making possible differentiated, less control and reliable financial services to these groups in a suitable and competitive approach (Taiwo, Yewande, Edwin and Benson 2016, p. 1).

1.2.3 Business Growth
Business growth refers to an increase in the amounts of output by a business entity. It can also describe the overall business development of an enterprise (Blackburn, Hart and Wainwright 2013, p. 8) Business growth is often considered the objective of small businesses, linked to their survival and competitiveness (McFarland and McConnell 2012, p. 112). This feature is enhanced throughout the business cycle and increases as the business gets enough support, such as financial incentives. A visual representation of business growth shows it as an accelerated clockwise move around the business cycle and an enhanced process of product and service delivery (Bravo-Biosca, Criscuolo and Menon 2016, p. 743). It also refers to the migration and the ages of enterprises with regards to survival. The term is often related to the overall success, competitiveness and migration of businesses (Gill and Biger 2012, p. 666).
1.2.4 Small business In the developing economies, the size of assets, workforce or turnover for small enterprises appears smaller in relation to that of the developed economies mainly due to the relative sizes of the economy and individual enterprises (Liedholm and Mead 2013, p. 42).

1.2.5 MicrocreditThe term refers to the delivery of financial services-largely to small businesses-referred to as microenterprises that have limited accessing to the mainstream banking (Lützenkirchen et al.2012, p. 3). The inflexibility of the lending procurement measures, limited collateral ,and other constraining features have made loan facilities unattainable to these small enterprises. Microcredit is primarily described as the delivery of financial services, normally to small businesses defined as microenterprises that have limited access to the commercial and development banks (Bauchet and Morduch 2013, p. 296). The inflexible lending procurement structures, limited collateral, substantial transaction costs have limited credit to small businesses. While the concept of microfinance is often confused with microcredit, the two are not entirely the same. It is crucial to point out that microfinance captures a wide array of services, including microfinancing. Micro-lending is a focal point in many microfinance models and consists of a set of distinguishing features including micro-borrowing, debt control and group lending.

1.3 The difference between microfinance banks and microfinance institutions Commercial lending practices are now able to distinguish between microfinance banks and institutions. The current practice is different to the traditional microfinancing where microfinance institutions were regulated by a much softer hand, the systems now accept deposits, lending out money through structured and complex channels. The business models of microfinance banks are much deeper as compared to the latter (Vanroose and D’Espallier 2013, p. 1980).
1.4 Statement of the research problem Business investment and development has been a challenge for many people because of the various limitations such as capital and expertise in their respective ventures. This is also a challenge faced by many entrepreneurs and enterprises in the United Kingdom. A good number of entrepreneurs’ lack of management and financial knowledge necessary to take their business through a gradual growth (Georgiadis and Pitelis, 2012, p. 820). Financial Challenges before the introduction of MFIs significantly resulted to the lag in the growth of these businesses as other entrepreneurs could not go beyond ideation stages because of limited funding. Although limited research on the subject has been conducted with UK as a cases study, preliminary research has shown that a lack of business support is the reason for slow growth in the SMEs.

The challenge also affects MFIs and their roadmap to offering financial and business support services to entrepreneurs in the region. One challenge is the mindset of the society that credit facility might lead to one’s assets being auctioned. With these and other challenges, microfinance means a lot in the development of SMEs, which means that their presence spurs economic growth. MFIs should hence link entrepreneurs to business development in the United Kingdom. Does microfinancing impact the growth of small enterprises in the country? What is its role in all this? These are some of the questions that the researcher aims to address in this study.

1.5 Significance of the studyWhile every corporate institution is focused on growth and development at all convenient means, SMEs are no different. This thesis is focused on the roles of microfinancing on the growth of SMEs in the UK. SMEs face a series of challenges (both internal and external) in their pursuit for growth; these challenges include financial constraints, limitations by virtue of their sizes, unfavorable economic climate, limited commercial incentives and many more. MFIs comes in to help SMEs manage some of these challenges including offering them affordable financing and capacity building. The report will provide an elaborate analysis and evaluation of the roles of these MFIs in the success of SMEs. The findings will be instrumental to both SMEs and MFIs in need of understanding the dynamics of the two and most importantly other academicians in the field.

The study would help MFIs microfinance institutions evaluate their impact on these small enterprises. These findings will additionally help microfinance institutions come up with competitive strategies and influence an entrepreneurial culture in the region. The findings will be used to develop crucial information necessary for the analysis of programs tailored by enterprise support structures for small-scale investors, programs that will result in the economic development in the UK as a whole. It is expected that banks will also appreciate their role in enterprise development. The study would enable MFIs to evaluate their credit programs and the roles they are playing in the overall corporate strategy of SMEs in a way that will ensure the efficiency and effectiveness of their service delivery.

Potential investors and entrepreneurs are expected to use the findings of this study as an insight into enterprise development opportunities provided by MFIs and invest in the best way possible. The potential investors will appreciate the services and roles played by MFIs; idea generation, credit facilities and advisory services and implement their entrepreneurial dreams.

The research would also form a framework for policy-makers to develop effective strategies in the field given it would give insights on the weaknesses and strengths alike. It is expected that governing structures would use the findings in this report as a feasibility study on the roles of microfinancing and its capability to support enterprise development thus doing away with restrictive practices on their part. Further, academicians and other similar studies will use the findings as a basis and foundation for future research and inform recommendations.

1.6 Research aims and objectivesThe study aims to demonstrate whether microfinancing contributes to the success of SMEs in the United Kingdom and how the specific contributions to the real growth. And the different ways in which these lending institutions are transforming the practices and operations of these SMEs. Other suggestions and ideas on the ways that SMEs in the UK would grow as a result of the roles played by microfinance institutions and banks were evaluated. A feature that has equally been explored is how the acquisition of microfinance credit, capacity building, and financial management, business coaching and idea generation from MFIs contribute to business growth.

1.6.1 ObjectivesTo determine the role of microfinancing in the growth of SMEs in the UK.

To establish the challenges that SMEs are facing in their growth process.

To establish the need for MFIs in the life cycle of SMEs.

To analyse different types of services offered by MFIs to SMEs.

1.6.2 Research questionsWhat are the roles of microfinancing in the growth of SMEs in the UK?
What are the challenges faced by SMEs in the course of their growth?
What are the various forms of financing for SMEs and how is MFIs coming in?
What are the different types of services offered by MFIs to SMEs?
1.7 Overall Justification of the research questionEnterprise development and microfinance institutions have been a significant concept in the economic development, especially for the developed countries. However, only a few studies have given attention to the basic components that contribute to the development of small and medium enterprises and the nexus between SMEs and MFIs.

In the case of the UK, microfinance institutions have been significant in the growth of these SMEs. The researcher hence decided to look into the roles of MFIs in the growth of SMEs in the case of the UK. Findings from this quest will help expound on previous literature by looking at specific features of MFIs that contribute to the success of SMEs in a developed economy like the UK.

1.8 Paper StructureProvision of financial incentives in the form of credit is a significant independent variable for the achievement of SME growth (independent variable). Financial support is described as the independent variable and points out the step that MFIs steps in to help SMEs compelling them to their respective entrepreneurial ventures. The growth of SMEs is the dependent variable since it is a reflection of the implications of the independent variable (financial support) to trigger their development.

The entire paper is arranged in this format: The next section (Chapter two) is a literature review; it begins by examining the nature of SMEs and microfinancing. Chapter two looks at theoretical and empirical studies along the subject. The section defines the concept of microfinance and SME with respect to previous literary works, a brief history of microfinance and SME development in the UK, procedures for financing the SMEs and how microfinancing comes into play. Chapter three analyzes the methodology adopted in the study. Chapter four is an analytical review of the findings from section three. Chapter five is the last section; it sums up the findings and summary of the research.

1.9 Chapter SummaryThe primary theme of the research is the financing of these institutions and the effects on their operations. Although commercial banks are still leading in the financing of business all over Europe, the incumbent is currently seeing competition from these micro-lending institutions. With the economic uncertainties caused by Brexit, this paper synthesizes and delineates key issues confronting SMEs and how microfinance institutions come in place to address the issues.

Chapter Two: The Literature review2.0 IntroductionThe chapter analyzes the portfolio of MFIs and SMEs in the UK context, giving a brief historical background and the various features of MFIs significant in the growth of SMEs. The chapter also analyzes the concept of SME growth, the different dimensions of microfinancing and their attendant. In the end, the research gap comes out clearly.

2.1 History of Microfinance InstitutionsThe development of microfinance began in the early 1970s. The move was meant to provide financial access to low-income earners in the society. The founder, Muhammad Yunus later won a Nobel Prize in 2006 for the institution of Grameen Bank in Bangladesh that served the underprivileged. The bank was modeled as managing the vicious cycle of poverty (Kumar, Hossain and Gope 2015, p.115). Since its early days, microfinancing has been on the forefront in entrepreneurial development and innovations, growing SMEs around the world, each case with a renewed innovation and enthusiasm contributing to global best practices guiding the process of microfinance-lending (Mersland and Strøm 2012, p. 860).

Grameen bank inspired commercial and enterprise development practices across the globe, including the United Kingdom. Cumulatively, these financial institutions served up to 65 million enterprises, a rise from 13.5 million in the year 1997 and the number grows by 35% every year (Assefa, Hermes and Meesterfs 2013, p.782; Malua 2013, p. 1). Businesses reported growth due to the support of Grameen bank as the amounts in credit to these SMEs passed the 750 million marks in the year 2012 (Milana, and Ashta 2012, p. 330).

In the United Kingdom, microfinance has uplifted SMEs through various business support practices such as capacity building. Private sector businesses form a crucial part of the UK economy and it follows that microfinancing should play an important role in the growth of these enterprises. The institutions have been significant in the economic development particularly for smaller firms involved in the retail sectors by providing them financial services that helped boost their earnings (Harrison and Baldock 2015, p. 5).

Financing has always been a challenge for start-ups and small businesses and MFIs came in to seal the gap left by commercial banks through providing low-interest loans particularly using the financial crisis of 2008 (Harrison et al. 2). In this view, microfinance became a viable solution for SMEs growth and development through delivery of financial and capacity building that contributed to the UK economic development (Havrylchyk and Kierzenkowski 2015, p. 3)
Startups are coached in financial management and other practices to plan well and access business funding for their enterprises (Botham 2012, p. 278). Members are connected with experts who expose them to resource mobilization techniques and business scaling. The micro-credit offered to these SMEs play crucial roles in helping these businesses leverage their initiatives, accelerate the processes of revenue generation, assets management and economic security (Foreman-Peck, 60). Nanda and Rhodes-Kropf (2013) allege that there is a need to increase funding to start-ups to uplift enterprise development (405). The rigid requirements of commercial banks and other restrictive practices in the credit disbursement is among the reasons for the incapacitation of SMEs making them remain inept and constrained in their ventures.

Over the past two decades, successful practices in the delivery of finance to small businesses by MFIs have empirically demonstrated the benefits of business support. When SMEs are allowed timely and responsive capital at affordable costs and ideal business coaching could make use of the loan facilities given to them to invest in profitable enterprises (Lee 2014, p. 195)
2.2 SME portfolio in the UK According to the works of Oni and Daniya (2012), a business is recognized (by the European Union Standards) as an SME if it falls under three criteria: it has not more than 250 people the turn-over is not more than 25 million euros and it has gross assets of not more than 12.5 million euros (p. 18). Majority of SMEs in the UK forms part of the currently growing “Mittelstand.” These are commercial enterprises in Britain that are not only referred to as small or medium but also possess a more advanced set of values and a more flexible description (Hien 2017, p. 1). The total employment for these businesses was 15.7 million in the year 2016; more a 50% of the total private sector jobs in the United Kingdom (Ball and Flynn 2018, p. 32). To promote the development of SMEs, the UK government came up with a target in 2010 that stated “25% of governments spend, either directly or in supply chains, goes to SMEs by 2015” this target was however attained in 2013 (National Audit Office, 2016).
Entrepreneurs in the UK are coming up with more and more business each year. By the end of 2016, the private sector had more than 5 million enterprises; this number had grown up by 97,000 since the previous year (Robertson, Langston, and Price 2014, p.14). One of the reasons for this growth includes the business support; start-up loans and grants. These ventures are either at the start of their journeys or in the middle of it and are constantly faced with the need for funding. However, given their sizes and well thought out their models are, accessing start-up capital is often difficult (Lee and Drever 2014, p. 355). Since 2015, more than 50 % of SMEs have sought for external funding (Lee, Sameen,and Cowling 2012 ,p.10).
2.3 Challenges faced by SMEs in their growth processDespite their significant presence, SMEs face a series of challenges: The enterprises face intractable challenges accessing finance. The issue of financial access by these institutions has been of concern since for almost a century. The problem dates back to the early 1930s when a report published by MacMillan explored the challenges faced by SMEs when trying to access finance (Lee, Sameen and Cowling, 375). Smaller businesses are less likely to have significant assets to act as collateral against access to loan facilities and many, especially start-ups, may not be able to argue for their credit-worthiness with financial institutions (Hessels and Parker 2013, p. 148)
Additionally, unlike well-established businesses, SMEs may not be able to present audited books of accounts, which further worsens their “informational friction” between them and lenders (Lee et al. 380). This practice is a feature that has favored larger business (Lee and Brown 2016, p. 40). The UK economy saw a decline in the financing of SMEs by conventional banks that had conventionally dominated the market (North et al. 260). The Global Financial Crisis (GFC) led to banking institutions restricting their lending as a section of banks began to rebuild their balance sheets and reduced risky lending (Degryse et al. 2015, p. 80).
The challenges faced by policy-makers and lending institutions are to ensure that the funds are invested in institutions likely to contribute to the overall economy, without injecting surplus capital to businesses that are not creditworthy. However, 2008 marked a period of significant changes in the lending market of SMEs. The period saw the entrant of new players in the market coupled with the introduction of other forms of financing such as crowdfunding, micro-lending, peer-to-peer support (Fraser et al. 2015, p. 88). The industry is now completely different as compared to the situation during and before the GFC.

2.4 Sources of funding for SMEs According to (Casey and O’Toole 2014, p. 190) the source of funding available for SMEs includes bank loans and other financial assistance programs such as microfinance banks and institutions, business associates, personal savings. Although personal savings is the most widely used approach, other options such as loan facilities are also available through limited by their tight requirements. Oni (30) notes that the ability to build growth capital depends on “whom you know” literally put as “your technical know-how.” Similar to other countries and economies, major problems affecting small and medium enterprises includes capital requires to finance their commercial activities (Akbar, Rehman, and Ormrod 2013, p. 70). The experiential analysis demonstrates that proper financing contributes to up to 25% of the success of SMEs (Agwu and Murray 2014, p.198).

Businesses are funded either by equity, a debt of a mix of the two. In the UK, the two forms of financing can either come from formal or informal channels. In the formal sectors, financial institutions such as development and mainstream banks are the primary sources of capital for enterprise development, while the informal sectors comprise of financing from family and friends. While a majority of commercial banks are unwilling to fund small businesses because of the risks involved, limited collateral, Microfinance institutions (falling under formal sources of funding) plays a crucial towards supporting and development of SMEs in the UK.

Microfinance institutions do not demand a lot of collateral and offer door to door services that provide loan facilities to small business through easy processes. It is notable that entrepreneurs would rather use their savings and credit from family and allies to finance their businesses as opposed to approaching commercial banks, the high interest on leans keeps these entrepreneurs away (Abdulsaleh and Worthington 2013, p. 35).

2.5 The Concept of Microfinancing in the Development of SMEs While microfinancing is largely regarded as a means to offer financial services to the less privileged. Bauchet and Morduch (2013), in their study demonstrates that microfinancing was developed in order to make arrangements for funds for farmers and low-income enterprise by enabling them to carry out their business operations seamlessly.

Taiwo et al. (2016) noted that MFBs is playing the roles of banking institutions but on a smaller scale (p.2). The features of MFBs include investment accounts, current, conventional and improved savings, fixed deposits; loan facilities like overdrafts, term loans, trade loans, local purchase orders and salary advances. The models also cover ancillary services coupled with advisory services, viability studies and economic training for new SMEs. These banks also offer small insurance services to their clients, funds transfer both locally and internationally in line with their corresponding banks, capacity building and micro-pensions. Microfinance banks have been shown to offer differentiated and efficient financial services to small businesses in a more convenient and competitive structures.

2.5.1 The relevance of microfinancing in the success of SMEs Some studies have demonstrated that microfinance plays crucial roles in the development of SMEs all over the world (Bauchet et al. 297; Hessel et al. 148; Le et al 380). These studies have jointly agreed that MFIs currently supports and can be further enhanced through a sustainable growth of small enterprises in any given economy. The studies pointed out those regulatory frameworks have a lot to do in their role as policy formulators in order to complement growth attempts of these institutions.

2.5.2 Services Offered to SMEs by MFIs Aside from financial services, microfinance institutions play crucial roles in the capacity building of SMEs. These institutions have been seen to offer financial training and other management programs to SMEs. The trainings have enabled these businesses to acquire financial knowledge on capital management and other skills that are essential in the operations of their enterprises and business growth. The programs have enabled the management of these small businesses to achieve competitive advantage, sustainability, and technological advancements. The purpose of MFIs is to train entrepreneurs on planning, programming and management of financial resources in to realize maximum ROI. Although Makorere (2014) has a different perception concerning micro-financing and how the model should be applied, it still stands out that training is inevitable (p.12). He argues that instead of investing in such training, it is better to use those funds in bettering other small businesses that are in dire need of the financing or in other sections of the business Provision of finance
Other forms of village banks were informed by Joseph Blatchford and Friedrich Wilhelm Raiffeisen towards the provision of finance to the poor (Omondi 2013, p.2) The concept of resource mobilization and lending it to small-scale businesses went well with aspiring entrepreneurs thus helping spur enterprise growth making microcredit a future for enhanced investment in small-scale ventures. One of the earliest MFI that offered micro-credit to small businesses with minimal collateral was the Irish Loan Fund System that was initiated by Jonathan Swift in the year 1700s (Agnihotri 2013, p.599; Pandya 2012, p. 426). Their focus was to provide small credit facilities for shorter periods. These organizations were referred to as the Credit Unions, Peoples` banks and Savings and Credit Cooperative Societies due to their leniency and softer regulations on small businesses (Omondi et al. 19). Training Programs
The objective influence of training services offered by microfinance institutions, training serve as eye opener on the approaches of these SMEs and their management who are not in a position to offer the best of financial and management skills throughout their day to day operations and account for every step of their businesses. For the growth of these small enterprises which was a dependent variable, financial management lessons marked the beginning of financial literacy to these businesses and their proprietors. Financial literacy in-turn leads to entrepreneurial development, better management practices, and increased investment and eventually in the repayment of loans. Nicolaescu, Cace and Cace (2012) highlight the concept of microfinance union informed by Friedrich Wilheim Raiffeisen as aimed at enhancing business knowledge of the general public (520). Raiffeisen and his supporters argue that is the general public was well informed on the best business practices, it would result to increased commercial practices given that microfinance institutions offered credit facilities with low-interest rates. Advisory Services
Cumming and Fischer, (2012) note that MFIs are disruptive in their pursuits to facilitate business growth and development with the introduction of advisory services for business people to continue to use their services wisely (418). One major reason why microfinance institutions are offering training and advisory services to their clients guarantees them timely repayment of loans since the investments will have been wise (Bénard 2014, p. 12). These institutions hence become the best option for small businesses who want somebody to walk with them through the business journey, guiding and advising them on the best practices. Grameen Bank initiated by Muhammad Yunus in Bangladesh addresses the challenges that small business was facing and helped them through business advisory services. Yunus inspired the foundation of bigger microfinance institutions who literally capitalized on what Grameen Bank was doing.

Neneh (2012) argues that the business environment, cultural dynamics and mindset need to be understood for the success of the business, this is an activity that MFIs does with entrepreneurs in their settings and sessions (3364). Business Idea Generation
Beginning 1970s, the experiential microfinance programs in Bangladesh and other regions including Europe extended their micro-lending facilities to small businesses after helping the through business ideation stages. Right from its inception, MFIs endeavored to integrate viable business ideas from willing entrepreneurs to their systems. Business ideation is an independent variable that is aimed at ensuring successful businesses are executed. The process guarantees only viable business ideas are funded which in-turn will not struggle to repay the loans. According to Yunus, micro-credit was disbursed on the basis of the solidarity group and not only to individual members but also on the viability of the ideas so that the funds can be cleared in good time (Omondi et al.21).

To this day, microfinance institutions and other business development programs agree on the view that the growth of a business is dependent on how the ideas are brought together and supported throughout the development cycle. Ideation stage is the backbone of a successful business empire and enough efforts and considerations should be looked into at this point (Hamdani, and Wirawan 2012, p. 233). Thus, coming up with viable business ideas empowers the economy through the development of successful ventures and MFIs have been on the significant in this process. Funding comes in as another important step as it fuels the necessary activities designed to see through the success of the particular venture. Further constant coaching and other capacity building programs ensure that these ventures are nurtured towards sustainability and towards gaining competitive advantage. The goals and objectives of the majority of these MFIs highlight their commitment to supporting enterprise development and their clients achieving the most out of their investments. Empirical data from the region of a section of SMEs that have been observed over the years highlight significant contributions of microfinance institutions. Despite the developing sense of reality on the obstacles and challenges, there exists a significant consensus that providing credit facilities to small business plays a huge role in guaranteeing their success. In the view of Yunus (Omondi et al. 23), the implications of microfinancing on the economic development have been notable on the wide segment of the society.

2.6 Theoretical FrameworkThe introduction of new forms of lending has challenged the previously dominant theoretical principles such as the “pecking order” theory of financial preference (Mateev, Poutziouris, and Ivanov 2013, p. 51). In order to avoid losing control of the business, this principle argued that institutions would opt to use internal sources of funds. While this theory holds for market institutions, it is not applicable for smaller growth-oriented institutions (Vanacker and Manigart 2010, p. 26). (Brown et al. 20 and Bruton et al. 26) demonstrated how micro-lending had made financial choices for SMEs more complicated than before.

Although one out of seven SMEs will pursue external sources of financing (Fraser et al., 18), these enterprises are generally the most “growth-oriented” institutions that create the largest number of jobs (Anyadike-Danes et al. 2015, p. 27). On top of the challenges of accessing loan from banks is the issue of “discouragement” that often kill the morale of promising institutions from seeking financial help from banks in fear of rejection (Freel, Carter, Tagg and Mason,2012, p. 418).

Hence, the limited finding opportunities for these enterprises plus the low interest to apply for external financing have constrained the growth of these institutions and the general UK economy (Cowling et al. 12; Brown et al., 24). Notable theories in the financial structuring, growth and development of SMEs are the pecking theories and the bank capital channel theories.

2.6.1 The Pecking order theory, 1984Myers argued that the financial demands of SMEs are only met in hierarchical order. The small enterprise access initial batch of funds internally and as the financial obligations expand, the firms reach out for other forms of funding such as debt financing. Subsequent demands in financing lead to mobilizing funds through advanced models such as external equity. Hence, the theory states that institutions opt for internal sources of finance; otherwise, the enterprises would opt for debt before equity financing (Le et al. 54). Conventionally, the theory demonstrates that SMEs would opt for an internal source of funding simply because they might not be able to access external funding.

2.6.2 Bank Capital Channel TheoryThe theory argues that lending institutions borrowing behavior in relation to small businesses are mostly a factor of the finding requirements. Changes in the interest rates are likely to affect the capacity of financial institutions to offer loans to SMEs. This feature implies that any increase in the interest rates raises the costs of banks external lending but constrains banks capital and profits (54). The propensity is for these financial institutions to trim down their lending if the capital limits become binding. The lending institutions may alternatively be more enthusiastic about lending in cases that the interest rates become favorable.

2.6.3 Business Growth Theory Business growth is generally used to describe an increase in size of a particular enterprise. In research, business growth has been operationalized in a set of ways and on varying dimensions (Edel 2017, p. 2). A fully established business grows from an idea to a micro-enterprise to small business then to a large organization (Lewis 2013, p. 3). The growth patterns can be linked to the demographic features of institutions such as the gages of the respective firms (Barkham, Gudgin, and Hart 2012, p. 2). The widely used growth standard has been variations in the commercial turnover. Also, variations in the number of staff have been used to define business growth. The shift from ideation to small, medium then to large businesses in terms of sources of capital from MFIs and other institutions is also a measure of growth. Nevertheless, studies have demonstrated that the standards often adopted in the context of SMEs are relatively interrelated (Edel et al. 132).
2.6.4 Financial intermediary Theory Initially, intermediary theories were formed on the basis of asymmetric data and transactional costs (Adrian 2014, p. 2596). The data are configured to analyze deposit-taking institutions and those that offer insurance services and disburse funds to businesses. Nevertheless, in the contemporary society, things have not been the same. Despite the fact that asymmetric information and transaction costs have declined, intermediation in the financial sectors has increased. The data asymmetries bring about market irregularities such as variations from the neoclassical standards. Majority of such irregularities have led to distinct features such as transactional costs; intermediation appears to manage such cost implications. Maggiori (2013) described financial intermediation as data sharing approaches (p.2). He further notes that financial institutions fall under a coalition of depositors that insure individuals against idiosyncratic shocks that has adverse effects in their liquidity positions. Individuals will then delegate monitoring practices to specialists such as financial intermediaries.

Households will reserve through intermediary approaches. They may choose to withdraw their reserves in the hopes of disciplining the intermediary in their monitoring functions. Further, they can choose to positively acknowledge the intermediaries’ role in the ultimate investment (Beck, Colciago and Pfajfar2014, p.10). The cost implications of relevant transactions include search, verification, and evaluation and implementation costs. The financial intermediaries play the roles of individual lenders or borrowers who interrupt the scope or economies of scale in the transaction technology. These financial intermediaries transform specific financial claims into other forms referred to as qualitative asset transformation. Hence, they provide monetary liquidity and multifaceted opportunities (Mimir 2016, p. 74). The practice of providing liquidity is crucial to many SMEs. Intermediation is active since market irregularities constrain investments from fully transacting with one another.

2.7 Conceptual FrameworkTable 2: Conceptual FrameworkIndependent Variables Dependent Variable
Business Ideation
(Potential entrepreneurs, MFI clients, local SMEs)
Loans and micro-lending
(Small credit facilities for business set up and expansion)
Training Programs
(An informed community, more proprietors seeking classes)
Business coaching and financial advisory programs
(Improved financial and management practices, more beneficiaries and clients)
103212899991 SME growth and development
Source: Self Conceptualization 2018
After the exploration of the dependent variables, the conceptual framework points out the theoretical models of the way the logical sense was arrived at in the nexus between several factors identified and dependent and independent variables.
2.8 Research Gaps A significant number of enterprises business models show growth as a unilateral development feature in the business cycle. However, past studies have ignored the roles of microfinance in the longevity and growth of SMEs. Additionally, there is no adequate evidence on the specific roles of MFIs in the growth of SMEs. Further, previous research has largely focused on SMEs in the developing economies and focused less on the developed countries like the UK. This thesis will analyze the holistic approach that MFIs take towards supporting the growth of SMEs. This paper is committed to filling the research gaps and demonstrates the roles of MFIs in the growth of SMEs in the UK.

2.9 Chapter SummaryGiven the significance of SMEs together with the constantly changing lending environments affecting their growth, this thesis examines the implications of microfinance institutions in the growth and development of these smaller businesses. The next chapter explores the research methodology.

Chapter Three: Research Methodology3.0 IntroductionThis section highlights the research design, data collection techniques and the analysis framework. The section helps in solving the research problem in a systematic way. There are several methods used in the data collection that can help researchers in achieving the desired outcomes in the study. Secondary research is achieved through an analysis of business publications, research journals, finance reports, websites and surveys card out in the context of the research.
3.1 MethodologyThe primary source of information for this study is the Inter-Departmental Business Register (IDBR), managed by the Office for National Statistics (ONS), used in the provision of statistics of the registered enterprises in the United Kingdom. A variety of variables are used here, and statistical techniques are applied to them in order to produce accurate results. To perform the evaluation, different tools are utilized for the collection of relevant data that is then converted into reliable information.
3.2 PopulationThe study population consisted of SMEs and MFIs in the UK. The study used secondary data to demonstrate its findings and conclusions. The descriptive data used was gathered from peer-reviewed journal articles, papers, and reputable internet sources.

3.3 Data CollectionThe study adopted a qualitative data collection approach. The facts and figures were obtained through the review and analysis of available publications and resources of both financial and non-financial aspects of organizations identified for the purposes of this research. The resources comprised of the financial accounts and other available transaction data of these institutions.

There is a dearth of literature that explores the processes and challenges encountered when conducting research using secondary data. Johnston (2017) describes secondary analysis as a systematic method, an additional knowledge or conclusions presented in a different form (p. 620). The knowledge is presented in the view of a prior investigation or what is already known about the topic through an analysis of the secondary data and studies conducted in the area of study.

3.3.1 Advantages of secondary data analysisThe approach is fairly flexible and can be approached from various angles, it is also an empirical activity with following certain procedure and evaluative steps. The study design and data collection are already done; hence, the method saves on time and money. The process of data collection could have taken a long time and additional logistical costs. Additionally, data were obtained from government databases hence of high quality. Further, datasets contained significant breadth (many variables).

3.3.2 Disadvantages and limitations of secondary data analysisIn the context of present study time and resource unavailability is considered as the main limitation. So, due to having limited time frame and resources and the fact that the nature of the issue is qualitative, a qualitative investigation has been undertaken over quantitative methods as it was suggested in the research proposal.

The study design and data collection are already done. This feature may turn out that data obtained does not facilitate the particular research question. Additionally, the information with regards to study design and collection procedures may not be sufficient.

In this study, the data collected were not specifically meant to address the specific research questions. Also, the data was collected in a different geographical area. However, in this study, the researcher was keen on avoiding some of these challenges by analyzing the primary research design plan and ensuring a match between the research questions and the existing literature.

3.4 The process of data collection and analysisThe most important step in the analysis of secondary data is the application of theoretical knowledge and conceptual skills to make use of the available data that addresses the research questions. The researcher began with the development of the research question, then the identification and evaluation of the datasets. The study was aimed at establishing the roles of microfinancing in the growth of SMEs. The research quests that guided this study included: What are the roles of microfinancing in the growth of SMEs in the UK? What are the challenges faced by SMEs in the course of their growth? What are the various forms of financing for SMEs and how is MFIs coming in? and finally What are the different types of services offered by MFIs to SMEs?
3.4.1 Identifying the datasetsWhile many studies will begin their analysis with what is already obvious and what is yet to be demonstrated in the field; including relevant literature, one should equally consider all available data in the field of study (Irwin 2013, p.300). These data can be used in refining the research questions. The researcher conducted an in-depth review of available literature on the subject, highlighting notable publications, findings and their authors. The key to using available data to come up with meaningful answers to research questions is a good fit between the data sets and the study questions.

Once the datasets appeared viable in addressing the initial research requirements is established, the next step included the evaluation of the datasets to ensure appropriateness of the research topic, answering questions such as the purpose of the study and specific information to be collected.

Chapter Four: Data Analysis, Results and Discussions4.0 IntroductionThe section analyzed and reported the findings from the empirical data. The information from the identified resources and materials were presented, analyzed and then interpreted accordingly.
4.1 The Big PictureThe United Kingdom serves as the largest economy in Europe after Germany; it is among the leading power and financial centers. The economy is dominated by industries in the service sectors representing 80% of the entire economy, followed by manufacturing industries at 10% then construction industries at 6%. Other sub-sectors are real estate, professional and support services, retail and wholesale and financial services (Rhodes, 2018).

4.2 The GDP GrowthSince 2017, the manufacturing sectors has significantly grown, the construction sectors have slowed while the services sector has remained steady. The 2018 first-quarter GDP Growth was 0.1%, the increase in the size of the overall economy in comparison to the pre-downtown pack was 9.7%. UK and Germany were the fastest growing economies in 2016 but the UK economy slowed down in 2017 (shown in figure 1). Figure 2 shows the overall size of the economy, this has been the slowest economic growth and output levels since the 1920s, with the economy finally reaching its initial size prior to the financial crisis in the Q2 of 2013.

Figure 1: The United Kingdom, Quarter 4 2007 to quarter 4 2017

Source: Office for National Statistics 2017 (OSN), (O’Brien and Swint, 2017)
Figure 2: The size of the UK economy
Source: (Office for National Statistics/Bloomberg, 2018)
The UK economic growth has barely recovered from the pre-financial crash levels and has recently dipped again as a result of the Brexit. The country is ranked number 7 globally for ease of doing business and 16th when it comes to business startup (, 2018). OECD highlights that the UK has one of the highest measures of inequality in the OECD (, 2018). Nevertheless, the inequality has declined over the past decade (, 2018). The job market has been increasing steadily (recording lows at 4.4%) since the financial crisis (, 2018) although many people are seeking part-time and precarious careers. The vote for Brexit resulted in a fall in the consumer confidence (, 2018) and the purchasing managers` index (, 2018) with concerns about economic difficulty spreading in the economy.

4.3 Start-up business landscapeAccording to research by the UK government, the country has 5.5 million SMEs (, 2018). This number accounts for 99.9% of the overall number of businesses and 60% of the total workforce (this figure represents 15.7 million jobs). 99.3% of the total businesses fall under small businesses (with a workforce of between 1-9 people), accounting for 48% of the overall jobs and 33% of the cumulative turnover of the private firms. Unlike large corporations, the population of SMEs significantly increased since 2000, particularly sole proprietorships (with a 77% increase) (, 2018).

According to another research by the European Association for Financial Markets, SMEs are worried more than large corporations on the implications of Brexit. The small business is specifically concerned about risk management, financing capital expenditures, cash management and operations (, 2018).

The Federation of Small Businesses reported a decreased level of borrowing as a result of low confidence levels and investment intentions and raised concerns about the irregular withdrawals from EIB and EIF funding (, 2018).

SMEs have reported being misunderstood by policy-makers and lenders. Small businesses additionally face challenges unrelated to BREXIT. At the moment, almost half the businesses in the United Kingdom are feeling the pinch when it comes to accessing finance (, 2016).
4.4 The surrounding ecosystemThe United Kingdom lacks an overreaching strategy that supports SMEs. In general, enterprise development has faded as a governments policy priority in the recent years while the economy is recovering, and employment is at pre-recession stages. The study hence highlights the roles of the MFIs delivering business support programs.

In 2016, the UK had 414,000 start-ups, an increase from 31,000 a year before (Demonstrated in Table 3). Start-ups were however, more than failed business by 87,000 in 2016.

Table 3: Birth and Death Rates of enterprises in the UK by regionBirths Birth rate Deaths Death rate
North East 10,180 14% 8,530 12%
North West 42,030 15% 29,965 11%
Yorks and The Humber 27,220 14% 22,135 11%
East Midlands 24,630 13% 20,980 11%
West Midlands 34,700 15% 24,250 10%
East 45,400 16% 32,320 11%
London 102,140 17% 82,075 14%
South East 55,960 13% 48,480 11%
South West 31,775 14% 24,005 11%
Wales 12,115 12% 10,335 10%
Scotland 22,270 12% 19,385 11%
Northern Ireland 5,935 10% 5,315 9%
United Kingdom 414,355 15% 327,775 12%
-285750Notes: not including the non-VAT registered businesses with no employees
Birth rate = New businesses as a % of active businesses;
Death rate = Businesses that ceased trading as a % of active businesses
00Notes: not including the non-VAT registered businesses with no employees
Birth rate = New businesses as a % of active businesses;
Death rate = Businesses that ceased trading as a % of active businesses

Source: (ONS, Business Directory 2016)
The table 4 below shows enterprises in the United Kingdom broken down by the amount of workforce.

Table 4: Businesses were broken down by the amounts of workforce businesses in the UK by numEnterprises Workforce Turnover Enterprises Workforce Turnover
1000s 1000s £ billion % % %
Number of staff 4,328 4,697 272 76% 18% 7%
SMEs (0-250 people) 5,687 16,147 1,905 99.9% 60% 51%
Of which: Micro (0-9 people) 5,445 8,790 824 96% 33% 22%
Small (10-49 people) 208 4,059 540 4% 15% 14%
Medium (50-249 people) 34 3,297 541 1% 12% 14%
Large (250+ people) 7 10,576 1,834 0% 40% 49%
Total, all businesses 5,695 26,723 3,739 100% 100% 100%
-4546440Notes: Data relates to the start of 2016, Numbers rounded to the nearest 1000
00Notes: Data relates to the start of 2016, Numbers rounded to the nearest 1000

Source: BIS, Business Population Estimates 2017 (GOV.UK, 2017)
4.5 Source of FundingPrimary capital is crucial for any venture as it is the determinant of its worth and the ability to achieve sustainable growth. The researcher analyzed the initial sources of financing for selected SMEs and summarized the responses in table 5.

Table 5: Sample analysis of sources of capitalSource of Funding Frequency Percentage
Bank Loans 34 11
MFIs 187 60
Personal Savings 32 10
Others 58 19
Total 311 100
Source: (Statista, 2015)
The analysis demonstrates a significant number of businesses sought funding from microfinance institutions. This number highlights the great implications the MFIs are playing on the success of SMEs in the region.

4.6 The British Business Bank (BBB)BBB is a government steered bank established in 2012 with an aim to provide a one-stop shop for small and medium enterprises offering a number of financing services, advisory programs and capacity building. The bank was resourced with 1.25 million euros to combat the challenges faced by small businesses in getting affordable financing following the 2008 financial crises (McLean, 2017). The banks use intermediaries to offer credit facilities to SMEs. The institution publishes annual financial structure (, 2016) and online periodicals (The Business Finance Guide, 2018) geared to help SMEs gain insight into financial management. In 2016, the bank developed financial inclusion forums that matched SMEs with financial service providers. Recently, BBB introduced a series of regional financing schemes; The Northern Powerhouse Investment Fund, pooling and matching allocation of European Union structured funds. These funds have targeted the wider small business community and not just startups.

Startup Loans Company (SULCO) is a BBB initiated programs that offer loans to enterprises that have in undergoing training for up to 18 months. This segment was reported as the category with most challenges accessing funding from commercial banks. The start-up loans are disbursed through 15 structures MFIs in the market. Enterprises can access up to 25,000 pounds at 6% interest rates payable in 5 years. SMEs are subscribed to business support and coaching while they are servicing their loans (McLean, 2017). Since its launch in 2012, the programs have supported 46,508 businesses with up to 301 million pounds in credit.

4.7 Local Enterprise Partnerships and economic zonesThe support for SMEs in England has often been the responsibility of 39 Local Enterprise Partnerships (LEPs) (, 2018) operated by Local Authorities (, 2018). The LEPs are business development programs that work with the local authorities to define local economic priorities (McLean, 2017). The LEPs point out ideal start-ups through microfinance institutions as a priority although there is no national commitment by LEPs network to offering through MFIs.
Figure 3: Share of businesses in the UK private sector, 2017
Source: (BIS, Business population estimates, 2017, p 1)
4.8 Regional Growth Fund (RGF)RGF is a 3.2 billion pound’ project established in 2010 to address the regional economic imbalance and over-dependence on the public-sector jobs (demonstrated in table 4) (Ward, 2018). A 30 million-pound RGF find was designated for the microfinance institutions sectors. By year ending 2016, the microfinance institutions had lent the full amount to over 2,000 SMEs (McLean, 2017).

Table 6: Private Business in the UK since 2000Number of enterprises Change on % change on % that are
(000s) year (000s) year employers
2000 3,467 – – 32%
2001 3,502 35 1% 33%
2002 3,573 71 2% 33%
2003 3,679 106 3% 32%
2004 3,925 247 7% 30%
2005 3,927 1 0% 30%
2006 4,125 199 5% 29%
2007 4,272 146 4% 29%
2008 4,284 12 0% 29%
2009 4,375 92 2% 28%
2010 4,483 108 2% 27%
2011 4,589 106 2% 26%
2012 4,818 229 5% 26%
2013 4,914 97 2% 25%
2014 5,247 333 7% 24%
2015 5,401 154 3% 24%
2016 5,498 97 2% 24%
2017 5,695 197 4% 24%
-8164-10704Notes: Data relates to the start of each year
00Notes: Data relates to the start of each year

Source: (BIS, Business population estimates, 2017, p 6)
In 2017, there were 5.7 million private sector enterprises in the region, up by 197,000 or 4% from the year 2016. Beginning the year 2000, business ventures in the country had grown each year at a rate of 3%. In 2016, the economy reported 2.2 million more business enterprises than in 2000, a growth of 64% over that entire period.

4.9 Loans borrowed from Microfinance InstitutionsThe researcher chose to establish the prevalence of borrowing from microfinance institutions and represented the finding in the chart below.

Figure 4: Loan borrowing from microfinance institutions
Source: (GBP 2018)
This analysis established that individuals are in a better chance of accessing funding from MFIs if they have already established businesses. This agrees with the research by Ogbor and Ogbor (2009) that highlighted that microfinance institutions often assess the creditworthiness of their clients by the performance of their businesses (p.74).

4.10 Business Performance before taking loans from MFIsThe researcher sought to establish the performance of selected SMEs before and after the introduction of SMEs. This move was aimed at understanding the implications of MFIs loans on their businesses in table 5.

Table 7: The performance of selected SMEs after the introduction of SMEs
Number of % change Per 10,000 Employers SMEs
enterprises (000s) on year* resident adults 000s 000s
North East 142 -3% 657 40 142
North West 530 2% 905 136 529
Yorkshire ; Humber 419 7% 953 101 419
East Midlands 371 0% 962 94 370
West Midlands 450 9% 964 115 449
East of England 572 3% 1,155 140 572
London 1,062 4% 1,519 232 1,061
South East 929 3% 1,272 203 928
South West 532 3% 1,170 122 531
England 5,008 4% 1,119 1,182 5,003
Wales 209 -6% 818 54 209
Scotland 346 7% 771 95 346
Northern Ireland 132 6% 894 35 132
United Kingdom 5,695 4% 1,069 1,367 5,687
-381003809Notes: Data relates to the start of 2016, Numbers rounded to the nearest 1000
00Notes: Data relates to the start of 2016, Numbers rounded to the nearest 1000

Source: (Rhodes, 2017) BIS, Business Population Estimates 2017
4.11 Loan ratingIt is clear that although microfinancing is playing a significant role in supporting SMEs in the region, entrepreneurs are facing challenges as a result of the high-interest rates, transactional fees and penalties by financial banks. This means that majority of individuals would be willing to approach MFIs which provides a solution to some of these challenges.

4.12 Other services sought by SMEs from MFIsTo clearly understand the roles of microfinancing in the growth of small and medium businesses, the researcher digs deeper and analyzed whether businesses sought additional services aside from credit facilities. The results demonstrated that a good number of enterprises sought additional services offered by MFIs; Management training, Business Advise and Ideation. It is hence clear that MFIs help SMEs in varied ways other than credit facilities.

4.13 The influence of microfinance institutions on the growth of SMEsThe following are the benefits of MFI services to SMEs: Loans from MFIs have resulted to the growth of SMEs in the region (, 2018), Loan applications and processing by MFIs is faster as easier than in the case of financial banks (Chalmers, 2016). MFIs offer lower interest rate loans as compared to commercial banks (Chalmers 2016). The training programs offered by MFIs have helped entrepreneurs and business proprietors gain more business insights and skills in the financial management and modeling practices (The Business Finance Guide 2018). SMEs have significantly increased as a result of the presence of MFIs in the region (, 2018).

In summary, SMEs agree to have achieved a lot from the services offered by MFIs in varying dimensions and therefore their role in the region is significant to enterprise growth and development. Nevertheless, there is still some room for improvement as MFIs need to address the areas such as the interest rates charges that are likely to scare away potential beneficiaries among SME owners.

4.13.1 Training ProgramsTraining came out as a significant service offered by MFI to SMEs and the study south to establish the extent that small-scale enterprises have benefited from MFI training programs. The sessions captured the following Training themes; Business ideation and management skills, Savings deposits and their significance, Resource mobilization and business leadership, Loan facility acquisition, repayment and the consequences of defaulting
4.13.2 Advisory servicesThe study sought to establish the value of advisory services in the growth and development of SMEs.

4.13.3 Business idea generationThe analysis of business ideal generation and development demonstrated that only a handful of enterprises sought such service from MFIs. Entrepreneurs often approached MFIs to upscale their businesses and not to help them initiate the initial ideas. The services assisted entrepreneurs in setting up a viable venture, proper management of commercial practices, Suitable business location, Proper clients relation, and in the comparative analysis of independent and dependent variables
4.14 DiscussionsSME seek capital and other business support from microfinance institutions and other intermediaries to initiate and support their business. A significant number had sought funding from microfinance banks and institutions to initiate their ventures in the UK. This concept is in agreement with the ideas by Yunus, Friedrich, and Blatchford, as highlighted in the literature review of resource mobilization, deposit-taking and lending it to SMEs. The findings of this report in regard to the financial support to SMEs agree with the relative consensus that the provision of financial service to small businesses has a resulting economic benefit.

Capacity building programs offered by microfinance institutions provided these SMEs insights on savings and deposits, lending practices and their repayments, business ideation and management skills. The lessons equipped these businesses with viable decisions concerning business development in a process that ended up boosting their investments. This is echoed by Edwards and Muir (2012) who demonstrated that if the public is enlightened on commercial practices, it has a better chance of increasing its investment scope given that the MFIs offer low-interest credit facilities (290).

Small-scale enterprises need advice on financial management, adopting new ventures, savings, accessing loans and changing businesses. This is supported by this thesis where the study has shown that business support, including advisory services, is beneficial to the growth of businesses. Some individuals are operating more than one venture that is running concurrently. All these traces their success to the inception of MFIs and other service providers in the region. The results agree with Lee and Drever`s arguments highlighted in the literature review that MFIs are an essential component in any economies financial systems and their commitment to growing small-scale businesses in the UK. This is because the society will be empowered to initiate viable ideas, access enough business support in ways that will see their ventures growing from micro, to small and finally to large corporations.

Chapter Five: Synopsis of Findings, Conclusions, and Recommendations5.0 IntroductionThis section highlights the summary of findings, concluding remarks and directions of the research for proper management of the problems and challenges in the research. In addition, the section invites suggestions that would improve further studies.

5.1 Summary of Finding and DiscussionsThe paper is meant to demonstrate the roles and implications of microfinance institution on SMEs` growth and development in the UK. The sub-objectives of the research were to analyze the results of financial accessibility of business growth, the implications of business training on their growth and development, the results of coaching and advisory services on business growth and ultimately the idea generation services on the growth of SMEs. Prevision of financial services to SMEs by microfinance institutions is crucial for entrepreneurial growth in the UK. The report established that the provision of finance by these institutions allowed smalls scale entrepreneurs’ accessibility to funding hence making them self-employed. Policy formulation and legal frameworks that create a conducive environment for enterprise development are equally necessary for the process of seeing through a successful enterprise development. Increased entrepreneurship in the region is as a result of enabling environment and business support; micro-credit loans and business support.

Advisory services happened to be among the services offered by MFIs to these SMEs in order to ensure that these entrepreneurs make the right choices in their businesses. The right business choices ultimately lead to big returns. The services enlighten business proprietors on the crucial issues in management and growth.

Creating awareness through their various programs is another way that MFIs can use to expound their impact on enterprise development. Microfinance institutions should market themselves in order to increase the public’s awareness of their roles in business support and growth in the UK.

5.2 Limitations to the interpretationsWhile the researcher was able to access readily available data hence saving on time and costs. The findings came with its limitations. One challenge of this research method was that data from individual SMEs and MFIs were hardly available as they are not listed. Also, the data available were not superficially meant to address the research question.

5.3 ConclusionThe awareness of SMEs as far as the offerings by microfinance institutions are concerned are quite high; however, getting business to accept these services require an advanced approach and awareness programs, tailored to the needs of these entrepreneurs so that they can appreciate the offering by these microfinance institutions.
SMEs in the UK largely rely on access to capital for their sustainable growth. Although their models (of SMEs) play a vital role in the economic development, a lot has to be done in recognizing the intensity of their contribution. It is beyond doubt that both financial and non-financial services offered by MFIs have significantly played a role in the growth of these SMEs hence enhancing the distribution of entrepreneurial skills and the sharing of ideologies. The findings of this research are that micro-finance institutions relatively grow commercial practices by managing resource gaps of these SMEs through constant contributions in micro-lending and in the delivery of non-financial services.

Financial services scale out as the most sought for services by SMEs. A good number of enterprises have benefited from the loans and credit facilities offered by these microfinance institutions. Small-scale enterprises have hence been empowered through the access to affordable financing offered by these institutions, the funds have been used to either start or boost their ventures.

The study establishes that capacity building programs boosted commercial practices given that majority of these entrepreneurs lacked formal business knowledge and were empowered through capacity building to effectively manage their ventures. The lessons equipped entrepreneurs with ideal knowledge outside the conventional learning system given that the training programs contextualized their situations and delivered customized training programs for the individual businesses. Although the educational programs presented itself with its challenges like a phobia of taking loans and ignorance, the majority of SMEs have benefited from these training.

Business advisory services offered by microfinance institutions allowed these small-scale businesses to improve their management and financial techniques that helped them optimize their operations. Businesses are in the business of maximizing their revenues and expanding their turnover through exploring new business ventures and switching practices on the need basis. Proper books of accounts have also been essential in allowing them to access credit facilities for business expansion.
To conclude, the study was able to demonstrate an informed conclusion that MFIs have a crucial role in entrepreneurial growth and success of SMEs in the UK. This conclusion has been arrived at in support of preliminary studies and analysis of relevant statistics in the market. The various roles of MFIs in relation to SMEs included a provision of financial services, advisory services, training programs and business idea generation.

5.4 Recommendations
The studies also come up with the following recommendations towards enhancing the role of microfinance in supporting small businesses:
Governing structures should increase their efforts in supporting microfinance banks and institutions to continue supporting SMEs.

These MFIs should extend their services to supporting their clients with capacity building on credit maximization.

The lending institutions should increase their loan repayment periods, adopt a collective group-based loaning structure, as a means to minimize the rate of loan defaults and risk portfolios.

The MFIs should focus on finding long-term capital from insurance and pensions institutions. This will help minimize the lending rates thus allowing them to distribute their interest payments through a longer span.

Supporting the development of SMEs and startups is crucial for the UK economy in the commitment to innovative approaches and economic development. The combined turnover of SMEs comprises almost half (at 47%) of private sector turnover in the country, reaching an annual cumulative figure of 1.8 trillion euros. What the government should do is to facilitate a conducive environment for these enterprises to thrive and evolve. Hence, the financial support is significant.
The government should collaborate with the lending institutions to streamline lending practices. The process could be achieved by developing a more realistic structure when it comes to loan application by these SMEs. Government-backed enterprise loans should also be made available and programs such as startup accelerators or incubators developed.

5.5 Suggestions for future researchFuture studies can be carried out and an alternative methodology adopted to establish the implication of MFIs on enterprise development and the growth of SMEs. The research concentrated on four services offered by microfinance institutions and the analysis kept the other factors constant. There is room for the analysis of other factors and their roles in economic development. Future studies can be structured to put these factors into consideration as well as additional variables that were missed in this paper.

Future research should capture the actual feelings of these institutions by rolling out questionnaires. The responses might present conclusion that the research could not be able to demonstrate. Further, an analysis of the nexus between the levels of MFI commitments and the satisfaction rates of SME should be conducted so that the operations of microfinance institutions are customized to the needs of SMEs.

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