Abstract:
The study was carried out with the purpose of examining the effect of microfinance services
and financial performance of SMEs in Pallisa Town Council. The objectives for the study was;
to determine the effect of access to finance on financial performance of SMEs, effect of savings
mobilization on financial performance of SMEs and to determine the effect of financial literacy
and training on the financial performance of SMEs. The study applied a cross-sectional
research design on quantitative data from the designed research questionnaires where a total of
44 respondents participated in the study selected through simple random sampling method. The
data collected from the questionnaire was used on descriptive statistics analysis and the
information was presented in statistical form. Correlations and linear regression analysis were
used to analyze the relationship between microfinance services and financial performance of
SMEs. The study realized that there was a highly positive significant relationship between
microfinance institutions and financial performance of SMEs. However, the study pointed out
some of the challenges that derailed SMEs financial performance among which were, high
interest rate on savings, limited collateral security, incompetence of firm managers and
personnel in terms of skills and knowledge. Despite the above, the study however
recommended SMEs to promote a positive attitude towards future risk management while
ensuring adequate collateral.
