Assessment of Microfinance Banks and Their Contribution to the Development of SME’s

Abstract

This project investigates the impact of Microfinance Institutions (MFIs) on the development of Small and Medium Scale Enterprises (SMEs) in the Islamabad-Rawalpindi Metropolis. The study explores the comprehensive profile of SMEs in Islamabad-Rawalpindi, Pakistan, assessing the role of MFIs in fostering entrepreneurial growth, addressing challenges encountered by SMEs in credit accessibility, and evaluating SMEs' credit utilization rates. With the help of surveys the analysis of SME profiles reveals that a majority of these enterprises operate at their Micro stages, with the commerce sub-sector dominating. Using statistical tools the study underscores the positive influence of various services of MFIs on SME growth, highlighting key contributions such as increased credit accessibility, enhanced savings practices, and the provision of business, financial, networking, and managerial training. Despite these positive aspects, both SMEs and MFIs face operational challenges. SMEs encounter obstacles in accessing credit, notably a cumbersome process, collateral security requirements, and high interest rates. Meanwhile, MFIs grapple with challenges related to credit misappropriation and non-disclosure of pertinent business details. In conclusion, the research underscores the favorable impact of MFIs on SME growth. In order to further foster sustained and accelerated growth in SME operations, it recommends a client-oriented approach to credit, emphasizing proper and extensive monitoring activities for granted loans.