Abstract

The emergence and proliferation of Microfinance Institutions (MFIs) in Malawi gave rise to the need for empirical research to assess their role on growth of small-scale agribusiness entrepreneurs. The paper gives the details of the results of a study which was conducted in Malawi to analyze the role of microfinance on the growth of small-scale agribusinesses in Lilongwe District. A financing constraint approach was applied using logit model to determine factors affecting investments of small-scale agribusiness entrepreneurs. The approach stipulates that entrepreneurs in areas with significant presence of MFIs (unconstrained) rely less on internal funds (average profits) for their investment decisions than areas with limited presence of MFIs (constrained). A T-test was also used to compare investment levels of unconstrained and constrained firms to support the results obtained from the financing constraint approach.

Loans were among the products which were found to be offered by MFIs although their accessibility was affected by, among others, high interest rates. The logit model revealed that for each additional profit the probability of investment decreased by 46 percent in constrained firms and 39 percent in unconstrained firms. However, the T-test results revealed no significant difference in levels of investments between unconstrained firms and constrained firms. These results show no significant role of MFIs on growth of small-scale agribusiness entrepreneur. The results have insinuated the review of MFI loans conditions such as interest rates if they are to have a significant role on growth of small-scale agribusiness entrepreneurs.

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