Microfinance and SMEs Growth: An Empirical Study from Afghanistan

Abstract

 This study examines the impact of microfinance on the growth of small and medium enterprises (SMEs) in Afghanistan. SMEs form a major part of the country’s economy, yet many face persistent challenges in securing credit from formal financial institutions. This significantly hampers the growth of SMEs and calls for empirical studies to unveil the influence of microfinance on SMEs growth. Accordingly, this study is an attempt to understand how specific microfinance services influence SMEs growth. The study focuses on four key microfinance related factors i.e. loan availability, loan size, loan conditions, and loan usage. A quantitative research design was used to collect the data through a structured questionnaire from 255 SMEs owners and managers who had received microfinance services. Descriptive statistics, correlation analysis, and multiple linear regression were applied to determine the effect of each loan-related variable on SMEs growth. The results show that all four variables positively and significantly influence SME performance, with loan usage emerging as the strongest predictor. SMEs that used their loans for productive purposes recorded higher levels of growth. Theoretically, this study helps to understand the role of microfinance towards SMEs growth in a relatively complex and vulnerable context given the country’s circumstances (political instability, war-like situation etc.). Practically, the findings suggest that microfinance institutions should improve loan accessibility, ensure appropriate loan sizes, and provide flexible terms to support SMEs growth. The strong influence of loan usage highlights the need for financial management support to help SMEs owners utilize borrowed funds effectively. Overall, the study offers insights that can guide policymakers and microfinance providers in promoting SMEs in Afghanistan.