Analysis of Barriers to Effectiveness of Microfinance Fund in Rural Businesses Development

Document Type : Research Paper

Authors

• Hojjat Varmazyari ¹
• Mohammad Ali Amiri Mijan ¹
• Khalil Kalantari ²
• Muhammad Asef Shaiq ³

¹ Department of Agricultural Management and Development, College of Agriculture, University College of Agriculture And Natural Resources, University of Tehran, Karaj, Iran

² Department of Agricultural Management and Development, College of Agriculture, University College of Agriculture And Natural Resources, University of Tehran, Karj, Iran

³ Department of Agricultural Economics and Extension, Faculty of Agriculture, Baghlan University, Baghlan 3601, Afghanistan

Abstract

Keywords

• Microloans
• Entrepreneurial Capabilities
• Poverty Eradication
• Qaleh Ganj

Main Subjects

• Agricultural Economics, Extension and Education, Development, , ....

Extended Abstract

Objectives

One of the reasons for the continued poverty among vulnerable groups is their lack of access to appropriate financial and credit resources. This problem causes poor people to be unable to engage in appropriate economic activities and adopt appropriate livelihood strategies. Nowadays, as an efficient approach, microfinance play a vital role in supporting small businesses and creating job opportunities. Therefore, microfinance pave the way for saving and development. Evidence indicates that the microfinance institution in Qaleh Ganj County, Iran faces some challenges despite its achievements in credit services provided for strengthening the employment of local residents. Therefore, the current study was conducted to identify and analyze challenges related to rural microfinance institution in Qaleh Ganj County. Assessment of the challenges can provide real information to the executives and policymakers of these institution to make necessary revisions.

Methods

The current study follows the post-positivism paradigm while applying a quantitative approach and a survey strategy. The statistical population comprised 21.000 villagers who were members of the microfinance institution established in Qaleh Ganj County. G*Power software was used to determine the sample size. Multistage sampling was used to select the sample. The main tool of the research was a questionnaire whose items were extracted from previous studies and field interviews. In order to analyze the data, SPSS software version 26 and descriptive statistics (mean, frequency, exponent and coefficient of variation) and exploratory factor analysis were used.

Results

The results of the research showed that 93 respondents (45.8%) were male and 110 respondents (54.2%) were female. The average age of the respondents was 35.4 years. Examining the educational profile of the members of microfinance institution showed that 34 (16.7%) members were illiterate. Also, according to the statistics obtained from the total of 193 respondents, 121 people (59.6 percent) were employed and 82 people (40.4 percent) were unemployed.

The results of the Coefficient of Variation (CV) showed that the members of the institution had a high consensus on the negative effect of problems such as the high cost of inputs and equipment, the presence and competition of large economic units, fears of failure, and lack of savings or assets and difficulties in funding, on the role of microfinance institution in the development of businesses.

The summarized factors derived from the exploratory factor analysis indicated four main obstacles: "low perception towards job-creation capabilities and entrepreneurial talents, low financial power of households, undesired loan conditions, lack of skills and appropriate technology, lack of infrastructure and production factors" that had caused disruption in the effectiveness of this institution in the development of rural businesses.

Discussion

This study was conducted to identify the main obstacles to the effectiveness of microfinance institution in the development of rural businesses in Qaleh Ganj County. About 46 percent of the studied sample in this research was male. Meanwhile, most of the previous studies in the field of microcredits have been exclusive to women (Babaei Amin et al., 2020; Moghads Freemani et al., 2019; Norouzi et al., 2018; Valizadeh & Karimi Goghari, 2018; Fawadi et al. 2018).  Findings introduced some challenges, including low perception towards job-creation capabilities and entrepreneurial talents, low financial power of households, undesired loan conditions, lack of skills and appropriate technology, lack of infrastructures and production factors as the most substantial barriers to the effectiveness of the microfinance institution in business development. The most important obstacle to the contribution of microfinance institution was "low perception of employment capabilities and entrepreneurial talents." In fact, solving problems such as the lack of proper ability to create jobs in the village and the lack of profitable business ideas along with the fear of failure should be taken into consideration by the institution. Psychological empowerment of members and identification and introduction of economic opportunities in villages through mechanisms such as incubation centers can be a way to solve this challenge. On the other hand, the development of employment and business among the members of the institution, along with the strengthening of the human force, require the business infrastructure development; especially, Qaleh Ganj County is among the deprived areas of the country. Therefore, it is suggested that the officials of the institution should make the necessary effort to solve the infrastructural challenges so that the employment loans are spent in the direction of the main goals of the institution. The findings of this study can play an important role in giving the accurate insights to the practitioners of microfinance institution, particularly regarding to the lack of the sufficient and appropriate empirical literature in Iran.