1

MANAGEMENT COMPETENCIES, ATTITUDE TOWARDS ACCESSING FINANCE

AND PERFORMANCE OF SMEs
A CASE OF SELECTED SMEs IN MASINDI AND HOIMA DISTRICTS



BY



ODENG JULIUS
2009/HD10/17306U
(DCBA, DCC&F, DPPED) UG COOP.COLL, Bsc. A&F KYU




A DISSERTATION SUBMITTED TO THE SCHOOL OF GRADUATE STUDIES IN
PARTIAL FULFILLMENT FOR THE AWARD OF A MASTER OF SCIENCE IN
ACCOUNTING AND FINANCE DEGREE OF MAKERERE UNIVERSITY
PLAN A
2011
i

DECLARATION
I J ulius Odeng do here by declare that the work presented in this dissertation is my original
work and has never been submitted to any University or Institution of higher learning for the
award of any academic qualification. Where the works of other authors and writers have been
used it has dully been acknowledged.

........ Date.................
Odeng Julius















ii

APPROVAL
This is to certify that this dissertation has been submitted for examination with our approval as
University Supervisors.

Signature Date.
Dr. Nkote .I. Nabeta



Signature Date
Dr. Joseph .M. Ntayi








iii

DEDICATION
I dedicate this thesis to my Sisters Ikiror Mary Margaret and Aburo Betty who supported me in
all ways possible not forgetting my Parents Mr. Edep Hillary and Amuge Albin and the entire
Edep Family who missed me in the course of producing this work. Thank you and May God
bless you all abundantly.
















iv

ACKNOWLEDGMENT
I would like to greatly thank and appreciate all those who assisted me in different ways to make
this study a success.
I wish to extend my sincere thanks to my supervisors Dr. Nkote .I. Nabeta and Dr. Joseph .M.
Ntayi for their professional guidance, encouragement and commitment throughout the entire
thesis writing.
Special thanks go to my sisters Ikiror Mary Margaret and Aburo Betty who have supported me
throughout my education career. I also extend my thanks to my Parents Mr. Edep Hillary and
Amuge Albin and the entire Edep Family who missed me in the course of producing this report.
I am profoundly thankful to all the people who participated in this study during data collection
most especially, Nabukenya Constance, Sunday Richard, Burali Fatuma, Bitagaze Gilbert,
Mukwaya Yusuf and J acinta. I also particularly appreciate the contribution of the SME
managers and D.C.Os of Masindi and Hoima district for accepting to give me part of their small
time they had to respond positively. The data you provided was very useful to the successful
accomplishment of this study.
I also extend my sincere gratitude to my colleagues of Msc. (Accounting and Finance 2009)
especially Samuel Mutarindwa, Candia Godfrey, Kwadha Augustine Odero, Ssemuyaba
Geoffrey, J ude, Mulumba J oseph, Eva, Juliet Prossie, Silvia and the entire course members
whose company gave me encouragement and confidence.
Thank you and May the almighty Lord bless you all abundantly.
v

TABLE OF CONTENTS

APPROVAL ....................................................................................................................................................... ii
DEDICATION ................................................................................................................................................. iii
ACKNOWLEDGMENT ................................................................................................................................. iv
TABLE OF CONTENTS ................................................................................................................................. v
APPENDICES ................................................................................................................................................... ix
LIST OF FIGURES .......................................................................................................................................... x
LIST OF TABLES ........................................................................................................................................... xi
LIST OF ABBREVIATIONS ........................................................................................................................xii
ABSTRACT.................................................................................................................................................... xiii

CHAPTER ONE ................................................................................................................................................ 1
INTRODUCTION ............................................................................................................................................. 1
1.1Background to the study ........................................................................................................................ 1
1.2 Statement of the Problem ..................................................................................................................... 3
1.3 Purpose of the Study ............................................................................................................................. 3
1.4Objectives of the Study ......................................................................................................................... 3
1.5Research Questions ................................................................................................................................ 3
1.6Scope of the Study ................................................................................................................................. 4
Subject Scope ............................................................................................................................................. 4
Geographical Scope .................................................................................................................................. 4
1.7 The significance of the Study ............................................................................................................... 4
1.8 The Conceptual Framework ................................................................................................................. 5


vi

CHAPTER TWO ............................................................................................................................................... 6
LITERATURE REVIEW ................................................................................................................................ 6
2.0 Introduction ........................................................................................................................................... 6
2.1 Management Competencies ................................................................................................................. 6
2.2 Management Competencies and Performance .................................................................................... 8
3.3 Attitudes towards Accessing Finance and Performance .................................................................. 13
3.4 Management Competencies, Attitude towards Accessing Finance and Performance.................... 19
3.5 Conclusion. .......................................................................................................................................... 21

CHAPTER THREE ........................................................................................................................................ 22
METHODOLOGY .......................................................................................................................................... 22
3.1 Introduction ......................................................................................................................................... 22
3.2 Research Design.................................................................................................................................. 22
3.3 Population Study ................................................................................................................................. 22
3.4 Sample Size ......................................................................................................................................... 22
3.5 Data Sources........................................................................................................................................ 23
Primary Data ........................................................................................................................................... 23
Secondary Data ....................................................................................................................................... 23
3.6 Data Collection Instruments ............................................................................................................... 23
3.7 Measurement of Variables ................................................................................................................. 24
3.8 Data Validity and Reliability ............................................................................................................. 24
3.9 Data Processing and Analysis ............................................................................................................ 25
3.10 Limitations ........................................................................................................................................ 25



vii

CHAPTER FOUR ........................................................................................................................................... 26
PRESENTATION AND INTERPRETATION OF FINDINGS .............................................................. 26
4.1 Introduction ......................................................................................................................................... 26
4.2 Demographic Features ........................................................................................................................ 26
4.2.1 Nature of Business ........................................................................................................................... 26
4.2.2 District of Operation ........................................................................................................................ 27
4.2.3 Period of Existence of the Business ............................................................................................... 27
4.2.4 Workers Employed by the Business ............................................................................................... 28
4.2.5 Level of Highest Education Attained ............................................................................................. 29
4.2.6 Amount of capital invested ............................................................................................................. 29
4.2.7 Period of existence in the business ................................................................................................. 30
4.3.1 The relationship between Management Competencies and Performance .................................... 31
4.3.2 The relationship between Attitudes towards Accessing finance and Performance ..................... 31
4.4 OTHER FINDINGS ......................................................................................................................... 33
4.4.1 ANOVA Results for the Business Age by Variable ...................................................................... 33
4.4.2 ANOVA Results for the District by Variable ................................................................................ 34
4.4.3 ANOVA Results for the Education Level by Variable ................................................................. 35

CHAPTER FIVE ............................................................................................................................................. 36
DISCUSSION, CONCLUSION AND RECOMMENDATIONS ............................................................. 36
5.0 Introduction ......................................................................................................................................... 36
5.1 Discussions .......................................................................................................................................... 36
5.1.1 Relationship between Management Competencies and Performance .......................................... 36
5.1.2 Relationship between Attitudes towards Accessing Finance and Performance .......................... 37
5.1.3 Relationship between Management Competencies, Attitude towards Accessing Finance and
Performance ............................................................................................................................................... 37
viii

5.2 Conclusion ........................................................................................................................................... 38
5.3 Recommendations ............................................................................................................................... 39
5.4. Recommendation for Further study .................................................................................................. 40

REFERENCES ................................................................................................................................................ 41
APPENDICES .................................................................................................................................................. 47
APPENDIX 1: ........................................................................................................................................... 47
APPENDIX 2: ........................................................................................................................................... 52
APPENDIX 3: ........................................................................................................................................... 53
















ix

APPENDICES
Appendix 1: Questionnaire ........................................................ Error! Bookmark not defined.7
Appendix 2: Computation Of The Content Validity Test For The QuestionnaireError! Bookmark not defined.
Appendix 3: Krejcie, R. V., & Morgan, D.W. (1970). Table for Determining Sample SizeError! Bookmark not defined.




















x

LIST OF FIGURES
Figure1. Conceptual Framework.5
























xi

LIST OF TABLES
Table 3.1 Content Validity Indices for the Questionnaire24
Table.4.1 Nature of the Business engaged by the SMEs in Masindi and Hoima.27
Table 4.2 District of operation.27
Table 4.3 Period of Existence of the Business.28
Table 4.4 Workers Employed by the Business.28
Table 4.5 Level of Highest Education Attained...29
Table 4.6 Amount of Capital Invested.30
Table 4.7 Period of existence in the business...30
Table 4.8 Results of the Pearson Correlation Coefficients..31
Table 4.9 Results of the Multiple Regression Analysis...32
Table 4.10 ANOVA Results for the Business Age by Variable..33
Table 4.11 ANOVA Results for the District by Variable34
Table 4.12 ANOVA Results for the Education Level by Variable..35




xii

LIST OF ABBREVIATIONS
ACCA Association of Chartered Certified Accountants
ANOVA Analysis of Variance
DCOs District Commercial Officers
ICAEW Institute of Chartered Accountants in England and Wales
MFPED Ministry of Finance Planning and Economic Development
NSDS National Service Delivery Survey
NYDN National Youth Development Network
SCIS Social Care Institute for Success
SMEs Small and Medium Enterprises
SPSS Statistical Package for Social Scientists
UNBS Uganda National Bureau of Statistics




xiii

ABSTRACT
The purpose of the study was to establish the relationship between Management competencies,
Attitudes towards Accessing Finance and the Performance of SMEs in Masindi and Hoima
districts.
A sample size of 284 SMEs was used in the study of which a sample size of 148 respondents
was selected from Masindi district and a sample size of 136 respondents was selected from
Hoima district. The research used a cross sectional research design. Primary data was collected
using self administered questionnaires issued to the respondents and data analysis was done
with the help of SPSS and with the use of Pearsons correlation coefficient which was used to
measure the strength and direction between Management Competencies, Attitudes towards
Accessing Finance and Performance of SMEs in Masindi and Hoima district.
The study findings reveal a positive and significant relationship between Management
Competencies, Attitudes towards Accessing Finance and Performance. Management
Competencies and Attitudes towards Accessing Finance explain about 39.2% of the variance in
Performance. This implies that in order to achieve better performance SMEs should improve
Management Competencies and have a positive attitude towards external financing. This survey
however recommends that, in the quest for solutions for better performance, other factors that
have influence on performance should as well be considered.
1

CHAPTER ONE
INTRODUCTION
1.1Background to the study
According to Moor, Cheng & Dainty (2002), competency is what people need to be able to
perform a job well. Its an ability to meet performance expectations in a role and deliver the
required results. Competencies include specific skills, knowledge, attitude, behaviors and
techniques which include expertise resulting from training and experience necessary to fulfill a
task. Pearce & Robinson (1996) noted that, an SME is said to be competent if its management
demonstrates a good knowledge of the industry in terms of how to position the SME in the
market, how and where to mobilize the startup and or growth capital and how to deal with
suppliers and competitors.
Bimbona (2008) in a study of 130 manufacturing SMEs revealed that, managers lacked
adequate skills, knowledge and competence to coordinate the daily operations. This is supported
by Opio (2007) who noted that, Ugandas SMEs managers have a reputation of being less
innovative and keep on selling similar products and services leading to cut throat competition.
Opio adds that a third of adults (30%) had shut down business in the last 12 month and that the
lack of competence of many SMEs is responsible for their poor quality products and service
delivery. This situation is similar in Masindi and Hoima districts where a number of SMEs have
stopped their operations mysteriously in the recent years.
Likewise SMEs require adequate funding to enable activities to be coordinated efficiently and
effectively. This funding is broadly divided into internal and external. External funding for
SMEs depends on the attitudes of the managers. Attitudes are the relative stable clusters of
2

affective, cognitive, and behavioral predispositions towards some specific objects, (Pitchler
2006).
SME managers often cite access to finance as a major obstacle to creativity, entrepreneurship
and growth as funds to borrow are scarce. This is supported by Ssebatindira (2009) who
revealed that banks in Uganda are hesitant to extend credit to some clients and narrow exposure
levels have further affected SMEs which financial institutions already consider as risky.
Where funding exists, its not properly utilized. For example, according to Bank of Uganda
report (2010), Stanbic Bank in 2010 secured US dollars 30 million credit, surprisingly only 17%
of this fund was applied for by SMEs. Ssebatindira (2009) attributes this low response by SMEs
to negative attitude of managers and exorbitant charges by banks ranging from 18% to 40% to
meet financial intermediation costs and credit risk they are exposed to. Similarly, the National
Service Delivery Survey (NSDS) report (2006), revealed that, the number of SMEs that had
required a loan in 2004 was about 18% and out of those only 37% applied for one meaning the
majority of them (63%) either had negative Attitudes towards external funding or lacked the
information about the loans and thus limited funds for operations and growth.
Sekyewa (2009) observed that, SMEs have so deteriorated in business growth that they are
closing down at an average rate of 25% every 5 years in the hotel industry alone. He revealed
that, 156 SMEs in the sector closed down from 2000-2004, and 219 had quit business from
2004-2008.
Other scholars including Sekyawa & Ssebatindira (2009) researched on the performance of
SMEs in Uganda; however, their investigations didnt consider looking at Management
competencies and Attitudes towards Accessing Finance as key factors influencing the
performance of SMEs.
3

1.2 Statement of the Problem
Despite of the enormous actual and potential contribution of SMEs to Ugandas economic and
overall steady growth, the majority of them are making negligible contribution as a result of
achieving dismal growth in their businesses Sekyewa (2009). This dismal growth is due to poor
performance and in the long run leads to SMEs drop out in business every 5 years at a rate of
25%. This is attributed to incompetences and managers attitudes towards accessing finance to
fund the SMEs. If this is left un checked will continue to constrain the economy since the
contribution of SMEs is earmarked as one of the promoters of this growth.
1.3 Purpose of the Study
The study sought to examine the relationship between Management Competencies, Attitudes
towards Accessing Finance and the Performance of selected SMEs in Masindi and Hoima
districts.
1.4 Objectives of the Study
a) To establish the relationship between Management Competencies and Performance
b) To establish the relationship between Attitudes towards Accessing finance and
Performance
c) To establish the relationship between Attitudes towards Accessing finance, Management
competencies and Performance.
1.5 Research Questions
a) What is the relationship between Management Competencies and Performance of
SMEs?
4

b) What is the relationship between Attitudes towards Accessing finance and Performance
of SMEs?
c) What is the relationship between Management competencies, Attitudes towards
Accessing finance and Performance of SMEs?
1.6 Scope of the Study
Subject Scope
The study was restricted on Management competencies, Attitudes towards Accessing finance
and the performance of SMEs where skills, knowledge, experience, behavioral predisposition,
Affection, Cognition, Profitability, Sales growth and Return on Assets of the SMEs were
examined.
Geographical Scope
The study was carried out in Masindi and Hoima districts in mid western Uganda

1.7 The significance of the Study
The findings of the study are intended to help the following groups of people
The study will help SMEs management to understand how Management competencies and
Attitudes towards Accessing finance will affect the performance of their businesses.
The study will act as appoint of reference for other academicians when conducting similar type
of research.
The study will help policy makers of SMEs to understand the effects of Management
competencies and Attitudes towards Accessing finance on the performance of SMEs.
5

1.8 The Conceptual Framework
The theoretical framework in this study is derived from different combined models that have
been modified Pitchler (2006), Kasekende and Atingi 2003; Demigurch and Detragiache 1998);
Vinod Kumar & Uma Kumar, (2010).The model basically depicts the Attitudes towards
Accessing finance, Management competencies and Performance of SMEs. The performance of
SMEs is measured by Return on Assets, Profitability and Sales growth.
Figure1. Conceptual Framework








Source: Self developed with modifications from Pitchler (2006), Kasekende and Atingi (2003),
and Demigurc and Detragiache (1998), Vinod Kumar & Uma Kumar, (2010)



Performance
-Profitability
-Sales growth
-Return on Assets
Attitude towards Accessing
Finance
-Cognition
-Behavioral predisposition
-Affect
Management
Competencies
-Skills
-Knowledge
-Experience
6

CHAPTER TWO
LITERATURE REVIEW
2.0 Introduction
This chapter reviewed the existing related literature of other scholars and writers on the
relationship between Management competencies, Attitudes towards accessing finance and
Performance of SMEs.
2.1 Management Competencies
Hellriegel et al., (2008) stated that Managerial competencies are sets of knowledge, skills,
behaviors and attitudes that contribute to personal effectiveness. This is supported by
Henderson (2000) who defines a competency as a combination of knowledge and skills required
to successfully perform an assignment. Its attainment is evidenced by the ability of an
individual to gather data, process it into useful information, access it and arrive at an
appropriate and useful decision in order to initiate the actions necessary to accomplish the
assignment in an acceptable manner.
The Hay Group (2003) puts it that, a competency is an underlying characteristic of a person
which enables him/her to deliver superior performance in a given job, role, or situation
Lenssen et al (2006) noted that, defining the competencies required for any particular job role
allows managers and those responsible for their development, to grasp what is required to reach
improved levels of excellence and performance by providing a common framework which
articulates the skills, knowledge and attitudes relevant to successful business practice.
7

Boyatzis (1982) urged that, in the era of competitiveness, managerial competencies emerge as
a basis for competitive edge as these are underlying characteristics of a person that have casual
relationship with superior performance.
Rene. S. et al (2002) states that, competencies provide a basis for needs assessments to help
programs identify areas for program improvement. They add that, Performance indicators
operationally define each competency and that these performance indicators identify skills,
behaviors, or practices that demonstrate the existence of the competency.
Rychen and Salganik (2003) argued that Individuals need a wide range of competencies in
order to face the complex challenges of todays world, but it would be of limited practical value
to produce very long lists of everything that they may need to be able to do in various contexts
at some point in their lives. They went ahead and argued that, Key competencies are not
determined by arbitrary decisions about what personal qualities and cognitive skills are
desirable, but by careful consideration of the psychosocial prerequisites for a successful life and
a well-functioning society. However they observed that though competencies are needed to help
accomplish collective goals, the selection of key competencies needs to some extent to be
informed by an understanding of shared values.
According to ACCA (2006b), the level of managerial skill is gauged based on the level of not
only education but also natural administrative talent and practical experience possessed by an
enterprises managers in the given business area. Whereas administrative talent is measured
using the managers innate managerial capacity (Aaron & Warren, 2004), the level of education
is established basing on the educational qualification possessed by the manager and employees
(Kayongo 2005). The practical experience, which indicates the level of the SMEs industrial
8

knowledge, is determined in terms of period of time spent in the business which is usually
measured in terms of number of month or years spent by the SMEs in a given business
(Kayongo, 2005). The enterprise is considered to be competent if its managers are educated in
the relevant field of the enterprises business and if the managers have accumulated enough
practical experience in the field (Myers, 1997).
2.2 Management Competencies and Performance
Balunywa,(2003) stated that, traditionally, SMEs in Uganda do not have requisite managerial
competencies to run certain activities / tasks in their firms. Such managerial competencies are a
set of skills, related knowledge, traits and attitudes that allow an individual to perform a task or
an activity within a specific function or job (Raynard, 2001).
Senge (2002), noted that, although the competencies that are required of the members are
known, there is evidence that some of the entrepreneurs that run these SMEs are usually poorly
educated, lack experience, are unimaginative and lack business skills and knowledge to perform
their work which in turn affects business performance
Competencies being the knowledge, skills, experience, ability, personal characteristics and other
worker-based factors, help differentiate superior performance from average performance under
specific circumstances.
Martin & Staines (2008) examined the importance of management competence in small firm
success. They found out that lack of managerial experience, skills and personal qualities as well
as other factors such as adverse economic conditions, poorly thought out business plans and
resource starvation are found as the main reasons why new firms fail. The distinguishing feature
9

of high growth and low growth small firms is the education, training and experience of
managers.
Lyles et al (2004) observed that, managerial competencies as measured by the education of the
founder, managerial experience, entrepreneurial experience, start-up experience and functional
area experience positively impact on new venture performance.
Other empirical studies such as Smallbone and Welter (2001) and Hisrich and Drnovsek (2002)
found out that, managerial competencies as measured by education, managerial experience,
start-up experience and knowledge of the industry positively impact on the performance of new
SMEs.
Musoke (2007) argues that competencies are more important than just knowledge and skills for
the successful performance of complex tasks with a high level of responsibility. He adds that as
far as knowledge and skills are concerned, many people are equal as can be seen from Degrees,
Diplomas and certificates and work experience and work results. Therefore it is the employees
effort, enthusiasm, motivation and the underlying self-image that distinguishes the successful
employee from the unsuccessful one.
Brophy M (2002) revealed that, competencies provide benchmarks for comparing actual
performance with desired performance. This is supported by Appelbaum (2002) and OReilly
(2004) who contend that competent employees contribute greatly to the achievement of
organizational goals. They add that, without competence, employees can violate the
psychological contract thus hindering ones ability to be competent and perform well.
SMEs need competent managers who do not simply respond to change but proactively
recognize when change is necessary, understand the change management process, and foster an
environment of promptness, learning, and strategic anticipation Vinod & Uma (2010). They are
10

able to assess the change power of endurance, prepare for resistance, gain support for change,
involve people in decisions that affect them, provide clarity about behavioral expectations,
create opportunities to practice new skills, use the feedback process to monitor implementation,
reward and reinforce both progress and success, and align systems to support the new and
desired behaviors Vinod & Uma (2010).
Haskel and Hawkes (2003) found out that, the top SME performers hire workers with skills, on
average, an extra qualification level compared to the lower performers. They also found that
higher skill levels support innovation and more sophisticated production processes and were
associated with the production of higher quality products and increased performance.
Green et al. (2003) has also found a strong relationship between different levels of workforce
skills and the sophistication of products. Other research has suggested that a more highly skilled
workforce can bring other benefits such as enhancing company survival.
Reid (2000) suggested that a more skilled workforce was related to a greater commercial
orientation and strategic awareness and propensity to innovate to retain competitive advantage.
Rychen and Salganik (2003) argued that coping with todays challenges calls for better
development of individuals abilities to tackle complex mental tasks, going well beyond the
basic reproduction of accumulated knowledge. Key competencies involve a mobilization of
cognitive and practical skills, creative abilities and other psychosocial resources such as
attitudes, motivation and values. They added that despite the fact that competencies comprise
more than just taught knowledge; a competency can itself be learned within a favorable learning
environment.
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According to the National Youth Development Network (NYDN) journal (2004) core
management competencies are the demonstrated capacities that form a foundation for high-
quality performance in the workplace, contribute to the mission of the organization.
McClelland (1973) confirmed in his article Testing for competence rather than for
intelligence. where he summarized a number of studies that showed that aptitude tests, which
had traditionally been used by psychologists to predict performance, did not in-fact predict job
performance. He went ahead and set out to find an alternative to the traditional aptitude and
intelligence testing, which yielded a deeper measure that he labeled competencies. which
really differentiated performance and created success in a job.
The Hay Group (2003) noted that it makes more sense to recruit or select employees with
deeply rooted competencies rather than to train them in the short term. In addition, the more
complex the job or role, the more likely it is that the very best performance is driven by the
skilled and knowledgeable employees with enough experience. A competency-based approach
has as its frame of reference the performance of the very best people in the job. Organizations
can improve their overall performance by hiring candidates with these competencies.
The Hay Group (2003) still added that Organizations can design highly targeted programs to
develop the essential competencies that will help their average performers rise to the next level.
Identifying deeply rooted competencies that can most accurately determine high-potential
employees requires expertise and organizational commitment.
McClelland (1973) noted that, it is necessary to look beyond basic skills and knowledge
required to perform an adequate job and into the deeply rooted competencies i.e an individuals
social role, self-image, traits, and motives that can most accurately determine high-potential
performers. In addition, an individuals competencies must fit, or be able to fit through
12

development, those required to achieve outstanding performance in a job. When organizations
make the effort to apply competencies to select and develop individuals for key roles, they
avoid the collateral damage recruiting costs, low morale, dissatisfied customers, missed
opportunities associated with a bad hire and most importantly, they greatly increase the odds
that selected individuals will perform at a very high level and help drive the success of the
company.
Andrew Weiss (1985) observed that while earnings generally increase with age, labor market
experience, and education, performance within a job often decreases with age, experience and
education.
Abraham (1980) found in an empirical study that better educated workers need to achieve a
lower level of productivity before being promoted than do less well educated workers. Hence,
even if productivity were positively correlated with education we could find that the better
educated within a job are, on average, less productive than the less well educated workers.
Fermilab (2009) noted that employees with relevant competencies deliver results by
maximizing organizational effectiveness and sustainability. He however observed that people
have the support and tools they need and that the workforce as a whole has the capacity and
diversity to meet current and longer-term organizational objectives. He emphasized the
alignment of people, work, and systems with the business strategy to harmonize how they work
and what they do and that conscientiously assign performance goals, offer year-round
performance feedback, and conduct timely performance discussions and reviews.
Fermilab (2009) also argued that, for organizations with competent employees engage people,
organizations, and partners in developing goals, executing plans, and delivering results.
Mobilize teams, building momentum to get things done by communicating clearly and
13

consistently, investing time and energy to engage the whole organization. Use negotiation skills
and adaptability to encourage recognition of joint concerns, collaboration, and to influence the
success of outcomes. Follow and lead across boundaries to engage broad-based stakeholders,
partners, and customers in a shared agenda and strategy.
According to Social Care Institute for Success (SCIS) (2006) Knowledge Awareness
demonstrates knowledge and information relevant to the employees role and the value that this
brings to the work they do and to their personal development. This knowledge awareness is
important as it determines the employees level of performance in a given task.
The important part of managerial competence is the ability to influence people and motivate
them to contribute beyond expectations (Bolino & Turnley, 2003). Hence managerial
competencies are public rather than private processes in the sense that they are accessible to at
least one or more employees who use them to evaluate their performance.
From a sociological perspective, managerial competencies can fully be enhanced through
various employee developments in businesses for the firm success in the long run. According to
Karns (1998), promotion of employees in firms is a means of examining the managers
competencies that are essential for effective job performance / business success.
3.3 Attitudes towards Accessing Finance and Performance
According to Fishbein & Ajzen (1975); Werner (2004) in the Theory of Reasoned Action, and
in trying to observe the relationship between attitudes and behavior, they found out that,
individuals are rational in considering their actions and the implications of their actions
(decision-making). The application of this theory is relevant in nowadays as well as managers
of SMEs rationally consider and perceive their actions towards accessing finance as a setback in
14

case of failure to comply with the terms set by the financial institutions. The fear of the SMEs
managers to access external finance will leave them with little capital to help in the running of
their businesses and eventually lead to failure. This is supported by the findings of Gallup
Organization survey (2006) who found out that managers who had a positive attitude towards
external finance improved their capital through borrowing from financial institution and this
was seen crucial in fostering entrepreneurship, competition, innovation and growth.
Ajzen, (1996) noted that people have different behavioral intentions. Decisions to act or not to
act are the result of an assessment of the likelihood of specific outcomes associated with the act
along with the subjective value assigned to those outcomes. When the assessment produces a
positive evaluation, a decision is made (usually) to act. This argument is valid as SMEs
managers decision to obtain external finance depends on the purpose for which they want
finance and the associated terms. As a result managers who intend to obtain finances without
collateral security attached to it will only act and obtain such credit that does not call for a
collateral security as opposed to that attached with collateral security. According to Ministry of
Finance, Planning and Economic Development (MFPED) working paper (2008), SMEs find it
difficult to access financing partly due to lack of collateral to secure such loans but also because
they are considered high risk clients. High risk is attributable to a number of factors including
poor management skills, uncertainty of their businesses and poor record keeping practices. As a
result, in addition to highly valued collateral, the interest rate charged to businesses is very high
often ranging from 22% to 30% on short term lending. This type of interest rates charged to
SMEs makes them have negative attitudes towards external financing of their businesses
making them to restrict themselves to the narrow financial base which will not allow them to
15

carry out all their operations successfully thus limiting their rapid performance and argue for
quick expansion.
According to Bandura (1986), expectations such as motivation, performance, and feelings of
frustration associated with repeated failures determine affect and behavioral reactions. He
separated expectations into two distinct types: self-efficacy and outcome expectancy. He
defined self-efficacy as the conviction that one can successfully execute the behavior required to
produce the outcomes. The outcome expectancy refers to a person's estimation that a given
behavior will lead to certain outcomes. He states that self-efficacy is the most important
precondition for behavioral change, since it determines the initiation of coping behavior.
Considering the SMEs managers of nowadays, managers who continuously access finance and
fail to either service these loans will always have a negative attitude to this type of financing
thus leaving the SME with limited finance to run the business hence failure. Gertler & Gilchrist,
(1994) noted that, the ability of a firm to get a loan depends on how well the firm is able to
service the debt. This, in turn, depends on the net worth of the firm, such as the value of cash
inflow and the liquid assets that the firm is able to generate. Lower net worth implies lower
ability to service debt and hence it reduces the chance of a firm getting a loan or a higher
amount of credit. Banks, or any other lending institutions, are likely to attach a high-risk
premium to a firm with a low net worth position.
Whilst it can be argued that it is not a central role of finance providers to offer support to
would-be or existing entrepreneurs, there is evidence that issues of low confidence levels and
financial awareness capability constrain start-up and enterprise development, and that, for some
individuals at least, this manifests itself in terms of negative perceptions of finance providers
16

and the funding process which in the long run has the impact on the performance of the
enterprise.
ACCA (2006a) puts it that the performance of any business enterprise is established using its
balance sheet(s), income statement(s) and cash flow statement(s). Indeed, the balance sheet
indicates the current financial position of the business enterprise inform of comparing the SMEs
assets base to its liabilities. It therefore indicates to the lenders the financial strength and
weaknesses of the enterprise and therefore its ability to secure, service and repay the loan
(Pandey 1996). Attitudes towards access to finance have influence on these financial statements.
Wyer, Ekanem, North and Deakins,(2007) indicate that entrepreneurs living in deprived areas
perceive themselves to be disadvantaged in obtaining bank finance because of a lack of
collateral, arising from low property values or a dependence on rented living accommodation,
and lack of personal savings thus this limited access to finance always makes them not perform
properly when it comes to implementing organizational activities.
Wyer, Ekanem, North and Deakins,(2007) observed that highlighted low levels of financial
literacy, which appear to be most commonly found amongst women entrepreneurs, those from
various ethnic minority groups, and those with lower levels of educational attainment to be the
drives behind their fear for finance access. There is quantitative evidence based on a large scale
survey of existing SMEs to show the difference that having someone with financial
qualifications adds to the chances of success in accessing finance.
The motives for starting a business have also been found to make a difference, with those with
high expectations (i.e. the more ambitious entrepreneurs) having greater confidence in
17

approaching external financial sources than those with low expectations (i.e. reluctant
entrepreneurs).
Commercial banks constitute the formal lenders in developing countries yet access to them is
restricted to a small portion of the population that can meet their stringent requirements. Access
to financial services by small holders is normally seen as one of the constraints limiting their
benefits from credit facilities (Gockel et al, 2002)
According to the Institute of Chartered Accountants in England and Wales (ICAEW) some
SMEs consider that funding is still available for good businesses but that there are a lot more
hurdles to overcome now, with banks being much more risk-averse. However, if an SME has a
good relationship with its bank, financing may be available, but typically with the banks
increasing their margins for new financing. Others consider that it has now become very
difficult indeed for SMEs, especially for new customers and certain sectors. A small number of
respondents mention certain banks as being particularly difficult to work with, but the majority
would say that all of the banks are simply not lending as much. When the banks actually are
lending, low base rates mean the cost of financing is lower than it has been in previous years,
but banks are now charging higher margins.
Views are divided as to how good SMEs are at helping themselves access finance. Some feel
they are already doing a lot, but others are concerned that they are not good at financial
planning due to lack of time and poor internal financial reporting and should take more
advantage of advice from professionals. Opinions are also divided as to the level of demand by
SMEs management for external funding, either that it has increased because other pressures
have reduced working capital or that it has actually fallen because SMEs are trying to avoid
approaching banks by controlling their costs.
18

Small Business Service Omnibus Survey (2002) suggests that established small businesses are
generally satisfied with the availability of external finance. It also observed that, around four out
of five established small businesses who sought external finance had no difficulty in raising the
finance that they needed. Evidence from other sources confirms that access to finance is not the
key difficulty facing many businesses, and also suggests that general financing conditions for
small businesses are improving and that these businesses were in position to perform a wide
range of activities due to the availability of such financing.
Analysis of data on the characteristics of self-employed people in deprived areas suggests that
potential entrepreneurs and businesses in these areas are more likely to have characteristics that
could impact negatively on their ability to access bank finance thus remain in a poor state of
poor performance (Bank of England, 2002).
A large number of studies have suggested that it is more difficult for women to raise finance
and that, women encounter credibility problems when dealing with bankers. Other studies have
refuted these results and the debate continues. However, the evidence does consistently show
that irrespective of sector and location, women start in business with only one-third the amount
of capital used by men. Building a business track record improves womens chances of
successfully gaining external finance for business survival and growth. Nevertheless, men are
more likely to use external financing for the on-going business, than are women (Carter et al,
2001).
SMEs with better access to finance are hypothesized to have a higher probability of engaging
and performing well in production networks. The potential for credit rationing defined as the
degree to which credit or loans are rationed, as a result of imperfections in the capital market
(Stiglitz and Weiss, 1981) is thought to be higher for smaller firms. Petersen and Rajan (1994)
19

argue that the amount of information that banks can acquire is usually much less in the case of
small firms, because banks have little information about these firms managerial capabilities
and investment opportunities. The extent of credit rationing to small firms may also occur
simply because they are not usually well collateralized (Gertler and Gilchrist, 1994).
SMEs that participate in production networks have the probability of better cash flows than
those that do not. SMEs in production networks have more certainty in terms of their
production, since most of the time they operate based on larger, stable, and more certain buying
orders from other firms in the networks. More formal and modern managerial practice by firms
operating in production networks, in addition to the likelihood of more interactions with banks,
also helps SMEs that operate in production networks to gain more trust from banks or other
formal financial institutions. All these suggest that highly leveraged SMEs are expected to have
lower probabilities of engaging and performing well in production networks.
3.4 Management Competencies, Attitude towards Accessing Finance and Performance
Cragg & King (1998) revealed that, competencies of an SME are the major determinants of the
SMEs access to loan finance and consequently of its performance. This is supported by Keith &
Malcolm (1997) who note that, no rational lending institution can consider extending any
amount of loan finance to an enterprise that does not have business objectives. Pandey (1996)
argues that, an enterprise without clear and focused objectives lacks direction of what to do,
where to go and how to go there. Its therefore clear that an SME without competent managers
and employees with clear objectives cannot perform well and grow.
Sekyewa (2009) pointed out the educational level and managerial experience of the people
constituting the management of an enterprise as another determinant of accessing loan finance,
20

yet Zhang et al (2002) noted that this level and experience also determine the extent of the
performance of the enterprise.
Herrington and Wood (2003) pointed out that lack of education and training has reduced
management capacity in SMEs and one of the reasons for their high failure rates. This suggests
that managerial competency will impact on access to trade credit by new SMEs which credit if
not obtained in turn will impact on their performance.
Paolo Donzell et al (2006) noted that, by linking human resources processes to desired
competencies, organizations can shape the capabilities of its workforce and achieve better
results. These competent employees will be in position to identify when it is appropriate for the
organization to acquire the credit that is necessary to meet the organizations activities.
World bank (2004) pointed out that educational level and managerial experience of the people
constituting the management of an enterprise as one of the factors determining the access to
loan finance yet Zhang et al (2002) noted that this level and experience also determine the
extent to which the enterprise grows in its business.
Bond and Meghir (1994) observed that credit terms also determined the extent to which SMEs
access finance. They noted that when credit terms are favorable the SMEs managers attitudes
towards accessing that credit tend to be positive and they are encouraged to borrow and
therefore expansion of the capital base leading to increased business activity. In contrast,
unfavorable credit terms not only discourage borrowing but also decrease the business growth
of the borrowing enterprise because they become huge direct expenses which reduce revenue
ACCA (2006)
According to De Bodt and Statnik (2002), the size of the loan constitutes another important
condition that determines the SMEs access to loan finance. At the beginning, most of the SMEs
21

need small loans to boost their startup capital and as they operate they start to require loans of
sizes that help them grow and expand form small and medium to large business enterprises.
Lending institutions however set loan sizes that minimize risk and therefore yield profit more
over without putting into account the sizes needed by SMEs Dietsch &Petey (2002). It is only
the attitudes of the SMEs manager to meet the required loan sizes set by the financial institution
that they can access the finance needed by them to operate their businesses and perform well.
Empirical evidence from several prior research works through decades up to date provide strong
support for the proposition that as businesses progress through their growth stages, the financial
dimensions of their operations under the management team running them tend to become more
challenging (Vozikis,1999).
3.5 Conclusion.
In general therefore, literature indicates that there is an important relationship between
Management Competencies, access to finance and performance. However, is not clear on how
these factors affect not only access of the SMEs in Masindi and Hoima to finance but also the
business growth of these SMEs.







22

CHAPTER THREE
METHODOLOGY
3.1 Introduction
This chapter presents the research methodology and instruments that were used in conducting
the study. It covers the Research Design, Study Population, Sample Size, Data Sources; Data
Collection Instruments, Measurement of variables, Data Validity and Reliability, Data Analysis
and the Limitations faced during the study.
3.2 Research Design
The research was cross sectional involving an analytical and descriptive design. The study
variables were described and relationships existing between them analyzed and involved
collection of data at one point in time.
3.3 Population Study
The population involves SMEs in Masindi and Hoima districts and according to District
Commercial Officers of these districts, there are 28,232 licensed SMEs in the two districts of
which 759 SMEs are from Masindi district as per the August 2010 survey and 27,473 SMEs are
fromHoima district as per the June 2009 survey.
3.4 Sample Size
According to Krejcie & Morgan (1970) table for determining a sample size from a population, a
sample size of 377 would be representative at 95% confidence interval for the above population.
However due to other constraints like time and finances a sample size of 284 SMEs was
23

considered sufficient basing on average sample sizes used in similar studies Opio (2007) of
which 148 SMEs were from Masindi district and 136 SMEs were from Hoima district.
Stratified sampling technique was used. The study population was divided into Strata which
were studied. Simple random sampling technique was used to select respondents from the
stratas established. Simple random sampling gives an individual an equal chance of being
selected into the sample. The stratification variable was the location as the study involved two
different districts (Masindi and Hoima).
3.5 Data Sources
Both primary and secondary data was used in the study.
Primary Data
Primary data was used and this was generated from the field by direct contact with the SMEs.
Secondary Data
This was also used since it was published by reputable institutions, from journals, the internet
and other publications. Some of the data was got from the District commercial officers and
financial institutions and was relied upon.
3.6 Data Collection Instruments
The researcher used self-administered coded questionnaires on respondents from the sample.
With regards to the types of the questions, the questionnaire consisted of a combination of open-
ended questions and closed-ended questions (Dillman, 2000). Open-ended questions were used
in the first section of the questionnaire to obtain general information on the respondent. The last
section of questionnaire used closed questions. The questions offered the respondent a list of
24

answers, of which he/she could choose, or a six point Likert-scale rating of Strongly Agree(6),
Agree(5), Agree Somehow(4), Disagree Somehow(3) Disagree(2) and Strongly Disagree(1)
with a statement or series of statements.
3.7 Measurement of Variables
Performance of SMEs was measured in terms of perceived changes in Return on Assets,
Profitability, and Sales Growth (Richard, 2009)
Management competencies was adopted and modified from the one used by Munene, and
Piyang (2009).
An attitude towards accessing finance was measured in terms of frequency of borrowing, Loan
size and the collateral requirements by the financial institutions (Demigurc & Detragiache
1998).
3.8 Data Validity and Reliability
The validity of the questionnaires was established using the content validity test. Using the
ratings the content validity indices were computed.
The Cronbach Alpha method of internal consistency was used to compute the reliability of the
measures of the variables of the study using various questionnaire items administered to
respondents (Kothari, 1990).
Table 3.1 Content Validity Indices for the Questionnaire

Variables
No of items Cronbach Alpha Content Validity Index
Management Competencies 59 0.943 0.762
Attitude towards accessing finance 18 0.860 0.889
Performance 24 0.898 0.958
25

Since the Cronbach Alpha coefficients for all the study variables were above 0.50 as indicated
in table 3.1 above, it implies that the scales used to measure the study variables were consistent
and therefore reliable and meeting acceptance standards for the research. This is also similar
with the sighting of Sekyawa (2009).
3.9 Data Processing and Analysis
Collected data was coded, edited and analyzed using the Microsoft excel and Statistical Package
for Social Scientists (SPSS). The results were presented in tables for interpretation. A
correlation analysis was carried out to ascertain the relationship between the variables which
was estimated using the Pearsons correlation test hypothesis and regression analysis. The
regression model was also used to establish the extent to which the independent variables
influenced the dependent variable.
3.10 Limitations
There was unwillingness to complete questionnaires by respondents as they saw the
exercise unbeneficial to them.
Accessibility to information was hard since financial information was considered
confidential
Some respondents found the questionnaire hard to understand that the researcher had to
take more time to explain to them.

26

CHAPTER FOUR
PRESENTATION AND INTERPRETATION OF FINDINGS
4.1 Introduction
This chapter presents findings relating to sample characteristics, the relative importance of
managerial competencies, attitudes towards accessing finance and the relationships between
study variables.
4.2 Demographic Features
The demographic features of the respondents / general information in the study that were
considered relevant included the Nature of business, the area of operation, age of the business,
the number of employees, the level of education, amount invested and how long the employee
had stayed in the business. Results obtained about each of them together with their relevance to
the study are presented henceforth.
4.2.1 Nature of Business
The results in table 4.1 below indicate the nature of the business engaged by the respondents in
the survey
From the table many of the respondents were involved in other businesses other than those
specified by the researcher. General merchandise business followed and the least of the
respondents 7.2% were dealing in manufacturing. The results are presented in table 4.1 below.




27

Table.4.1 Nature of the Business engaged by the SMEs in Masindi and Hoima
Nature of business Frequency Valid Percent Cumulative Percent
General Merchandise 66 23.8 23.8
Hard ware 42 15.2 39.0
Restaurant 49 17.7 56.7
Manufacturing 20 7.2 63.9
others 100 36.1 100.0
Total 277 100.0

4.2.2 District of Operation
From the questionnaires dispatched there was 1 non response from Masindi district and 6 non
responses from Hoima district. A higher positive response was received from Masindi district
than Hoima district as shown in table 4.2 below.

Table 4.2 District of operation

District of Operation Frequency Valid Percent Cumulative Percent
Masindi 147 53.1 53.1
Hoima 130 46.9 100.0
Total 277 100.0

4.2.3 Period of Existence of the Business
SME respondents were required to indicate the number of years the businesses had been in
existence. Table 4.3 below reveals that most of the businesses had been in existence for five and
above years which was an indication of experience in doing business and being able to
understand how the business runs. The findings are presented in table 4.3 below.
28

Table 4.3 Period of Existence of the Business
Period of Existence of the
Business
Frequency
Valid
Percent
Cumulative Percent
Less than 1 year 12 4.3 4.3
1-2 years 27 9.7 14.1
2-3 years 43 15.5 29.6
3-4 years 65 23.5 53.1
5 and above 130 46.9 100.0
Total 277 100.0

4.2.4 Workers Employed by the Business
Table 4.4 below indicates that, many of the SMEs employed less than 5 workers followed by
those SMEs who employed between 5-10 workers. Least SMEs 2.5% employed 50 and above
workers. This implies that a majority of the SMEs surveyed were small in size. The results are
shown in table 4.4 below.
Table 4.4 Workers Employed by the Business
Workers employed by the
business
Frequency Valid Percent Cumulative Percent
Less than 5 130 46.9 46.9
5-10 84 30.3 77.3
10-20 37 13.4 90.6
20-50 19 6.9 97.5
50 and above 7 2.5 100.0
Total 277 100.0


29

4.2.5 Level of Highest Education Attained
Table 4.5 indicates that a majority of the SMEs managers had reached A level, followed by
those who had Diplomas, Degrees. Some of the SMEs managers had reached O level and least
SMEs had managers who had attained a post graduate. This implied that most of the businesses
did not require the managers to have a higher level of education. The results are presented in
table 4.5 below.
Table 4.5 Level of Highest Education Attained
Level of education Frequency Valid Percent Cumulative Percent
O level 43 15.5 15.5
A level 86 31.0 46.6
Diploma 78 28.2 74.7
Degree 60 21.7 96.4
Postgraduate 10 3.6 100.0
Total 277 100.0

4.2.6 Amount of capital invested
Table 4.6 below indicates that a majority of the SMEs invested between 5-10 million as
compared to those SMEs who had invested between 10-20 million. Few SMEs reported to have
invested between 20-30 million and 40 and more million. The least SMEs 11.2% invested
between 30-40 million. This implies that most of the SMEs operate on a small scale and this
relates with table 4.4 above which shows the workforce composition of these SMEs. The results
of the findings are in table 4.6 below.


30

Table 4.6 Amount of Capital Invested
Amount of Capital Invested Frequency Valid Percent Cumulative Percent
5-10 Million 104 37.5 37.5
10-20 Million 66 23.8 61.4
20-30 Million 37 13.4 74.7
30-40 Million 31 11.2 85.9
40 & above 39 14.1 100.0
Total 277 100.0


4.2.7 Period of existence in the business
SME respondents were required to indicate the number of years they had been in this business.
Most of the SME respondents had been in the business for two and above years which was an
indication of experience in doing business and being able to understand how the business runs.
These results are shown in table 4.7 below
Table 4.7 Period of existence in the business
Frequency Valid Percent Cumulative Percent
Less than 1 year 15 5.4 5.4
1-2 years 28 10.1 15.5
2-3 years 47 17.0 32.5
3-4 years 68 24.5 57.0
5 and above 119 43.0 100.0
Total 277 100.0








31

The correlations were computed to show the relationships between the variables with reference
to the research objectives (a) and (b) which were:
a) To establish the relationship between Management Competencies and Performance
b) To establish the relationship between Attitudes towards Accessing finance and
Performance
Table 4.8 Results of the Pearson Correlation Coefficients

1 2 3
Management
Competencies (1)
1.000

Attitude towards
Accessing Finance (2)

.406
**

1.000


Performance (3)

.566
**


.482
**


1.000

**. Correlation is significant at the 0.01 level (2-tailed).

4.3.1 The relationship between Management Competencies and Performance
Results indicate a positive and significant relationship between Management Competencies and
the Performance of SMEs (r =.566, p<.01) as shown in table 4.8 above. This implies that SME
will require high levels of management competencies in order to perform well.

4.3.2 The relationship between Attitudes towards Accessing finance and Performance
From table 4.8 above results indicate a positive and significant relationship between attitudes
towards accessing finance and the Performance of the SMEs (r =.482, p<.01). This implies that
SME managers with positive attitudes towards external finance will improve the performance of
their businesses with the help of external finance.
32

A multiple regression analysis was conducted to address objective three of the study which was
to establish the relationship between management competencies, Attitudes towards Accessing
Finance and Performance of SMEs in Masindi and Hoima districts and the results below were
obtained:

Table 4.9 Results of the Multiple Regression Analysis

Model
Unstandardized
Coefficients
Standardized
Coefficients
T Sig. B Std. Error Beta
(Constant) .514 .310 1.658 .099
Management Competencies .581 .068 .443 8.514 .000
Attitude towards accessing finance .250 .043 .303 5.815 .000
Performance
R (.630), R Square (.397), Adjusted R Square (.392), F Statistic (87.430), Sig. (.000)

Results from table 4.9 above indicate that Management competencies and the attitude towards
accessing finance explain 39.2% of the variance in the Performance of the SMEs (Adjusted R
Square =.392). Results further indicate that Management competences (Beta =.443, sig. <.01)
are a better predictor of Performance than the Attitude towards accessing finance (Beta =.303,
sig. <.01). The regression model was significant at the 99% confidence level. Fromtable 4.9
above, it implies that however much the two independent variables are predictors of business
performance it is important to note that SMEs managers management competencies are more
influential in determining performance levels than their attitudes towards accessing finance.



33

4.4 OTHER FINDINGS
4.4.1 ANOVA Results for the Business Age by Variable
Table 4.10 ANOVA Results for the Business Age by Variable

N Mean
Std.
Deviation
Std.
Error F Sig.
Management
Competencies
Less than 1 year 11 4.886 0.605 0.182

.693

.597
1-2 years 27 4.853 0.360 0.069
2-3 years 42 4.819 0.488 0.075
3-4 years 64 4.952 0.423 0.053
5 and above 130 4.926 0.476 0.042

Attitude
towards
Accessing
Finance

Less than 1 year

11

3.238

0.619

0.187

4.628

.001
1-2 years 26 3.728 0.693 0.136
2-3 years 42 4.035 0.800 0.123
3-4 years 64 4.106 0.693 0.087
5 years and above 130 4.060 0.714 0.063

Performance

Less than 1 year

11

4.093

1.127

0.340

1.925

.107
1-2 years 25 4.177 0.628 0.126
2-3 years 40 4.272 0.580 0.092
3-4 years 63 4.453 0.557 0.070
5 and above 130 4.410 0.566 0.050

Results in table 4.10 above indicate that, these businesses dont differ significantly on
management competencies and Performance (sig.>.05). These businesses were observed to
differ significantly only on Attitude towards Accessing finance (sig, <.05). On attitude towards
34

accessing finance, the businesses that have been operating for 3 yrs and above had higher mean
(4.060) as compared to those that have been in business for Less than 1 year who had a mean of
(3.728). This means that the more the years the SMEs existed the more the managers were
willing to go for external financing.
4.4.2 ANOVA Results for the District by Variable
Table 4.11 ANOVA Results for the District by Variable

N Mean
Std.
Deviation
Std.
Error F Sig.
Management
Competencies
Masindi 144 4.9778 0.4225 0.03521
Hoima 130 4.828 0.48877 0.04287 7.407 0.007
Total 274 4.9067 0.46044 0.02782

Attitude towards
accessing finance

Masindi

143

4.1268

0.71219

0.05956

Hoima 130 3.8655 0.74178 0.06506 8.811 0.003
Total 273 4.0023 0.73678 0.04459

Performance

Masindi

140

4.3888

0.61471

0.05195

Hoima 129 4.3386 0.59906 0.05274 0.458 0.499
Total 269 4.3647 0.60664 0.03699

Table 4.11 above reveals how the respondents differed in their perception of variables of study
by district. The results reveal that the respondents differed significantly on Management
Competencies and Attitudes towards accessing finance as reflected by 0.007 and 0.003
respectively in the two districts.





35

4.4.3 ANOVA Results for the Education Level by Variable
Table 4.12 ANOVA Results for the Education Level by Variable

Mean
Std.
Deviation
Std.
Error F Sig.
Management
Competencies

O level

4.8754

.45744

.06976
A level 4.7673 .49487 .05368

Diploma 4.9922 .41334 .04741

Degree 5.0026 .43910 .05669 3.535614 0.007844
Postgraduate 5.0017 .39963 .12637
Total 4.9067 .46044 .02782


Attitude
towards
accessing
finance

O level

3.8999

.78726
.
12148
A level 3.9493 .70092 .07602

Diploma 4.0926 .67273 .07717 1.11187 .35125
Degree 3.9801 .81356 .10503

Postgraduate 4.3311 .78677 .24880
Total 4.0023 .73678 .04459


Performance

O level

4.3642

.67526

.10420
A level 4.3131 .52410 .05753

Diploma 4.3695 .62556 .07223 .30342 .87554
Degree 4.4192 .59368 .07729

Postgraduate 4.4377 .91635 .28977
Total 4.3647 .60664 .03699


Table 4.12 indicates a significant difference among respondents of various education levels in
the way they perceive managerial competencies. A look at the mean scores shows Degree
respondents putting more emphasis on management competencies followed by post graduate,
then the diploma holders, o level and the least were the A level category.


36

CHAPTER FIVE
DISCUSSION, CONCLUSION AND RECOMMENDATIONS
5.0 Introduction
This chapter presents the discussions on the findings in chapter four. This is followed by
conclusions and further recommendations. The presentation of the discussion is in line with the
objectives of the study. The first part discusses the relationship between managerial
competencies and performance. Second part discusses the study findings of the relationship
between attitudes towards accessing finance and performance. Third discusses the combined
relationship between managerial competencies, attitudes towards accessing finance and
performance of the SMEs studied. The rest of this chapter deals with the conclusions and
recommendations according to the findings of the study.
5.1 Discussions
The findings are discussed in relation with the objectives of the study.
5.1.1 Relationship between Management Competencies and Performance
Observing from the findings in chapter four, the results disclose the existence of a significant
positive relationship between management competencies and performance. This implies that
SMEs that have managers with high management competencies will result into high
performance than those SMEs with managers who lack management competencies who will
result into low performance and eventually failure of the business in the long run. This is in line
with the findings of Martin and Staines (2008) who examined the importance of management
competencies in small firm success. They found out that lack of managerial competencies
resulting from inadequate experience, skills and personal qualities as well as other factors such
37

as adverse economic conditions, poorly thought out business plans and resource starvation are
found as the main reasons why new firms fail. The distinguishing feature of high growth and
low growth small firms is the education, training and experience of managers. It is important
therefore for SMEs to have managers with high levels of experience, business knowledge and
necessary skills required by the business in order for it to realize high performance.
5.1.2 Relationship between Attitudes towards Accessing Finance and Performance
The findings reveal that Attitudes towards accessing finance had a positive correlation with
performance of the SMEs in Masindi and Hoima districts. This is explained by the SMEs
managers willingness to access external finance in the long run in the business. The SMEs
managers with positive attitude towards external finance will avail the SME with finance to
invest and expand the business and in so doing boost their performance. This is supported by
the findings of Carter et al, (2001) who found out that SMEs with better access to finance are
hypothesized to have a higher probability of engaging and performing well in production
networks. Also as observed by Gallup Organization survey (2006) on SME Access to Finance
they noted that, improving the access to finance of SMEs is crucial in fostering
entrepreneurship, competition, innovation and growth.
5.1.3 Relationship between Management Competencies, Attitude towards Accessing
Finance and Performance
Results of the multiple regression analysis were used to address the third study objective. The
results indicate that the combined independent variables (Management Competencies and
Attitudes towards Accessing Finance) were reliable predictors of changes in the dependent
variable (Performance) implying that they could be reliably used to influence changes in
38

performance. Therefore these variables work hand in hand to enhance the performance of the
businesses as they grow. These findings are supported by the assertion that in order for the
SMEs to perform well, the study independent variables should be closely related. This is
consistent with the argument by Cragg & King (1998) who revealed that, competencies of an
SME are the major determinants of the SMEs access to loan finance and consequently of its
performance.
5.2 Conclusion
Overall, the study looked at Management competencies, attitudes towards accessing finance and
performance of SMEs in Masindi and Hoima district.
The study found out that management competencies had a significant positive relationship with
performance of SMEs in Masindi and Hoima. Most of the respondents agreed that despite of the
level of education one had it was management competencies that mattered. This is in line with
the findings of Musoke (2007) who argued that competencies are more important than just
knowledge and skills for the successful performance of complex tasks with a high level of
responsibility. He added that as far as knowledge and skills were concerned, many people are
equal as can be seen from Degrees, Diplomas and certificates and work experience and work
results. Therefore it is the management competencies seen from the employees effort,
enthusiasm, motivation and the underlying self-image that distinguishes the successful
employee from the unsuccessful one.
The findings also reveal that as businesses continued to operate, their managers tended to adapt
a positive attitude towards accessing finance. This is supported by the findings of Small
Business Service Omnibus Survey (2002) who observed that established small businesses are
39

generally satisfied with the availability of external finance. It also observed that, around four out
of five established small businesses who sought external finance had no difficulty in raising the
finance that they needed.
The findings revealed a significant positive relationship between the study variables. Both the
management competencies and attitudes towards accessing finance had a combined influence in
determining the level of performance of the SME. It is therefore important to note that for the
SMEs to perform well there is need to seek for the combined efforts for better competent
managers who have a positive attitude towards accessing external finance as these are seen to
have an impact on the SMEs performance.
5.3 Recommendations
The following are the recommendations made on the basis of the conclusions reached in the
previous section.
For SMEs to improve on their performance there is need for them to improve on the
management competencies of their managers by giving them other incentives that will
motivate them to work hard and carry out the monitoring, evaluation and control of
other employees they work with.
SME managers should learn to adopt a positive attitude towards accessing finance and
come to know that external finance play a very important role in business activities if
utilized properly. They can do this by having close contact with the lending institution
and get more information and terms about external funding directly from the managers
of these financial institutions.
40

There is need to maintain proper financial records in terms of financial reports, good
filing systems and maintenance of good relationships with their bankers or money
lending institutions so that their efforts to access credit from those financial institutions
would be entertained and shortened.
As most of the SMEs tend to have little or no physical security to offer as collateral
security when seeking for external finance, there is need for the government through the
different ministries to increase the partial guarantees to the banks on behalf of the
SMEs in the different lines of businesses they would like to promote so that they are
able to access credit which in turn will improve on their performance as a result of the
availability of the finance.
5.4. Recommendation for Further study
The study results have shown that management competencies and attitudes towards
accessing finance determine only 39.2% of the performance of SMEs in Masindi and
Hoima district. This therefore does not explain 100% of the business performance. A
study therefore is needed on other factors that explain the remaining portion.
There is need to study on the programs that SMEs managers should study to improve
their management competencies since from the study it is revealed that management
competencies have a significant positive relationship and impact on performance.
Data of this dissertation was collected using cross sectional method therefore there is
need to conduct a study using longitudinal study as well.


41

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47

APPENDICES
APPENDIX 1: QUESTIONNAIRE
MAKERERE UNIVERSITY
MAKERERE UNIVERSITY BUSINESS SCHOOL
QUESTIONNAIRE
Dear respondent,
I am a final year student pursuing a Masters of Science in Accounting & Finance Degree of
Makerere University. I am conducting a research study on the topic, Management
competencies, Attitudes towards accessing finance and the performance of Small and
Medium Enterprises (SMEs) a case of Masindi and Hoima districts. You have been chosen
as one with capacity to help in gathering this information that will contribute to the expected
results of this research. All the information provided will be treated with utmost confidentiality
it deserves and will strictly be used for academic purposes only. In order to accomplish the
study, you are requested to complete this questionnaire by answering all the questions. Thank
you very much for your valuable time and cooperation.
Instructions: Please put a tick in the box corresponding to the option that best suits your
situation.
SECTION A: GENERAL INFORMATION
1. Nature of the Business.
Code 1 2 3 4 5
Level
General Merchandise
Hard ware Restaurant Manufacturing Others
Tick

NB. If your answer is others
Specify

48

2. District of operation
a) Masindi b) Hoima
3. For how long has the business existed?
Code 1 2 3 4 5
Level Less than 1 year 1-2 years 2-3 years 3-4 years 5 and above
Tick
4. How many workers are employed by the business?
Code 1 2 3 4 5
Level Less than 5 5-10 10-20 20-50 50 and above
Tick

5. Level of highest education attained
Code 1 2 3 4 5
Level O level A level Diploma Degree Post graduate
Tick

6. How much amount of money has the business invested?
Code 1 2 3 4 5
Level 5-10 Million 10-20 Million 20-30 Million 30-40Million 40 & above
Tick

7. For how long have you been working in the business?
Code 1 2 3 4 5
Level Less than 1 year 1-2 years 2-3 years 3-4 years 5 and above
Tick

SECTION B: MANAGEMENT COMPETENCIES
Evaluate the following statements by circling the appropriate response basing on the scale
below. Please do not leave any item unanswered.
Code 6 5 4 3 2 1
Status Strongly Agree Agree Agree some
how
Disagree
some how
Disagree Strongly
Disagree
49

Management Competencies
1 I keep records of all the transactions made in the business 6 5 4 3 2 1
2 I keep myself up to date with the requirements needed to perform my duties. 6 5 4 3 2 1
3 I train my employees to acquire the necessary skills needed to perform their duties. 6 5 4 3 2 1
4 I possess relevant skills to enable me perform at a high capacity 6 5 4 3 2 1
5 I provide mutual support and mentoring environment to my employees 6 5 4 3 2 1
6 I am trustworthy in dealing with the customers. 6 5 4 3 2 1
7 I maintain a close relationship with my employees and customers 6 5 4 3 2 1
8 I always invent new ways of doing my business. 6 5 4 3 2 1
9 I come early for work and leave late after accomplishing all the tasks 6 5 4 3 2 1
10 I use available funds to make more profits and become more productive 6 5 4 3 2 1
11 I am independent and take my own decision without consulting any one 6 5 4 3 2 1
12 I am aware of the market forces and where to market my goods at a favorable price 6 5 4 3 2 1
13 I am creative in doing my business and like sharing ideas with my fellow entrepreneurs 6 5 4 3 2 1
14 I am self motivated and committed to my business 6 5 4 3 2 1
15 I use various techniques of out competing my rivals 6 5 4 3 2 1
16 I keep my word at all times. 6 5 4 3 2 1
17 I pay my employees promptly and provide incentives which motivate them 6 5 4 3 2 1
18 I posses management skills and these have enabled my business to survive.

6 5 4 3 2 1
19 I am a persistent person who is able to take on challenging work 6 5 4 3 2 1
20 I have ability to persevere in good and bad times of business 6 5 4 3 2 1
21 I am able to conduct a market research related to the business 6 5 4 3 2 1
22 I am oriented to my business growth. 6 5 4 3 2 1
23 I am in a position of paying my workers well 6 5 4 3 2 1
24 I am in a position of training my employees in skill development 6 5 4 3 2 1
25 I organize and utilize my time as efficiently as possible to do business work 6 5 4 3 2 1
26 I compete with other similar businesses to improve my performance 6 5 4 3 2 1
27 I have a positive attitude towards my work. 6 5 4 3 2 1
28 I have contacts with other entrepreneurs 6 5 4 3 2 1
29 I give others an opportunity to perform similar duties 6 5 4 3 2 1
30 I develop unique ideas and creatively transform existing products in to better product.

6 5 4 3 2 1
31 I display leadership qualities which guide employees in achieving the set goals 6 5 4 3 2 1
32 I know whether my business is growing or stagnant by focusing on the amount of stock
available and the profits made
6 5 4 3 2 1
33 I know what I am good at and what my weaknesses are 6 5 4 3 2 1
34 I establish and maintain good working relationships with my customers and the banks

6 5 4 3 2 1
35 I produce quality goods at a cheap price. 6 5 4 3 2 1
36 I raise enough funds to provide working equipment for my employees.

6 5 4 3 2 1
37 I possess computer skills. 6 5 4 3 2 1
39 I Honor my business commitments and appointments 6 5 4 3 2 1
39 I advertise my products to the public 6 5 4 3 2 1
40 I listen to customer complaints in the business. 6 5 4 3 2 1
50


SECTION C: ATTITUDES TOWARDS ACCESSING FINANCE
Cognition (what you believe and perceive)
1 I have positive thinking about credit 6 5 4 3 2 1
2 I talk to other people of my perception towards accessing finance 6 5 4 3 2 1
3 I occupy myself with work to avoid over thinking about money issues. 6 5 4 3 2 1
4 I worry about some other things associated with borrowing. 6 5 4 3 2 1
5 I relate well with lending institutions 6 5 4 3 2 1
Behavioral Predisposition (How you are predisposed to act)
6 I have ever got a loan from the lending institution whenever I apply for one 6 5 4 3 2 1
7 The interest rates charged by the bank are appropriate for my business 6 5 4 3 2 1
8 I use loans for the intended purpose as in the application 6 5 4 3 2 1
9 I am paying the installment indicated on the loan application 6 5 4 3 2 1
10 I am given a loan period of six months and more 6 5 4 3 2 1
11 I use business profits to pay the loan and buy basic necessities 6 5 4 3 2 1
12 I Service my loan promptly. 6 5 4 3 2 1
Affect (How you feel about external loans)
13 I have enough money for the business 6 5 4 3 2 1
14 I have appositive thinking about interest rates 6 5 4 3 2 1
15 I usually dont use loans for my business 6 5 4 3 2 1
16 I normally have bias about external financing 6 5 4 3 2 1

SECTION D: PERFORMANCE
Sales Growth
1 I have increased the sales over the last 3 years 6 5 4 3 2 1
2 I always increase the daily sales 6 5 4 3 2 1
3 I have opened up more outlets in the last year 6 5 4 3 2 1
4 My supply chains stock have increased 6 5 4 3 2 1
5 The number of existing customers/clients I serve has increased 6 5 4 3 2 1
6 My new suppliers have increased 6 5 4 3 2 1
7 The number of my deliveries have increased 6 5 4 3 2 1
41 I give customers enough attention. 6 5 4 3 2 1
42 I appreciate customers whenever they buy from me. 6 5 4 3 2 1
43 I consult and get external information from suppliers, buyers, competitors.

6 5 4 3 2 1
44 I establish performance standards 6 5 4 3 2 1
45 I take corrective action where there is evidence of deviation 6 5 4 3 2 1
51

8 My contact with new customers has increased 6 5 4 3 2 1
9 I have been able to achieve my sales expectations 6 5 4 3 2 1
Profitability
10 My return on working capital employed has been greater than 50% in the last 3 years 6 5 4 3 2 1
11 My profit margins have increased in the last two years 6 5 4 3 2 1
12 I have been able to re-invest my profits 6 5 4 3 2 1
13 I have been able to generate profit for the last 3 years 6 5 4 3 2 1
14 I am able to meet my financial annual objectives 6 5 4 3 2 1
15 I have been able to raise salaries and wages from profit 6 5 4 3 2 1
16 I am always paid in time as a result of availability of profit 6 5 4 3 2 1
17 I fund my business growth from profits 6 5 4 3 2 1
Return on Assets
18 I have acquired more assets in the last 3 years 6 5 4 3 2 1
19 I always collect my debts on or before the due date 6 5 4 3 2 1
20 I have experienced slight growth in my assets 6 5 4 3 2 1
21 My assets have remained stagnant for the last 3 years 6 5 4 3 2 1
22 My assets have declined over the last 3 years 6 5 4 3 2 1
23 I have a Current Asset ratio that is greater than 1 6 5 4 3 2 1

END









52

APPENDIX 2: COMPUTATION OF THE CONTENT VALIDITY TEST FOR THE
QUESTIONNAIRE
The content validity index for the questionnaire was computed using the following formula;
CVI =R/TOTAL where Total =R+IR
R=Relevant questions
IR=Irrelevant questions
The indices were computed as shown in the table below
Table computation of content validity indices for the questionnaire
Rating of questions Computation

Variables No of items
Relevant (R) Irrelevant (IR) CVI=R/(R+IR)
Management
Competencies
59
45 14
0.763
Attitude towards
accessing finance
18
16 2
0.889
Performance 24
23 1
0.958











53

APPENDIX 3: KREJCIE, R. V., & MORGAN, D.W. (1970). TABLE FOR
DETERMINING SAMPLE SIZE

N S N S N S N S N S
10 10 100 80 280 162 800 260 2,800 338
15 14 110 86 290 165 850 265 3,000 341
20 19 120 92 300 169 900 269 3,500 346
25 24 130 97 320 175 950 274 4,000 351
30 28 140 103 340 181 1,000 278 4,500 354
35 32 150 108 360 186 1,100 285 5,000 357
40 36 160 113 380 191 1,200 291 6,000 361
45 40 170 118 400 196 1,300 297 7,000 364
50 44 180 123 420 201 1,400 302 8,000 367
55 48 190 127 440 205 1,500 306 9,000 368
60 52 200 132 460 210 1,600 310 10,000 370
65 56 210 136 480 214 1,700 313 15,000 375
70 59 220 140 500 217 1,800 317 20,000 377
75 63 230 144 550 226 1,900 320 30,000 379
80 66 240 148 600 234 2,000 322 40,000 380
85 70 250 152 650 242 2,200 327 50,000 381
90 73 260 155 700 248 2,400 331 75,000 382
95 76 270 159 750 254 2,600 335 1,000,000 384
Derived from: Krejcie, R. V., & Morgan, D.W. (1970). Determining sample size for research
activities. Educational and Psychological Measurement, 30,607-610.
N Is the population,
S Is the Sample Size