Evaluating the Effectiveness of Microfinance Institutions on the Sustainability of Small and Medium Enterprises in Zambia: A Case study of Lusaka's Mtendere East

The purpose of this study was to evaluate the effectiveness of Microfinance Institutions (MFIs) on the sustainability of Small and Medium Enterprises (SMEs) in Zambia, with a particular focus on Lusaka’s Mtendere East. The study aimed at assessing the accessibility of MFI services to SMEs, analyze the effects of MFI support on the sustainable financial performance of SMEs and investigate the challenges faced by MFIs in rendering services to SMEs. A case study design employing a mixed quantitative approach was adopted, involving 30 different SMEs and one MFI selected via purposive sampling. Using a sample size of 30 different SMEs, Findings revealed that 53.3% of SMEs secured access to Microfinance Services relatively easy while 36.7% reported difficulty. This was further explained by the Chi-square test between distance and access (χ² = 17.45, df = 9, p = 0.0421, Phi = 0.763). SME Financial performance showed 93.3% operational improvements, with a significant to customer acquisition (χ² = 13.98, df = 3, p = 0.0029, Cramér’s V = 0.694). However, Regression (R² = 0.008, p = 0.6373) and ANOVA (F = 0.464, df = 2, p = 0.633) found no significant relationship between financial management practices and profit change. Major constraints identified included high interest rates, poor credit history and length loan processing. The study recommended streamlining loan procedures, integrating financial programs and strengthening institutional governance to MFI effectiveness and SME sustainability in Lusaka’s Mtendere East.