The Effect of Micro Finance Services on Financial Performance of Small and Medium Enterprises in Nairobi County

Abstract

Microfinance institutions are vital to the development of economy. Financial institutions avail the products for the SMEs to invest and expand their businesses which in turn boosts the economy. In communities that are underdeveloped, these institutions play a key in their growth as they avail funds to the SMEs who need them for expansion. This study investigated the impact of SMEs among the SMEs in Nairobi County. The researcher used a descriptive research design. The targeted population consisted of the 2,340 SMEs operating in Nairobi County and using stratified random sampling a sample of 234 respondents was selected. This study used secondary data obtained using a data collection sheet. The data was obtained for a period of three years from 2014 to 2016. To analyze the collected data, the regression model was adopted. The findings established that the relationship linking microcredit and financial profitability of SMES is positive and insignificant while correlation linking micro savings and financial performance of SMEs in Nairobi County was also positive and insignificant. The results also show correlation linking micro insurance and financial performance of SMEs was positive and significant while the association linking microfinance training and profitability of SMEs in Nairobi County was also positive and significant. The study concluded that microcredit and micro savings do not significantly affect the financial performance of SMES in Nairobi County The study concluded that micro insurance and the number of microfinance trainings significantly affects SMEs in Nairobi County financial performance. The study recommended that SMEs owner and managers can utilize microcredit as a source of finance which they can use to expand their enterprises. The study also recommended that SMEs owners and managers should always save some money with microfinance institutions since cash savings can be used to secure microcredit. Further, the study owners and managers of SMEs should use the microfinance insurance services to transfer risks, which might be affecting the SMEs. Finally, the study recommended that the owners and managers of SMEs should attend microfinance trainings and other forms of training since training so that they can get skills, which will help them to manage their enterprises.