The Effect of Financial Products on Financial Performance of Small and Medium Enterprises in Nairobi County

Abstract

The importance of financing products on performance of SMEs can therefore not be underestimated. Access to financing products such as savings, credit, insurance and payment services lead to a positive improvement in financial performance of SMEs. Despite the fact that SMES are the vital and significant contributors to economic development through their critical role in providing job opportunities and reducing poverty levels, there is a high failure rate among SMES attributed to financing. This study sought to determine the effect of financial products on the financial performance of Small and medium enterprises in Nairobi County with an aim of making policy recommendations for improvement. The theories adopted by the study include credit access theory,Microfinance Credit theory, financial growth life cycle theory and adverse selection theory. A descriptive survey design was adopted to achieve the research objectives. The study target population consisted of a total of 30, 253 small and medium enterprises which operate in Nairobi County according out of which 400 SMEs were sampled. The data collection instrument used was a questionnaire and data was analyzed through correlation and regression analysis. The study findings showed that the financing products that are micro savings products, micro credit products and internet banking products had a positive and significant effect on financial performance of SMEs. Micro insurance products had a positive but not significant effect on financial performance of SMEs. The study recommends SMEs in Kenya to adopt Savings products with high annual interest. There is also need for SMEs to adopt savings products with no minimum balance and savings products which are accessible any time. The study also recommends SMEs to adopt loan products which are guaranteed by the financial institutions such as short term loan products, emergency loan products and group loan products as well as micro leasing products. Further, there is need for SMEs to adopt insurance products such as property insurance products, life insurance products, general liability insurance products and crime insurance products. Furthermore, the study recommends SMEs to adopt internet saving products such as internet deposit products, internet credit products and internet insurance products.