Effects of Micro Finance Services on the Financial Performance of Small and Medium Enterprises in Nairobi City County

Abstract

The industry of Small and Medium Enterprises (SMEs) is a vital pillar to any given economy. SMEs are said to provide approximately 70% of formal jobs in developing countries. Nevertheless, despite the huge contribution of SMEs to economic growth, majority of them still face financial challenges. Therefore, this study looked into the effects of micro finance services on the financial performance of small and medium enterprises in Nairobi City County. Social capital theory and joint liability theory were used in this study. Descriptive research design was employed on a target population of the 5,311 SMEs operating within Nairobi. This study employed a self-administered questionnaire to collect data from the sample size of 95 SMEs. The data was analyzed quantitatively where inferential statistics in terms of multiple regressions were done to test the combined effects of the independent variables of dependent. It was discovered that an increase in sources of financing to an SME increases the chances of an SME performing better financially. In addition, generation of business ideas was found to have a potential of improving financial performance. However, training programs as well as size of an SME were found to be statistically insignificant in determining the financial performance of a given SME. The study therefore recommends that services provided by MFIs should focus more on financing businesses. To add on that it is suggested that, there is need for SMEs to be encourage to attend more training where they can share good and viable business ideas gotten from established entrepreneurs or institutions. Ultimately, the Central Bank of Kenya (CBK) should consistently check on the interest rates charged by lending institutions in Kenya.