Effect of Access to Micro Financing on the Growth of Small and Medium Enterprises in Thika Sub County

Abstract

The Small and Medium Enterprise (SME) sector has continued to play an important role in Kenyan Economy. The Economic survey 2012 estimated that the contribution to the GDP by this sector currently stands at over 25%. Though the SMEs may be easily started, what highly determines their existence and profitability is their growth of which lack of finance has been identified to be the major constraint. This is attributed to the fact that most of the SMEs fail to meet the requirements in order to access credit from banks and other financial institutions. The emergence of microfinance provided reprieve for SMEs by providing them with credit and other services .Many studies have been done in Kenya on SMEs and how they are influenced by microfinance services but none had focused on the effects of access to micro financing on the growth of the SMEs. The purpose of this study was to find out the effects of micro financing on the growth of Small and Medium Enterprises in Thika Sub County. A descriptive research was used to study 5 categories of SMEs. The target categories were Agricultural activities, Healthcare, General Trade, Education & Training and Service Industry. Structured questionnaire was used to collect data from the businesses entrepreneurs. The sample of 142 businesses was taken as a representative sample of the population in the Sub county. The findings of the regression analysis explains 95.7% of the variations in the dependent variable. The growth of SMEs in Thika Sub County is explained by 95.7% of the services offered by MFIs. It is clear that there exist a positive relationship between growth of SMEs and access to micro finance by approximately 11.22%. Secondly, when education level diminishes by one unit percentage, SMEs growth reduces by approximately 17%. Thirdly, when SMEs continue to exist by one unit percentage, SMEs growth is experienced by approximately 44.4%. The study concludes that access to finance is a key element for small scale enterprises to succeed in their drive to build productive capacity, to compete, to create jobs and to contribute to poverty alleviation in the county. The study recommends that both the government and MFIs should come up with innovative ways to finance SMEs for successful growth. The findings of this study will be valuable to the government, MFI, SMEs and the academicians.