The Effect of Micro Finance Loans on the Financial Performance of Small Medium Enterprises in Nairobi County
Abstract
To examine the effect of micro finance loans on the financial performance of small
medium enterprises in Nairobi County. The study was descriptive in nature. The
population for this study was the SMEs operating in Nairobi County. The target
population was grouped based on 17 constituencies in Nairobi County: Westlands,
Dagoretti North, Dagoreti South, Langata, Kibra, Roysambu, Kasarani, Ruaraka,
Embakasi South, Embakasi North, Embakasi Central, Embakasi East, Embakasi
West, Makadara, Kamukunji, Starehe and Mathare. According to Public Procurement
Oversight, there were an estimated 5,596 SMEs operating in Nairobi County of which
526 SMEs belonged to persons with disabilities, 939 SMEs belonged to women, 18
were general SMEs while the largest chunk of 4538 SMEs belonged to the youths.
According to the table the sample population should be 357. A stratified random
sampling technique was used in this study. Random sampling employed to pick SMEs
for the sample. This study used a questionnaire in data collection. The study provided
two types of data analysis; namely descriptive analysis and inferential analysis. The
analysis entails gathering of data from different sources, their review and analysis to
form a deduction. This study used linear regression analysis model and so this study
will use the analytical software in data analysis. Among the software that was used
was Statistical Package for the Social Science version 21.0 (SPSS) and advanced
excel for analysis. The linear regression model was applicable since it allowed
simultaneous investigation of the correlations among different variables. The study
established that the type of business which most of the SME in Nairobi County
engage in is retailers. The study also found that microfinance loan influence financial
performance in SME’s in Nairobi County to a very great extent. The data findings
analyzed also shows that taking all other independent variables at zero, a unit increase
in Microfinance loans will lead to a 0.852 increase in financial performance of the
SME; a unit increase in age of the SME will lead to a 0.643 of the SME increase in
financial performance, while a unit increase in credit accessibility will lead to a 0.473
increase in financial performance of the SME. At 5% level of significance and 95%
level of confidence, the study found out that Microfinance loans, age of the SME, and
credit accessibility were all significant in financial performance of the SME. The
study concludes that the type of business which most of the SME in Nairobi County
engage in is retailers. The study also concludes that microfinance loan influence
financial performance in SME’s in Nairobi County to a very great extent. Based on
the key findings, the study made the following recommendations. Microfinance
Institutions should enhance training of their clients on the entrepreneurial skills so as
to enhance their skills as a large proportion of the respondents were found to be
certificate holders of high school graduates hence they lacked the necessary business
management skills. The study established that high interest rates and repayment
period inhibit some of the SME’s in Nairobi County from accessing microfinance
loans to a very great extent. The study also recommends the MFIs carry out
sensitization campaigns on the need to save among the traders
Publisher
University of Nairobi