Effects of Microfinance Innovations on Availing of Finance by Microfinance Institutions to Small and Medium Enterprises in Kenya

Abstract

The study sought to investigate the effect of Microfinance innovations on availing of finance by Microfinance Institutions to small and medium enterprises in Kenya. There are various challenges that entrepreneurs face in order to access finances because of their education background, gender or age, irregular nature of their business and external factors such as product designs that require minimum account balances to operate. These challenges inhibit them from accessing financial services such as provision of credit, savings and current accounts and funding used for working capital and long term capital for their businesses. MFIs Innovations enable financial products to be available and accessible at the least cost possible to their clients. Some innovations undertaken by the MFIs are technology based, product based, strategy based, location based among other innovations. The project explored product based and location based innovations that are available to small and medium enterprises and the relationship between the innovations by the institutions and availing finance by the MFIs to the SMEs. A census survey was carried out and 6 DTMs out of the 13 licensed by the Central Bank of Kenya were used in this study. The data was collected from the Central Bank of Kenya Annual bank supervision reports, Association of Microfinance Institutions annual reports on the Outlook of the industry and also from annual reports of the individual MFIs under the study. Data collected included the number of deposits accounts to determine availability of finance, number of loans products and saving products introduced and number of branches (location innovation) for a seven year period between 2009 and 2015. The information collected was analyzed using SPSS to determine the relationship between availing of finance by the MFI and Microfinance innovations. The research found that there is a strong positive correlation between innovations and availing of finance and it is important for MFIs to be innovative so as to increase the number of deposits and in turn avail finance to small and medium enterprises in Kenya.