The Effect of Microfinance Institutions Services on the Financial Performance of the Small and Micro Enterprises in Nairobi County

Abstract

The Kenyan SME sector has seen a paradigm shift in the last couple of years with intensified competition and entry of new well established players. However, financing small businesses in Kenya still remains one of the greatest challenges aspiring and practicing entrepreneurs face. As such, microfinance institutions are established so as to bridge the capital insufficiency gaps that exist among the SMEs. Though the provision of services by the MFIs is aimed at boosting the financial performance of the micro and small institutions, small businesses continue to experience difficulty in obtaining capital. The aim of the study was to establish the effect of microfinance institutions services on the financial performance of SMEs in Nairobi County. The research population was from of all the Nairobi County SMEs. The sample gave a total of 56 SMEs which was selected by using random sampling technique from the identified population. The study used purely primary methods in data collection. A descriptive analysis was employed to analyse the data. The findings established that the County received an equal distribution of the various microfinance services (loans, savings, micro-finance insurance and training) but the effect the services had on the SMEs were diversified. The results obtained also showed that, the effect of the variables combined had a strong relationship with SMEs financial performance as shown by a coefficient of correlation of 0.8704. The positive influence that exists between the variables is supported by 89% of the respondents stating a positive effect between microfinance services and SMEs performance. The study makes the conclusion that each service offered by the microfinance institution impacts differently, with some having positive impacts while others having negative impacts.