Effects of Financial Inclusion on the Financial Performance of Small and Medium Enterprises in Mombasa County, Kenya

Abstract

Research sought to determine the effect of financial inclusion on financial performance of SMEs in Mombasa. Specific objectives were anchored on financial access, quality, usage and service delivery. The development of mobile banking, microfinances, SACCOs and internet banking in Mombasa County was aimed at improving financial access, enhance finance quality, financial use and service delivery, however, small businesses are still failing in their performance. There was need to empirically study these problem and be able to understand how financial inclusivity can help the financial exhibition of Small and medium enterprises. The study theoretical framework comprised of Grameen Theory, Credit Rationing Theory and Financial Intermediation Theory. Research methodology comprised of a descriptive research approach, a target population of 3000 SME owners in Mombasa County from which a study sample of 300 SME owners was selected forming a 10% representation. Data was collected primarily using questionnaires which were then tested for reliability and validity before a full scale was done. Data obtained was subjected to diagnostic tests to check collinearity, linearity and significance. Inferential and descriptive statistics was used to analyse the variable relationships aide by SPSS. The study established; a weak positive relationship between financial access and financial performance of SMEs in Mombasa County, the effect of financial access was attributed to accessibility of commercial banks and mobile banking that are more convenient to SME owners; a weak positive relationship between financial quality and financial performance of SMEs in Mombasa, the impact of financial quality was ascribed to adaptability in credit reimbursement period and protection of advance in order to limit defaulting; a weak positive relationship between financial use and financial performance of SMEs in Mombasa, the effect of financial use was ascribed to appropriate usage of assets for organizations and infusing of individual budgets to help business and a positive relationship between service delivery and financial performance of SMEs in Mombasa, the influence of financial use was attributed to good preparation of financial institutions and their intermediaries to serve the SMEs and special service line to help SMEs overcome challenges. The conclusion reached by the study was that; financial inclusion, significantly influence the financial performance of small and medium enterprises in Mombasa County. The measures recommended by this study include; training of SMEs on use of mobile banking application as many were found to borrow from multiple applications and failed to payback; an action that affected their credit rating. SME owners also need to be trained on the importance of recording their transactions so they can track all income and expenses. This study recommends for another study to be done on SMEs once the economy fully recovers to test if a stronger relationship will be obtained. Furthermore, the study was done in Mombasa County which is a financial hub for the region, also, subsequently there is need for a study to be conducted in different counties like Kilifi and Kwale to make a comparison if similar results can be obtained.