Economic implications of lending of micro finance Institutions on micro and small enterprises in Kenya
The study was earned out to establish whether the credit schemes administered by MFI have an impact on MSEs performance in terms of parameters such as sales, net income, fixed assets, number of employees and space occupied by businesses. The study established that MSEs that participated in the schemes achieved tremendous impact. The results showed that the MSEs which participated in the scheme longer and therefore took more number of loans experienced higher impact in the above-mentioned parameters. Further, the study sought to establish whether MSEs which participate in the MFI credit schemes graduate to borrow from commercial banks upon attaining higher loan requirements than those offered by the MFIs and the rate of such graduation. The results obtained indicate that the rate of graduation is small despite the fact that many MSEs have attained the minimum loan levels that are obtainable from commercial banks. / The reasons for such low graduation rates include stringent bank requirements, which include collateral securities, guarantees, financial statements, interest rates and loan sizes. In addition to stringent bank requirements, other factors, which hinder graduation, include among other factors the fact that banks shun MSEs, entrepreneurs are afraid to go to banks, loan processing takes too long in banks. Despite this apparent low' rate of graduation, it is important to note that most MFIs are desirous of MSEs graduating from their schemes. To promote graduation they train the entrepreneurs, provide them with incentives to enhance growth, monitor their business trends and recommend them to banks where applicable. x The study concludes that credit schemes provided by MFIs to MSEs have tremendous effect on MSEs performance. It further concludes that despite this impact, MSEs are hindered from graduating to borrowing from banks by various factors such as stringent bank requirements.