The relationship between microfinance credit and financial performance of micro and small enterprises in Kenya
Microfinance refers to small scale financial services such as cash loans, money transfers, direct deposits, savings, and insurance made accessible primarily to the poor. Microfinance programs and institutions have become increasingly important in promoting MSE development in developing countries, and specifically to reduce poverty. Microfinance is widely celebrated as a possible solution to the financing problems of micro businesses and smaller firms. Through MFIs poor individuals are granted the possibility to access local financial markets and to invest in small businesses. MFIs enable people to engage in productive economic activities and thus contribute to development in low income populations. Micro finance schemes have been found to reduce poverty and to positively affect nutrition, health and education as well as gender empowerment. For a long time in Kenya, promotion ofMSE sector has been duly recognized as a viable and dynamic strategy for attainment of national goals such as job creation, poverty alleviation and development between diverse sectors. These are the cornerstones of a strong national base and domestic structures that are central to the Kenya government's vision of achieving newly industrialized country status by the year 2030. This study sought to find out whether there is a relationship between micro finance credit and the financial performance of the micro and small enterprises in Kenya. The study employed the causal research design to establish the cause and effect relationships between the various research variables. Cluster sampling of MSEs in the central business district in Nairobi was done by clustering the MSEs based on the streets where they are located. A sample of 65 MSEs within the central business district was selected for the survey. A semi-structured questionnaire was used to collect primary data from the respondents. Descriptive and inferential statistics were used to analyse the quantitative data collected. The research findings indicated that there is a strong positive relationship between microfinance credit and the financial performance of MSEs.