Development Finance and Its Effects on Investment and Employment in Mses in Nairobi County

Abstract

One essential component of promoting development is access to finance. This is because finance is capable of opening opportunities to all people and it enables them to be competitive, innovative and skillful in generating employment opportunities and income for their society. These processes are further enhanced when the institutions providing finance are well established and can respond to state of development of a country. In Kenya for instance, the financial system is said to be fairly developed yet there still lingers the question of how small and micro businesses are going to expand and grow. Furthermore, the most accessible financial institutions have failed to respond to the needs of small and micro businesses. Their borrowing policies especially in regard to the interest rate, collateral requirement, and repayment period often locks out potential business owners. Given these circumstances, this paper sort to look into the effects of receiving financial support at a concessionary rate by looking into development finance. The main research objective was to explore the effects of utilizing loans from development finance institution on employment and investment. This was done by looking into the financial product offered by KIE and its effect on micro and small businesses. The choice of studying investment and employment was prompted by the assumption that business owners could gain easier access to finance and invest in businesses without creating employment opportunities hence creating a state of jobless growth. This study was grounded under the theory of development finance and supported by the theory of financial capability. This is because the study acknowledged that the nexus between access to finance and the desired outcome is not always linear. This study employed a mixed methods design. The qualitative technique was used through administering an interview guide to the key informant. The quantitative technique was used through administering a structured questionnaire to 51 micro and small businesses. This study found out that the business commonly funded were cyber cafés. More men than women used development finance for their businesses and the most common age of people who used this type of funding were person above the age of 40 years. A Cramer’s V test was used to determine the strength the relationship of variables under-study. The survey data that was used found out there was no relation to using development finance and increasing investment nor employment in most cases.