The Relationship Between Access to Microfinance Services and Financial Performance of Micro, Small and Medium Size Enterprises in Embu Town

Abstract

Micro, Small and Medium size enterprises are constrained by a number of factors which include among others difficulty in accessing credit facilities. In a bid to improve MSMEs access to credit there has been a significant growth of MFIs. The researcher was carried out with the objective of finding out the relationship between access to microfinance services and financial performance of the micro, small and medium size enterprises in the busy town of Embu in Eastern province of Kenya. To achieve the stated objective a quantitative historical research design was used, primary data was collected using a data collection sheet on the financial performance of the MSMEs in Embu town. Out of the 50 MSMEs identified for our sample, 31 responded, representing 62% response rate. The research also used any available information from the secondary sources which was the financial statements of the organisations visited. The research quantified access to microfinance services in terms of the loans disbursed to the MSMEs while financial performance concentrated on organisation profitability measured in terms of Return on Assets(ROA). Descriptive analysis as well as regression analysis to analyse the data collected and found that there was only a very small positive relationship between the amount of loans disbursed and ROA while there was a stronger relationship to other control variables such as turnover and age of the business. There was a negligible negative relationship between the ROA and size of the business. Although the MFIs do have an impact on the financial performance of MSMEs, it is very small and may not form a strong case for their increased presence especially in rural town such as Embu town. Perhaps it is not enough to just disburse funds and the MFIs may need to equip the recipients more with business skills in order to run successful enterprises.