The effects of access to micro-finance on the financial performance of small and medium enterprises owned by youths in Nairobi Kenya

Abstract

Small and Medium Enterprises (SMEs), according to the National Micro and small enterprises Baseline survey of 1999, contribute 20% to the GDP of Kenyan economy. The vision of Microfinance on the other hand is to steer the growth of micro enterprises. There has been a rapid growth in the Microfinance sector over the years. However despite this growth in Microfinance, recent studies like that of Bowen and Makarius (2009) shows that over 50% SMEs continue to have a deteriorating performance with 3 in every 5 SMEs falling within the months of establishment. This then lead to the question of the effectiveness of the role of microfinance in promoting the financial performance of SMEs. The objective of the study was therefore to evaluate the effect of access to microfinance on the financial performance of youths owned small and medium enterprises in Nairobi County Kenya. The study employed a cross sectional survey design. A sample of 100 youths’ owned SMEs was selected from a population of over 235 000. SMEs using a simple random sampling technique. The researcher used both the primary and secondary data. The primary data was collected by use of semi-structured questionnaires. Quantitative data was analyzed by use of descriptive statistics and multiple regression analysis. The study found that most SMEs borrow investment capital with few inheriting their business from their parents or guardians. The empirical results further revealed that loan had the largest significant effect on the financial performance of small and medium enterprises with a beta coefficient of 0.309 followed by savings mobilization with a beta coefficient of 0.210 and training in micro enterprise investment had the least but significant effect with a beta coefficient of 0.048. Based on the findings, the study concludes that provision of microfinance services has a significant effect on the financial performance of the youths’ owned enterprises in Kenya. Therefore the provision of microfinance to the youths to engage in small and medium enterprises will spur economic development and keep our Kenyan youths busy thus avoiding disasters like what the country experienced in the post election violence in 2008. From the study findings, the study recommends that in order to enhance the effects of microfinance services on the financial performance of SMEs owned by youths in Kenya, the MFIs should continuously train their clients on entrepreneurial skills. Government should also consider partnering with MFIs to enhance this training or even establish institutions for strictly training youths in entrepreneurial skills. The study also recommends that academicians to carry on a research by comparing those youths who are beneficiaries of MFIs services and those that are not but are engaged in SMEs.