Microlending Services and Financial Performance of Small and Medium Manufacturing Enterprises in Nairobi County, Kenya

Abstract

Microlending services has been acknowledged as an essential instrument for the underbanked, particularly micro, small and medium enterprises (SMEs), to better their economic standing, profitability and growth. The research objective was to establish the effect of microlending on the performance of SMEs in the manufacturing sector in Nairobi County, Kenya. Specifically, the study determined the effect of microcredit services, micro saving services, microinsurance and microfinance training services on performance of manufacturing SMEs in Nairobi County, Kenya. This study was based on the delegated monitoring theory and microfinance theory. The research adopted a descriptive research design. The population of the research was 141 SMEs that engaged in manufacturing activities in Nairobi County, Kenya and were members of Kenya association of manufacturers (KAM). This study was a census. This design was selected because the population of 141 manufacturing SMEs in Nairobi County was accessible and small. A structured questionnaire was applied to gather data. The drop-and-pick-later method was adopted in administering the questionnaire. The analysis of data entailed applying both descriptive analysis and inferential analysis techniques. Frequencies, means, percentages and standard deviations were the descriptive analysis measures that were used. The study also applied multiple linear regression. Results were presented in figures and tables. The study findings indiacted that performance of manufacturing SMEs was positively and significantly affected by micro credit (β = 0.725, p < 0.05). The research findings also determined that the performance of manufacturing SMEs was significantly influenced by micro savings (β = 0.460, p < 0.05). Additionally, the study results determined that micro insurance had a significant positive effect on performance of manufacturing SMEs (β = 0.258, p = 0.015). The results of the research also indiacted that microfinance training did not have a significant influence on performance of manufacturing SMEs (β = 0.173, p = 0.135). The study recommends to manufacturing SMEs to seek microcredit services from MFIs to empower them to take advantage of profitable investment prospects. The study also recommends to manufacturing SMEs to enhance their saving culture by opening accounts in various MFIs. Moreover, MFIs should act as effective delegated monitors and provide valuable advice to manufacturing SMEs regarding savings and other microlending services that the MFIs have that can be suitable for the SMEs. Regarding microinsurance, the study recommends to manufacturing SMEs to take microinsurance to cover their valuable assets against risks such as theft, and fire. The study also recommends to SMEs to take up microfinance training services for all their staff that deal with finance and related matters.