The Influence of Micro Finance Credit on Performance of Small and Medium Enterprises in Nairobi City County

Abstract

Providing financial services, such as credit and saving facilities, is essential in developing any economy. Despite the efforts of microfinance institutions in facilitating microfinance services to financially marginalised individuals and SMEs, the expansion and growth of MEs show slow signs of growth and development. This study was guided by two specific objectives which sought to establish the extent to which SMEs in Nairobi have adopted the use of microfinance credit i and to determine the influence of microfinance credit on the performance of SMEs in Nairobi city county. literature review on the influence of microfinance credit on the performance of SMEs locally and globally was carried out to identify relevant theories and research gaps. Theories that guided this study were Credit Theory and The Theory of Financial Intermediation. The study adopted descriptive design. A target population of 297 SMEs were targeted and owners and managers were sampled with a total of 198 respondents. Structured questionnaires containing open and closed ended questions were used to collect data from identified respondents and were administered physically. Data was analysed using descriptive and inferential statistical processes. As per whether the respondents have ever used microcredit in their business majority 91% indicated yes while only 9% indicated no. It also reveals that most SMEs have taken microcredit loans on their businesses. From the analysis, the findings show that the majority 63% of the respondents took a loan for the aim of expanding the businesses, while 28% for starting business. The finding indicated that the majority 77% of the respondents accessed individual microcredit whereas 23 accessed group microcredits. Microfinance credit has improved the organization's risk-coping strategies, generating a mean of 2.080 and standard deviation 1.12811. The regression analysis shows a positive increase in overall SMEs performance (.348) when they use microfinance credit. The regression analysis shows that 0.735 changes in SME performance in the county could be explained by use of microfinance and the influence of microfinance. The data findings also show that a unit increase in adopted the use of microfinance will lead to ai0.500 increase in Performance of SMEs in Nairobi County; and a unit increase in the influence of microfinance credit. The adoption and influence of microfinance accounted for 0.181 and 0.213 of SME performance respectively. Adoption of the use of microfinance credit has a significant influence on performance ( p =0.047 < 0.05), Lending schemes also has a significant influence on performance ( p =025 < 0.05) This means that the most significant variable is adopted the use of microfinance credit followed influence of microfinance credit. The study evidently shows that through microfinance credits SMEs have improved the risk-coping strategies, microcredits have contributed to an increase in annual targeted profits there is an improvement in the liquidity and targeted sales volumes have been met through microfinance credits. The study recommends that micro–Finance Institutions need to review the requirements needed for SMES credit financing. To boost this, the quality of service offered by financial institutions should be enough to аttrаct more SMEs and increase the amount of borrowing of the SMEs traditional banking borrowers should be encouraged to seek alternative funding, if need be, in order to avoid the bureaucratic systems