Role of micro credit in promoting growth of small business in Kisumu: a case of Kenya Women Finance Trust

Abstract

Micro credit forms a basis for the realization of the social and economic pillars of the Kenya government's growth blue print, Vision 2030 (Republic of Kenya, 2008). Access to micro credit improves the economic status of women and makes them more empowered in decision making (McCormick and Pedersen, 1996). Micro credit is essential in promoting growth of small business especially among women. This study attempted to look at the role of micro credit in promoting growth of small business among women traders within the Kisumu Central Business District. The objective of the study was to assess the relationship between access to micro credit and growth of small businesses among women within the Kisumu Central Business District. The relationship between access to Micro credit and growth of small business was formulated as hypothesis and its validity tested. Kisumu Central business district was chosen as a case for this study due to the number of businesses that are operated by women as well as the researcher's interest to determine the contribution that micro credit is making within the Kisumu central business district. Ex post facto design was used because of its simplicity, ease of administration and ability to gather data from a relatively large number of cases at a particular time. Classification of small business into strata enabled the choice of a representative sample that is: hairdressing stores; seamstresses; food kiosks; hairdressing and clothing and boutique shops; seamstresses and clothing and boutique shops, retail shops and others (hardware stores, ice producing and bookshops). Qualitative and quantitative analyses were used to establish essential facts, perform hypothesis tests and to enable relevant conclusions to be drawn. The feminist empowerment paradigm by Mayoux (1998a) has been applied in the study together with the financial sustainability theory and the poverty alleviation paradigm to show how micro credit programs influence small business operations. This study reveals that: (i) micro credit has played a significant role to increase profits, sales and to reduce liability levels among businesses that were sampled; (ii) treasury bills and premium bonds are the major sources of funding among others including gifts from well wishers and sale of assets; (iii) the KWFT uses individual and group solidarity methods to deliver micro credit to its clients; (iv) the procedures and systems used by KWFT in loan processing are reliable thereby keeping the defaulter rates low and that; (v) Default arises from calamities and emergency. The study recommends that its findings be considered to inform effort of new and established micro credit institutions in Kenya and beyond and that a similar study be carried out in a larger area so as to establish whether these findings can be generalized to a wider area and also if they hold in other situations. Also, another study that examines the roles played by the women groups in ensuring repayment of microcredit alongside the role played by institutional systems is recommended by the study.