Influence of Government credit scheme on growth of micro and small enterprises in Vihiga District of Vihiga county, Kenya

Abstract

MSEs are vehicles of achieving the Millennium Development Goals (MDGs) and Vision 2030 (Republic of Kenya, 2008). This study attempted to look at the influence of Government credit scheme on the growth of MSEs in Vihiga District of Vihiga County in Kenya. The purpose of the study was to assess the impact of government lending on the growth of MSEs and in solving societal problems such as poverty, unemployment and the problems encountered by MSEs including poor access to credit and low rating in terms of creditworthiness. The objectives of the study were to examine whether the Government Credit Scheme had achieved its goals which include: enhancing access to credit, reducing poverty levels, creating employment and improving MSEs creditworthiness in the mainstream financial sector. Had the four aspects of the GCS influenced the growth of MSEs in Vihiga District of Vihiga County? The study adopted a descriptive survey design with both qualitative and quantitative approaches. In the background of the study, the definition and economic contribution of MSEs worldwide is covered. The study zeroed on MSEs in Africa and specifically Kenya. Poverty as a global phenomenon was tackled. The contribution of MSEs to gross domestic product in Kenya and employment creation was reviewed. The objectives of the study included; assessing how access to credit, reduction of poverty levels, creation employment and improvement of creditworthiness as aspects of Government Credit Scheme influence the growth of MSEs in Vihiga District. The policy framework was analyzed in view of its moderating influence on the growth of MSEs in Kenya. The MSEs were classified into strata with a representative random sample obtained from various sectors comprising 203 MSEs out of the 448 enterprises that had been funded under the GCS selected for the study, that is: retail trade, carpentry, bookshops, tailoring, bar and restaurant, wholesale trade, posho mill, agribusiness, catering services, chemists, hardware and salon. The data collection instruments that were employed were; structured interviews, questionnaires and non-participant observation. To ensure internal validity of the instruments, theoretical expectations were observed and care was taken in the selection of indicators to measure the key concepts under study. To enhance external validity, all sectors of MSEs were represented with random sampling being employed to select the sample. Test-retest co-efficient was used to enhance the main questionnaire and ensure reliability during data collection. Quantitative and qualitative analyses were applied to establish essential facts, accomplish the objectives and to draw relevant conclusions. The study established that the GCS had made an important contribution to the growth of MSEs in Vihiga District. The finance offered through GCS had improved the standard of living of the households of the entrepreneurs that were funded, improved the creditworthiness of MSEs and led to creation of employment opportunities. The study also established that a majority of the businesses that had been loaned through the GCS in Vihiga District had recorded growth in all the parameters that were used to measure growth; growth in profit, creation of jobs, expansion in stock and opening of new branches, acquisition of new technology and purchase of new equipment. In view of the findings outlined, the study recommends that the maximum loan amount be increased from Kshs.100, 000/= to Kshs. 500,000/=. The repayment period should also be increased from 24 months to 60 months. The government should look at the possibility of granting a grace period of one or two months to the MSE operators before commencement of loan recovery. It is invaluable that BDS be an integral and key plank of the government’s intervention policy. It is proposed that “business extension” officers be engaged to offer BDS on an ongoing basis to improve the transition rate to medium and large enterprises. The study concluded that the GCS is an important tool that can be used to spur business growth in Vihiga District and should be upscaled to cover more MSEs than is currently the case.