The Effect of Financial Access on the Financial Performance of Small and Micro Enterprises in Mukuru Slums

Abstract

The role of the small and micro enterprises (SMEs) continues to be in the forefront of policy debates not only in developing countries but also in developed countries in creation of employment, driving innovation and entrepreneurship, reduction of poverty and other social challenges. This is more so for SMEs in slums as debate on how to improve living standard in informal sector attracting a lot of interest. Financial access has been found to be the blood of small and micro enterprises and a key determinant of financial performance in developed countries. The role of ensuring financial access is facilitated by the financial sector that mobilizes savings and allocates them to economic uses while providing critical information and discipline for economic agents as well as a mechanism for the allocation and management of risks and hence influencing firm’s financial performance. Due to the short term nature of the financing needed by the SMEs in slums, informal and semiformal financial institutions respond relatively well compared to the formal financial institutions to provide the required finances. However the effect of finance access to Mukuru slums SMEs remains unknown with studies neglecting the area. This study therefore sought to determine the effect of finance access on financial performance of SMEs in Mukuru slums. The study adopted descriptive research design. The research data was collected using questionnaires and secondary data from financial statements. Data was analyzed using SPSS version 21. The study found that financial access has positive and significant effect on SMEs financial performance in Mukuru slums. Further, 43% of the SMEs in Mukuru slums finance their operations from informal financing, 34% from formal sources and 23% from semiformal sources. The study concluded that informal sources of finance lead to better financial performance on SMEs that formal and semi-formal sources of finance. The size of the SME and the age were found to have positive and significant effect on financial performance. The study recommends the formulation of measures to ensure to facilitate SMEs in slums areas financial access. The policies can involve an establishment of special fund to cater for slums SMEs financial needs.