The effect of banking services on the profitability of the top 100 small and medium enterprises in Kenya

Abstract

Small and medium enterprises in Kenya form a bulk of the economy and its contribution is important for the country. Banks, also, are known to spur the growth of businesses and therefore the services they provide to small and medium enterprises are important to enable that growth. Various studies were done on the effects of banks on the small and medium enterprises but they had not analyzed using the variables used in the study. This provided the research gap and the research objective which was to determine the effects of banking services on growth of Top 100 SMEs in Kenya. The study used descriptive cross-sectional study design, with questionnaires being the primary data collection tool. The questionnaire was designed and sent to company managers for their response in order to answer the research question. From the responses provided and the study research objective, descriptive statistics was provided and data analysis was done using the multiple regression analysis as the study variables were in ordinal scale. Data was analyzed using SPSS to determine the effect of banking services on growth of the Top 100 SMEs in Kenya. The study findings indicated that that the value of SMEs’ assets, debt-equity ratio, monthly average savings and SME training had an effect on the profitability (ROA) of the SMEs while the amount of loan given to SMEs had no effect on the profitability of the Top 100 SMEs in Kenya. The study encountered several challenges including low response from the SMEs and also the absence of specific information which made the study to use ordinal scaling for data gathering. The study recommended that the government should have information from SMEs and have an information database so as to be able to gather information easily, help in policy formulation and aid in decision making.