The effect of microfinance services on the financial performance of small and medium enterprises in Embu county, Kenya

Abstract

Microfinance is “the provision of financial services to low-income poor and very poor self-employed people”. The research was aimed at investigating the effects of micro-finance credit on the financial performance of Small and Medium Enterprises (SMEs) in Embu County, Kenya. SMEs form the majority in the county. It helps in creation of employment in the county and in the country in general. The formal banking sector in Kenya over the years has regarded the informal sector risky and not commercially viable. This research problem was studied through the use of survey design. Out of the 1,579 SMEs licensed in Embu County, this study randomly sampled 60 SMEs. The study found that there is a direct relationship of microfinance services and especially micro- credit and financial performance of the companies. The study also concludes that the enterprises benefit from loans from microfinance institutions, the SMEs seek financial assistance from the MFIs due to amount offered, interest rate, and easy loan repayment. There is need to provide an enabling environment for SMEs to grow and thrive, and thus there needs to be developed strategies to enhance increased access to microfinance credit by SMEs from commercial banks and microfinance institutions. It is important for the government to set up policies that will ease microfinance credit to SMEs.