| dc.description.abstract | The general trend of declining growth of Small and Medium Enterprises (SMEs) in Sub- Saharan Africa, as demonstrated by previous studies, pose uncertainty for the effective survival of these firms. Their levels of market share, revenue generation and liquidity continue to change adversely due to inflation and other economic operatives. On the other hand, the cost of Micro finance as their main source of funding has been fluctuating on an increasing trend. Subsequent studies have further established formal enterprise response to cost, but there is limited attention to such informal but popular business categories such as SMEs. Neo-Marxist theory described micro finance as perfect solutions to the perennial poverty afflicting the low income groups. The Kenyan Government has been actively promoting MFIs towards realizing Kenya Vision 2030; by creating specialized funds for specific groups’ uptake, so as to create and promote enterprise engagements. There is sufficient evidence showing that SMEs still encounter a lot of financial challenges in running their businesses which results into poor performance, lack of prosperity and even ‘business death.’ The purpose of this study was therefore to establish the effect of Micro Financing Costs on the growth of Small and Medium Enterprises in Kisumu City. Kisumu City has high number of SMEs and increased consumption of micro credits; as mainstream financing method to facilitate effective access to the financial resources for SMEs,and to help unlock their potential contribution to the County’s economy. The specific objectives were to; establish the association between credit cost elements with growth factors of SMEs, determine effect of micro financing cost elements on turnover, liquidity, profits and expansion of SMEs in Kisumu City and to establish the effects of micro financing costs on growth of SMEs in Kisumu City.The study adopted a correlation research design. The population of the study consisted of 650 managers of SMEs. Cluster random sampling and Slovin’s sampling model was used to determine a sample size of 177 SMEs. The study applied both primary and secondary data. Structured questionnaires were used for collecting primary data while Secondary data schedules will be used to collate secondary data. Reliability and validity of the data was obtained through predetermined tests of consistency. Data was analyzed using correlation and regression methods. The results of the study will be presented in frequencies and percentages, in tables and figures. Chi-distribution method was applied in testing the hypothesis. The findings of the study may be useful for the advancement of the theory of credit management especially as it applies to the new innovations such as micro financing and how well these may be used to turn around the declining fortunes of SMEs in the wider developing world.
The results of the study was presented in tables of correlations and regressions, giving correlation coefficients, coefficient of determinations and F- tests. With a coefficient of determination (R square) of 0.772, the study found that 77.2% of the variations in business growth factors of SMEs in Kisumu City is explained by MFI loan costs.(Processing fees, Interest rates, Commitment fees and default penalties). The p – value associated with the F- value was very small. The analysis therefore reveals that processing costs, commitment fees, interest rates and default penalties on MFI loans adversely affect growth of SMEs and the study recommends a revision and harmonization of these variables with the lending regulations currently prevailing in the wider financial market. | en_US |
