Relationship Between Microfinance Contribution and Small and Medium Scale Enterprises Growth in Ahero, Kenya

Abstract

Microfinance has endeavored to develop sustainable enterprises and its innovations have been replicated all over the world. In East Africa, MFls endeavored to uplift small businesses throughprovision of affordable capital. The emergence of the micro-finance in Kenya has led to promotion of SMEs by advancing small loans for business investments. There are existing studies on MFI contribution to SMEs but no studies have been conducted to determine the extent of MFI contribution in Ahero therefore it is unknown. Previous studies have established SME growth but no single study has been carried out in Ahero to establish the extent of SME growth. Therefore the extent of SME growth in Ahero is not clear. Prior studiesshow little evidence to suggest any significant associations between MFI contribution and SME growth but other studies show that MFls that are financially sustainable with high outreachhave positive relationship with SME growth. No prior studies have been conducted in Ahero to examine associations between MFI contribution and SME growth. The main objectiveof this study was to investigate the associations between microfinance contribution and SME growth in Ahero. Specific objectives were to: establish extent of MFI contribution in Ahero; establish extent of SME growth in Ahero and examine associations between MFI contributionand SME growth. The conceptual framework directly relates MFI contribution to SMEgrowth. Survey research design was adopted. Study population consisted of 319 SMES and a sample size of 167 SMES was drawn using proportionate stratified sampling with 100%response rate. Pretesting revealed the measure to be reliable at an alpha of 0.72 and had a good face and content validity. Results for establishing extent of microfinance contribution in Ahero show a mean of3.63 and standard deviation of 1.07 meaning that the extent ofMFI contribution in Ahero is low. It is recommended that MFI contribution in Ahero should be improved. To establish extent of SME growth in Ahero, results report a mean oD.79 and standard deviation of 0.75 meaning that extent of SME growth in Ahero is high. It is recommended that the trend of SME growth should be sustained in Ahero. To examine associationbetween MFI contribution and SME growth in Ahero, results indicate a moderate correlation at r=0.496(p=0.000) meaning that the association between MFI contribution and SME growth is highly positively significant. It is recommended that MFI contribution towards SME growth should be strengthened. This study will be of significance to entrepreneurs for growth of their enterprises, to government for policy formulation and for academicpurposes it will be of significance to researchers for further research in this subject area and to students and lecturers for more information,