Effect of Micro-Finance Services on Performance of Small And Medium Enterprises in Kisumu East District, KENYA

Abstract

Though micro-finance institutions and markets literature show non-financial services, savings mobilization and micro-credit loans as important aspect of enhancing SMEs growth and sustainability, the effect of non-financial services on gro,wth of SMEs is unknown. Prior studies fail to link savings mobilization to SMEs growth and it is unknown how micro-credit loans associate with growth of SMEs. The purpose of this study was therefore to establish the effect of micro-finance services on performance of Small and medium enterprises in Kisumu East District, Kenya. The objectives of the study were to; determine the effect of non-financial services on growth of SMEs, establish the relationship between savings mobilization and growth of SMEs and assess the effect of micro-credit loans on growth of SMEs in Kisumu East District. The study was guided by a conceptual framework, in which micro-finance services was the independent variable, SMEs growth as 'the dependent variable. The study adopted correlational research designs. The population comprised of all the 2,232 SMEs within Kisumu East District. Stratified random sampling was used to pick a sample of 339 SMEs. Primary and data was collected through a structured questionnaire and desk review respectively. Instrument validation and reliability was done using expert review and Cronbach's Alpha reliability test respectively where all variables had alpha coefficient of above 0.7 indicating internal consistency. Data was analyzed inferential statistics namely Pearson's correlation and multiple regression analyses. The findings of the study were presented in tables, charts and graphs. The study findings were that nonfinancial services were negative significant predictor of growth of SMEs (P = -.094 (p = .087) implying that intensifying non-financial services leads to decline in growth of SMEs; savings mobilization had negative significant predictor of growth of SMEs (P = - .121 (p = .009) meaning that increased savings mobilization leads to reduced growth of SMEs and micro-credit loans had a positive significant association with growth leveler = 0.288, p =.000) implying that increase in micro-credit loans leads to improved growth in SMEs. The study concludes that; enhancing non-financial services given to SMEs leads to decline in growth of these SMEs; intensifying savings mobilization by SMEs leads to decline in growth of these SMEs and increasing micro-credit loans given to SMEs leads to improved growth of these SMEs. The study recommends that; SMEs in Kisumu East District should de-emphasize non-financial services; reduce their mobilized savings and seek more micro-credit loans. The research findings may be significant to SME financing policy makers in designing appropriate micro-credit products that maximize the firm's value. It may also be useful to entrepreneurs in making optimal financial structure decisions and provide new empirical evidence on the micro-finance services and performance of SMEs and form a basis for future research in the area