Micro Credit Finance And Financial Performance Of Small And Medium Enterprises In Nyamira Town, Kenya

ABSTRACT

The critical role played by small and medium enterprises in growing economy cannot be

underestimated. Small and Medium Enterprises (SMEs) are characterized by rapid

growth and the potential to create employment and boost the GDP. Performance of Small

and Medium Enterprises (SMEs) are signs of economic growth in many counties in

Kenya and beyond. Although there has been improved access to credit by SMEs

overtime, SMEs have continued to suffer financial challenges. Existing research indicates

that 50% of the SMEs operate in a financial deficit and some of the SME owners are still

uncomfortable with such credit extended to them. Therefore the general objective of the

study was to analyze Micro Credit Finance and Financial Performance of small and

medium enterprises in Nyamira Town, Kenya. The specific objectives were to; determine

the effect of microfinance loans on financial performance of SMEs in Nyamira Town,

establish the effect of microfinance saving on financial performance of SMEs in Nyamira

Town, assess the effect of microfinance insurance on financial performance of SMEs in

Nyamira Town, and to establish the moderating effect of size on the relationship between

micro credit finance and financial performance of SMEs in Nyamira Town, Kenya. To

achieve the objectives of the study, null hypotheses was developed and tested. The

developed hypotheses was: there is no significant effect of microfinance loans, savings

and insurance on financial performance of SMEs and Business size has no significant

effect on the relationship between micro credit finance and financial performance of

SMEs. The study employed correlation research design. The target population was 550

registered SMEs as per register records Trade Department in Nyamira County. The study

sampled 232 owners of SMEs through stratified random sampling technique. Primary

data was gathered by use of questionnaires. Data was analyzed by use of descriptive and

inferential statistical methods. The test creterio was set such that the study rejected the

null hypothesis if the t-statistic value was significant. Validity and reliability of research

instruments was conducted with the aid of piloy study. Data was presented by use of

tables and figures. The study will be of significance to the County Government of

Nyamira so as to develop SMEs in the County for enhanced county revenue collection.

The study found out that Micro Credit Finance is positively and significantly related to

financial performance of SMEs. The study results imply that microfinance loans had a

higher positive and significant relationship on financial performance with a person

coefficient (r) of 0.604 followed by microfinance insurance and microfinance saving, r of

0.595 and 0.570 respectively. The study also found out that business size plays a greater

moderating effect on the relationship between micro credit finance and financial

performance of SMEs. The study therefore rejected the null hypotheses and concluded

that microfinance loans, microfinance insurance and microfinance saving had a positive

and significant effect on financial performance of SMEs in Nyamira Town. The study

thus recommends that SMEs should consider taking loans so as to expand their business

and enhance financial performance. This can be undertaken through; favourable loan

repayment terms by financial insitutions and reduction of loan application fees. It is also

recommended that SMEs should insure their business and expand their savings so as to

realize improved financial performance.