Microfinance Services And Financial Performance Of Small And Medium Enterprises; Case Of Kilifi Town, In Kenya

ABSTRACT

Small and Medium Enterprises continue to fail from the problems that Microfinance Institutions claim to offer solutions to. A survey by Kenya National Bureau of statistics, (2016 ) indicates that three out of five Small and Medium Enterprises businesses fail within the first few months of operation. A gap exists in finding out the effect of Microfinance Institutions and financial performance of Small and Medium Enterprises. This study therefore sought to establish the effect of microfinance services by microfinance institutions on the performance of small and medium enterprises. The study was guided by the following objectives; to find out the effect of credit facilities, provision of financial literacy, development of management skills and market facilitation on the performance of Small and Medium Enterprises in Kilifi Town. The study was expected to establish the practical role of perceived solutions provided by microfinance institutions and how this affects growth of Small and Medium Enterprises. The study was anchored on Resource based theory and the dynamic capability theory of the firm. A survey design was used to accomplish the study objectives. Data was gathered from managers of Microfinance I institutions as well as Small and Medium Enterprises within Kilifi Town. Stratified sampling was adopted to select 66 Small and medium Enterprises and five microfinance institutions to participate in the study. Data was collected via a questionnaire whose validity and reliability was established in the pilot test. Quantitative data analysis was undertaken to generate both descriptive and inferential statistics, this was done using statistical package for social sciences (SPSS). Presentation of data was done in tables and interpretation made based on research objective. The Small Medium Enterprises are significantly aware of the services offered by the microfinance institutions. 89.7% of changes in financial performance of SMEs in Kilifi Town are explained by the independent variables of the study as indicated by an R square of 0.897. From the regression coefficients, the selected microfinance services by the MFIs in Kilifi County have a positive and significant influence on the financial performance of SMEs. The study concluded that the microfinance institutions have not done much in ensuring that their services reach and are appreciated by Small Medium Enterprises in the town. Credit facilities and financial literacy have significantly been extended to the Small Medium Enterprises by the microfinance institutions but development of managerial skills and market facilitation have not been done to expectations. The study recommends sensitization of the Small Medium Enterprises before credit extension to them through extensive financial literacy training and managerial skills development by the MFIs.