Provision Of Banking Services And Financial Performance Of Small And Micro-Enterprises In Garissa County, Kenya

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ABSTRACT

The impact of Small and Medium Enterprises on all kinds of economies cannot be overlooked. Worldwide, they have been accepted as the engine of economic growth and for promoting equitable development. However, without finance, SMEs cannot acquire or absorb new technologies nor can they expand to compete in global markets or even strike company linkages with larger companies. Despite the fact that SMES are the vital and significant contributors to economic development through their critical role in providing job opportunities and reducing poverty levels, an estimated number of up to 40% of the start-ups SMEs fail by year 2 and at least 60% close their doors by year 4. This menace is attributed to poor financial management among small businesses. Accessing credit is a major constraint to the development and growth of MSEs and also to poor rural and urban households. This is mainly due to the behavior of lenders in terms of hedging against borrowers’ risks by demanding collateral, which they lack, and also information asymmetry. SMEs in Africa suffer from weak financial performance and a high failure rate. Scholars argue that judging by the poor performance of the informal sector, not much progress seems to have been achieved, despite government efforts to promote SME activity. Some of the key factors attributed to this poor performance is access to financial services. Therefore, the purpose of this study was to investigate provision of banking services and financial performance of Small and Micro Enterprises. The study was guided by the following specific objectives; effect of training services, bank assurance services, mobile phone banking services and credit facilities on financial pperformance of Small and Micro Enterprises in Garissa County Kenya. The target population for the study consisted of 1500 registered SMEs in Garissa County Kenya. A descriptive research design as well as an explanatory research design was used. The study used Fisher formula to sample 384 SMEs and then used random sampling to select the 384 SMEs. The respondents of the study were the owners and managers of the SMEs. The study used questionnaires to collect quantitative data using closed ended questions. Data analysis will be done using SPSS statistical software version 21. Descriptive statistics (Frequencies, Means and Standard deviation) and inferential statistics (Correlations and regression) were used in analysis. A multiple linear regression model was used for analysis and all tests were conducted at 5% level of significance. The study findings indicated that banking services are positively related with financial performance of SMEs. The study concluded that bank credit facilities offered by commercial banks in Garissa are favorable. The study also concluded that saving financial services, deposit financial services, credit financial services, insurance financial services and payment services are readily available on mobile phones and they make transaction easier and also affect financial performance of SMEs significantly. The study recommends that banks should improve their mobile phone banking products and invest more provision of these services as it encourages more access to finance thereby leading to better financial performance of SMEs.