Microfinance Services and Growth of Micro and Small Enterprises in Kenya

Abstract

When a Micro and Small Enterprise requires financial services from commercial banks, collateral hindrances limit the growth of MSEs. Though Micro and small Enterprises make a tremendous contribution to worldwide economies, lacking sufficient credit, entrepreneurs are seldom able to take advantage of discounts on new materials, and are unable to extend credit to their customers. SMEs are especially important for the Kenyan economy, as they are expected to address the high unemployment and poverty rate the country is experiencing. Micro and small enterprises have a high mortality rate. Many are started every year but very few see their third birthday. Micro and small enterprises do not grow at the expected rate to become medium enterprises hence the “missing middle” phenomena. In Kenya and elsewhere, micro finance institutions have been on the rise with MFIs having been portrayed as a way to reach poor people in the development process, meet the UN Millennium Development Goals, and as a new innovative strategy for alleviating poverty. Empirical indications are that the poor can benefit from micro finance from both an economic and social well-being point of-view. This study sought to establish how the MFIs entrepreneurial services have influenced the growth of the MSEs. The objectives of this study were to establish how entrepreneurial working capital service, entrepreneurial capital services, entrepreneurial capacity building and entrepreneurial networking and moderating role of external environment influences growth of Micro Enterprises in Kenya. This study was anchored on the epistemology philosophy and adopts a positivist approach. The study used a cross sectional survey research design where, a self-semi structured questionnaire was administered to collect the primary data from the target population who were the MFIs customers. The Study was being limited to five deposit taking MFIs, the key respondents of the study were limited to owner-managers of micro and small enterprises in Kenya accessing the entrepreneurial services from the selected five deposit taking and offering the targeted entrepreneurial services. The MSEs customers that were sampled using the multistage cluster sampling the questionnaire were tested for reliability and validity. Data was analyzed using the descriptive to analyze qualitative data and inferential statistics. The study found that there is positive relationship between Microfinance Entrepreneurial Services on Growth of Micro and Small Enterprises (MSEs) in Kenya. This means that the MSEs need access to working capital service; entrepreneurial savings services, capacity building service and entrepreneurial networking services from the MFIs. Study however recommends the following that MFIs need to ensure that while offering capital and saving services to MSEs they should also consider external environment while empowering them through capacity building and also entrepreneurial networking. They should also; improve capital access policies for the MSEs because they cannot afford the needed collateral and meet the costs of credit, stop putting emphasis only on savings by MSEs but also introduce other services that empower them to grow through maintaining their business books, consider job rotation as a way of training their employees and they need to introduce new services and products and finally network play a pivotal role and acts as pillar in any entrepreneurial venture in the current market and therefore there is need for the MSEs and MFIs to find ways to establish business network in the industry and outside. The findings inform the stakeholders on how to improve the MFIs entrepreneurial services access by the MSE for growth.