SCHOOL OF BUSINESS AND EDUCATION

IMPACT OF MICROFINANCE SERVICES ON GROWTH OF SMALL AND MEDIUM

SIZED ENTERPRISES IN KIRINYAGA COUNTY

A RESEARCH PROJECT SUBMITED IN PARTIAL FULFILLMENT OF THE

REQUIREMENT FOR THE AWARD OF THE BACHELOR’S DEGREE IN

ECONOMICS AND FINANCE, SCHOOL OF BUSINESS AND ECONOMICS,

KIRINYAGA UNIVERSITY.

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 DECLARATION

This project is our original work and has not been presented for a degree in any other university.

Date Signature

1. PETER KIPLANGAT TOO BE109/G/7813/19 ------------------ --------------------

2. ABIMAEL KIPROTICH BE109/G/7814/19 ------------------- --------------------

3. KORIR BRIAN KIPROTICH BE109/G/7815/19 ---------------- --------------------

4. LUGALIA ASHWIN BE109/G/7817/19 ------------------ ---------------------

5. TIMON CHERUIYOT BE109/G/7818/19 ---------------- ---------------------

This Project is submitted for examination with my approval as the University Supervisor.

Signature ______________________ Date __________________

DR DAVID NJOROGE

KIRINYAGA UNIVERSITY

SCHOOL OF BUSINESS AND EDUCATION

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 DEDICATION

We dedicate this project to our families, lecturers, and classmates for their unwavering support,

encouragement, and patience throughout our studies, as well as their continuing prayers for our

course's successful completion.

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 ACKNOWLEDGEMENT

First and foremost, we would like to thank the Lord for providing us with excellent health so that

we could begin and finish this research project successfully. We'd like to express the deepest

appreciation to everyone who has provided us with continual support, encouragement, and

invaluable assistance throughout the course of this project. Secondly, we are thankful to Dr

David Njoroge, our supervisor, for his help, oversight, patience, and useful assistance in

completing our project. His suggestions, guidance, and constructive criticism provided us with

the drive we needed to complete the project successfully. Finally, we are grateful to the broader

KYU fraternity for supplying us with a supportive academic atmosphere and the tools we

required to complete our bachelor's degree.

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Table of contents
DECLARATION...........................................................................................................................ii

DEDICATION..............................................................................................................................iii

ACKNOWLEDGEMENT...........................................................................................................iv

LIST OF TABLES.........................................................................................................................v

LIST OF FIGURES......................................................................................................................vi

ABBREVIATIONS AND ACRONYMS...................................................................................vii

ABSTRACT................................................................................................................................viii

CHAPTER ONE: INTRODUCTION..........................................................................................1

1.1 Background of Study......................................................................................................1

1.2 Statement of the Problem...............................................................................................4

1.3 Purpose of the study........................................................................................................5

1.4 Objectives of the study....................................................................................................5

1.5 Research Questions.........................................................................................................5

1.6 Significance of the Study................................................................................................6

1.8 Limitations of the study..................................................................................................7

CHAPTER TWO: LITERATURE REVIEW.............................................................................8

2.1 Introduction..........................................................................................................................8

2.3 Conceptual Framework.....................................................................................................11

2.4 Empirical Studies...............................................................................................................12

2.5 Research Gap......................................................................................................................16

2.6 Summary of the Literature Review..................................................................................17

CHAPTER THREE: RESEARCH METHODOLOGY..........................................................18

3.1 Introduction........................................................................................................................18

3.2 Research Design.................................................................................................................18

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 3.3 Target Population..............................................................................................................19

3.4 Sample Size and Sampling Procedure..............................................................................19

3.5 Research Instruments........................................................................................................20

3.6 Data Collection Procedure................................................................................................21

3.7 Validity and Reliability......................................................................................................21

3.8 Pilot Testing........................................................................................................................22

3.9 Data Analysis......................................................................................................................23

CHAPTER 4: DATA ANALYSIS, RESULTS AND PRESENTATION...............................24

4.1 Introduction........................................................................................................................24

4.2 Response rate......................................................................................................................24

4.2.1 Socio-demographic characteristic of the respondents.................................................24

4.2.3 Number of employees in the SMEs................................................................................25

4.3 Microfinance and provision of loans................................................................................26

4.4 Reasons for seeking credit.................................................................................................27

4.5 The impact of insurance on the growth of SMEs in Kirinyaga County........................28

4.6 The effect of credit facilities on the growth of SMEs in Kirinyaga County.................29

4.6.1 Performance of SMEs after loans advance...................................................................30

4.7 The effect of financial literacy training on growth of SMEs in Kirinyaga County.....31

4.8 Microfinance and provision of training services.............................................................32

4.9 Regression and Correlation analysis................................................................................33

4.9.1 Interpretation of Results....................................................................................................35

CHAPTER 5: SUMMARY OF FINDINGS, CONCLUSION AND

5.1 Introduction........................................................................................................................37

5.2 Summary of Findings.........................................................................................................37

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 5.2.1 Regression analysis.........................................................................................................37

5.2.2 Startup capital on growth of small and medium sized enterprises............................38

5.2.3 Insurance on growth of small and medium sized enterprises.....................................38

5.2.4 Credit facilities on growth of small and medium sized enterprises............................39

5.2.5 Financial literacy training on growth of small and medium sized enterprises.........39

5.3 Conclusion...........................................................................................................................40

5.4 Recommendations for the research study........................................................................40

5.5 Suggestions for Further Research....................................................................................41

APPENDICES..............................................................................................................................46

Appendix 1: Letter of transmittal..............................................................................................46

Appendix 2: Questionnaire.........................................................................................................47

Appendix 3: Interview Schedule.................................................................................................50

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 LIST OF TABLES

Table

Table 1: Sources of Finance………………………………………………...page 48

Table 4.1: Socio –Demographic Characteristic of the Respondents ……… page 24

Table 4.2: Number Of Employees In The SMEs ………………………..... page 25

Table 4.3: Microfinance and Provision of Loans ………………………..... page 26

Table 4.4: Reasons for Seeking Credit from Financial Institutions ……......Page 27

Table 4.5: Insurance ………………………………………………………..page 28

Table 4.6: Credit Facilities …………………………………………………Page 29

Table 4.7: Respondents’ Prior Training on Management of MFIs Loans ….Page 31

Table 4.8: Microfinance and Provision of Microfinance Services …………Page 32

Table 4.9: Regression and Correlation Analysis …………………………..Page 34

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 LIST OF FIGURES

FIGURE PAGE

Figure1: Conceptual framework……………………………………………….11

Figure 4.1: Performance of SMEs after loans advances…..……………………32

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 ABBREVIATIONS AND ACRONYMS

GDP: Gross Domestic Product

KYU: Kirinyaga University

MFBs: Microfinance Banks

MFIs: Micro financial Institutions

MFSs: Microfinance Services

MSMEs: Micro Small Medium Enterprises

SMEs: Small Medium Enterprises

SMSEs: Small medium sized enterprises

SPSS: Statistical Package for Social Science

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 ABSTRACT

The goal of this study was to find out the impact of microfinance services on growth of small and

medium sized enterprises in Kirinyaga County. The project objectives were to: investigate the

impact of microfinance services on the growth of medium sized enterprises in Kirinyaga County;

determine the impact of government policies on the growth of small and medium enterprises in

Kirinyaga County and determine the challenges faced by small and medium enterprises in

Kirinyaga County in accessing business finances. The research was conducted using a

descriptive research approach. Questionnaires was the most common research instrument, and

was used to collect primary data as well as secondary data from published materials, the internet,

and library literature. To determine validity and reliability, research instrument was piloted in

Mwea. SPSS software was used to analyze the data collected. The data collected was analyzed

and displayed in tables and graphs using frequencies, percentages, mean, and standard deviation.

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 CHAPTER ONE: INTRODUCTION.

1.1 Background of Study

Microfinance is a development tool that grants or provides financial services and products such

as very small loans, savings, micro leasing, micro-insurance and money transfer to assist the very

or exceptionally poor in expanding or establishing their businesses (Robinson 1998). It is mostly

used in developing economies where SMEs do not have access to other sources of financial

assistance. The term microfinance can also be defined as the provision of financial services to

low income clients, including the self-employed. Financial services generally include savings

and credit. However, some finance organizations also provide insurance and payment services.

In addition to financial intermediation, many microfinance provide social intermediation services

such as group formation, development of self-confidence and training in financial literacy and

management capabilities among members of a group. Thus, the definition of microfinance often

includes both financial and social intermediation (Kumari, 2021). Microfinance is not simply

banking, it is a development tool. Microfinance activities include: Small loans generally for

working capital, informal approval of borrowers and investments, access to repeat and large

loans based on repayment performance, streamlined loan disbursements and monitoring and

secure saving products (Ngehnevu & Nembo, 2010).

The services provided to microfinance clients can be categorized into four different categories

these are: financial intermediation or provision of financial products and services such as credit,

insurance, credit cards and payment system should not require ongoing subsidies. Social

intermediation which is the process of building human and social capital needed by sustainable

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financial intermediation for the poor. Subsidies should be eliminated but social intermediation

may require subsidies for a longer period than intermediation. Enterprise development services

or non-financial services that assist micro entrepreneurs include skills development, business

training, marketing and technology. The growth of most economies in the world is mostly

influenced by how well the business enterprises are performing. The performance of these

enterprises mostly depends on how they can easily access finances. A microfinance is an

organization that offers financial services to low-income populations. Almost all microfinance

gives loans to their members, and many offer insurance, deposit and other services.

Microfinance fill some financing gap within the financial services industry by offering small

loans, or micro-loans, to people unable to access conventional loan services. They offer credits

and other financial services to the representatives of poor sections of population. Microfinance is

the notion of extending small, short-term loans to poor individuals and entrepreneurs that are

ordinarily excluded from formal financial/banking institutions. Individuals who lack credit and

access to traditional forms of money-lending are incapable to borrow small amounts of money to

start profitable businesses or support existing endeavors within their communities. Small loans

can spawn income and increase economic growth in an undeveloped country (Mosoti et al,

2022).

The concept of micro-financing arose out of the need to provide to the low-income earners who

were left out by formal financial institutions. Through the support of microfinance services Small

and Medium Enterprises (SMEs) have recorded notable growth. However, the formal banking

sector has now tailored a micro credit scheme in empowering the SME's in terms of credit

provision among other small lenders, Microfinance services are being recognized as one the of

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major sources of capital and the financial tools that reduce poverty, arouse economic growth in

evolving countries and provide solutions to joblessness (Mosoti et al, 2022).

This study was based on three theories, games theory of microfinance, economic theory and

theory of financial sustainability. According to games theory of microfinance, it backs the idea of

group lending among micro finance services (Ledgerwood 1999). The model has contributed to

wider social benefits because of their mutual trust agreement at the heart of group guarantee

system and the group itself often becomes the building block to a broader social network. Many

of the new apparatus rely on groups of borrowers to jointly monitor and enforce contracts

themselves. It is based on Grameen lending model of microfinance which is based on group peer

pressure whereby loans are made to individual groups of four to ten. Group members jointly

warranty loan reimbursements and access to consecutive loans depends on successful repayment

by all group members. Payment is typically made weekly or monthly. According to economic

theory, microfinance services are treated as infant industries. The essence of the economic

argument is that achievement in any business undertaking, including microfinance services, is

strong-minded by the entrepreneurs' capability to deliver suitable services and profitably

(Ongoro, 2022). Nevertheless, studies steered in different parts of the world indicated that there

are no successful microfinance services by this definition. According to theory of financial

sustainability, stressed that long-term survival and sustainability is critical for a microfinance

services is being able to stretch its target business and cover administrative and other costs

(Porter 1980). Whereas social goals of reaching the poorest and poverty mitigation are valid,

standing on one’s own feet is as true for low income family unit receiving microfinance services

as for microfinance itself.

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1.2 Statement of the Problem

SMEs are recognized to have an enormous potential for generating employment and creating

wealth in any economy. In Kirinyaga County, the SME sector has become stagnant and remains

comparatively small in terms of its potential to create more employment and contribute to

national GDP as shown by (Kinyua & Jagong’o, 2022). A survey of the financial constraints

hindering growth of SMEs found that the factors affecting growth were capital market, cost,

capital access, collateral requirements, capital management and cost of registration (Koech,

2011). No study had focused on the effects of microfinance services on the growth of SMSEs in

Kirinyaga County. Therefore felt that there was need for a study on this area and thus this study

intended to bridge this gap and focus on the effects of microfinance services on the growth of

SMSEs in Kirinyaga County. Despite the fact that there is no reliable data, indicators that are

imprecise show that there is improved utilization of capacity in the sector in recent years.

Microfinance services provide loans to small scale enterprises and their impact to economic

development has grown through expansion of operations, increased profits and increased

productivity. However, this has not been realized due to high interest rate, unrealistic terms of

repayment among others. The sector is still confronted with various constraints with credit

availability limitation as the principal one. In order for Kirinyaga County to achieve Vision 2030

initiative, the contribution of microfinance services in the growth of SMSEs is very important for

moving the country forward. The SMEs in Kutus, Mwea & Kerugoya just like the rest, require

financing and related services in order to realize their full potential and this can be provided by

microfinance. This study, therefore, is an initial step in that direction and will investigate

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whether microcredit and other services offered to SMSEs leads to improved growth and

development of small and medium enterprises (SMEs) in Kirinyaga County.

1.3 Purpose of the study

The purpose of this project was to determine the influence of microfinance services on growth of

small and medium sized enterprises in Kirinyaga County. This research project purpose to form a

basis for further research, provide knowledge to small and medium enterprises regarding

microfinance services.

1.4 Objectives of the study

The study would seek to achieve the following objectives:

i. To establish the effects of startup capital on growth of small and medium sized

enterprises in Kirinyaga county

ii. To find out the impact of insurance on growth of small and medium sized enterprises in

Kirinyaga County.

iii. To establish the effect of Credit facilities on growth of small and medium sized

enterprises in Kirinyaga County.

iv. To find out the effects of financial literacy training on growth of small and medium sized

enterprises in Kirinyaga County.

1.5 Research Questions

The study would seek to answer the following questions:

i. What is the effect of startup capital on the growth of small and medium sized enterprises

in Kirinyaga County, Kenya?

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 ii. What is the impact of insurance on the growth of small and medium sized enterprises in

Kirinyaga County, Kenya?

iii. What is the effect of credit facilities on the growth of small and medium sized enterprises

in Kirinyaga County, Kenya?

iv. What is the effect of financial literacy training on growth of small and medium sized

enterprises in Kirinyaga County, Kenya?

1.6 Significance of the Study

With the study on small scale development through use of microfinance services, the researcher

hopes that the study will form a basic material to the following beneficiaries:

The information will be useful for planners and decision makers in different institutions dealing

with microfinance program. The findings and recommendations will also be useful to small scale

enterprise managers in determining the usefulness of microfinance towards development and

growth of their enterprises. The academicians will also use the findings of this study to embark

on a related study. In other terms, the study findings in this research will act as reference for

other future researchers. The researcher will also acquire necessary skills of data collection,

interpretation, analysis and discussion and this will help him in carrying out similar research in

future and to enable him getting the award of other degrees related to economics and finance.

This study is important to finance theory as different businesspersons will understand better how

they can access finance from microfinance and also the diverse services offered by them and the

role they play in the growth of their business.

To the stakeholders in the Microfinance sector and the SMSEs sector they will properly

understand the role of Microfinance institutions in the growth performance of SMSEs. The

management of microfinance institutions would be engrossed to know the input of this sector to

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SMSEs economic development. The management of microfinance can be contented to see their

cash being thoroughly spent for the benefit of its customers.

The Microfinance services through this study will develop a comprehensive view of their

services and how they influence the growth of SMSEs. It will help Microfinance improve their

commitment with the SMEs. To the SMSEs, capital required in operating them is insufficient in

supply and very few of them have access to it considering the type of collateral required by the

microfinance or banks which must be satisfied before giving way loans. Since financial

institutions act as intermediaries between surplus and deficit of the SMSEs, at the end of this

research SMSEs entrepreneurs can be able to identify some sources of finance and pick the best

accessible option.

1.7 Scope of the study

The study was able to assess the impact of microfinance services on growth of small and medium

sized enterprises in Kenya precisely SMEs in Kirinyaga county. This study targeted SMSEs in

the county and assessed how microfinance services have affected their growth. This study was

conducted in the month of February, 2023.

1.8 Limitations of the study

The study may face challenges from institutions concerned with the study, in terms of the time

the management and the staff would waste instead of working. This would be tackled by assuring

the institutions that time wastage will be eliminated.

The sampling and selection of the specific SMSEs and staff members to be included in the study

may prove troublesome. SMSEs (groups) and the staff (sub groups) might not be well

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represented in the study. This study may also face challenges such as use of secondary sources

that may be outdated or old.

CHAPTER TWO: LITERATURE REVIEW

2.1 Introduction

This section provides a discussion on the different theories that support connection between

microfinance activities and growth of MSMEs. The theories discussed are the Games Theory of

Microfinance, Economic theory and financial sustainability theory.

2.2 Theoretical Review

The theoretical review suggests that microfinance plays an important role in promoting MSMEs

in Kirinyaga County. This can be supported by the following theories and the objectives they

relate.

2.2.1 Games Theory of Microfinance.

In microfinance, game theory can be used to model interactions between borrowers and lenders,

and to analyze how their behavior affects the overall success of the microfinance institution

(MFI). For example, game theory can be used to analyze how the interest rates set by the MFI

affect the repayment behavior of borrowers, and how the MFI can use incentives to encourage

timely repayments (Ledgerwood, 1999). Many of the new contrivances rely on groups of

borrowers to jointly monitor and enforce contracts themselves. This theory is based on Grameen

lending model of microfinance which is grounded on group peer pressure whereby loans are

made to individual groups of four to ten. Group members jointly guarantee loan reimbursements

and access to successive loans depends on successful repayment by all group members.

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The groups have attested effective measures in stopping defaults as evidenced by loan repayment

rates attained by organizations such as Grameen Bank (Bangladesh) that use this type of

microfinance model. The model has contributed to wider social benefits because of their mutual

trust agreement at the heart of group guarantee system and the group itself often becomes the

building block to a broader social network. However, group based instruments tend to be

susceptible to free riding and collusion where some members benefit at the expense of other

members who are contributing a lot to the scheme than other members. Inefficiencies are well

known to emerge in similar contexts (Grubes, 2005). The objective of game theory in

microfinance is to gain a deeper understanding of the strategic interactions in the microfinance

market and to identify ways to improve the availability of credit and the success of microfinance

programs for the benefit of low-income individuals and small medium businesses.

2.2.2Economic theory

Economic theory is a broad and interdisciplinary field, encompassing microeconomics,

macroeconomics, international economics, and other subfields. It is widely used by

policymakers, businesses, and individuals to make informed decisions about resource allocation

and to promote economic growth and development (Arrow, 1951). The essence of the economic

argument is that achievement in any business undertaking, including MFSs, is strong-minded by

the entrepreneurs' capability to deliver suitable services and profitably ( Muthoka, 2012).

Nonetheless, studies steered in different parts of the world indicated that there are no successful

MFSs by this definition. Some MFSs cover their operating costs whereas some of the better

known among them are able to cover in part the bankrolled cost of capital employed.

This situation suggests that the MFSs will not become financially viable in the long run. One

solution to this problem is to treat MFSs as infant industries, so that micro-lending businesses

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can be subsidized during their initial stages of operation. This subsidization would be beneficial

to both the economy and society because this will help micro lenders realize economies of scale

and the productivity stimulus that comes with profitability. The logic goes as follows: Many a

times, clients of MFSs, micro entrepreneurs will establish their economic contracts with banks,

retailers, government employees, and suppliers of production inputs, which will increase their

skills dealing with money management, contractual obligations, and resource management.

These abilities should reduce the cost of transaction, disseminate information, and increase the

micro entrepreneurs' ability to assess effectively available information to make sound business

decisions. Society benefits from what is, in effect, a productive process leading to the creation of

public goods as supplements from the growth of microfinance. To the extent that these public

goods have value, they are a legitimate basis on which to provide subsidies to MFSs while 8 the

transition to widespread outreach to poor households is ongoing (Heidhues, et al., 2002). The

objective of economic theory is to provide a framework for understanding how economies work

and how different economic actors make decisions. It is used to make predictions about how the

economy will respond to different policies and events and to evaluate the effectiveness of those

policies.

2.2.3 Financial sustainability theory

Financial sustainability theory is particularly relevant to organizations that operate in the social

and environmental sectors, such as non-profit organizations, social enterprises, and sustainable

businesses. It provides a framework for these organizations to achieve their mission and goals in

a financially sustainable way, and to create positive social and environmental impact while

generating long-term financial returns (Spreckels, 1981). While social goals of reaching the

poorest and poverty alleviation are valid, sustainable standing on one’s own feet is as true for

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low income households getting microfinance as for microfinance itself. Sustainability for the

microfinance has internal and external inferences. Internal in terms of deposit and savings

deployment, financial performance, staff motivation, loan administrative costs etc. while external

in terms of availability of funds for loan payment, funding for community organizing (Morduch,

2002).

This theory is based on three pillars. The first pillar is income diversification, referring not only

to internal income generation, but also to the number of income sources that provide our main

funding. The second pillar is on sound administration and finance knowing how to manage our

resources is as essential as to achieving financial sustainability as knowing how to generate

income. Efficient procedures for administration and finances are governed by a series of

institutional policies that help us make the most of our resources and ensure transparency in

fiscal management. The third pillar is own income generation. Own income generation is one

way for an organization to diversify its sources of revenue. The objective of financial

sustainability theory is to identify the key factors that contribute to financial sustainability and to

provide guidance on how MFSs can achieve financial sustainability (Morduch, 2002). This can

help MFSs to provide financial services to low-income individuals and small medium businesses

in a sustainable manner, which can ultimately contribute to the economic development of the

communities they serve.

2.3 Conceptual Framework

To conceptualize, the research concentrated on four main independent variables affecting

business growth. The framework developed to meet the objectives and answer the research

questions is as shown below. Figure 1 presents a visual illustration of the factors that affect the

growth of small medium sized enterprises in Kirinyaga County. As presented; credit facilities,

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startup capital, financial literacy training, and insurance. Each factor has its indicators which are

considered in this study

Figure 1: conceptual framework

Credit facilities

Startup capital SMSEs

Financial literacy
training

Insurance

2.4 Empirical Studies

The research examines the financial performance of these institutions, including their

profitability, efficiency, and outreach. It also analyzes the factors that contribute to their success,

such as institutional characteristics, management practices, and external environments (Hamze &

Khandker 1997). Their results suggest that entrepreneur’s access to credit contributes

meaningfully to the enormousness of the economic contributions reported by business persons,

to the likelihood of an increase in asset holdings in their own names, to an increase in their

12
implementation of purchasing power, and in their political and legal mindfulness as well as in

composite financial self-sustainability index. They also found that admittance to credit was also

associated with higher levels of mobility, political participation and involvement in major

decision-making for specific credit organizations.

The role of microfinance service in the growth of small and medium sized enterprises established

that provision of startup funds affects growth with 96% of the business owners saying it was vital

in starting their businesses therefore without startup funds their businesses would remain an idea

that cannot be fulfilled (Onyango, 2011). According to its findings the starting entrepreneurs

depend mostly on friends and family to raise start-up capital. The study reputed that financial

skills training affected growth of SMSEs with all the business owners who had financial skills

saying that without financial skills training their businesses could not have grown however

majority of the business owners had not been trained on financial management. The study

established that role models affected the growth of SMSEs with 80% of the respondents saying

that role models had enabled their business grow however a majority of the respondents at 57%

had not been provided with a role model. Additionally, the study found out that friends or

relatives were the biggest providers of role models. The study also established 45% of SMSEs

mostly stored their savings in banks. The study further found out that savings were important to

the growth of the small and medium enterprises.

Indirect bank-borrower insignificant credit, entrepreneurs do not advance much in terms of

decision-making patterns (Howard, 2005). Nevertheless, when loans are directed through

entrepreneurs’ groups and are combined with more investment in social groups, substantial shifts

in decision-making patterns are observed. This encompasses a remarkable shift in norm-

following and male decision making to more bargaining and sole decision-making. She

13
discovered that the effects are even more outstanding when entrepreneurs have been members of

a group for a longer period and particularly when greater prominence has been laid on genuine

social groups.

According to this methodology, microenterprises with enhanced access to credit rely less on

internal funds for their investments (Abiola, 2002). Thus, investment sensitivity to internal funds

of micro enterprises in Lagos State, a municipal with significant presence of Microfinance Banks

(MFBs) was compared to that of micro enterprises in Ekiti State (a municipal with no or limited

presence of MFBs) using a cross sectional survey method and Microfinance service (MFS)

branch location data. Results indicate that MFBs alleviated micro businesses’ financing

constraints.

Study on the effect of microfinance programs on entrepreneurs owned SMEs is not always

constructive (Mayeux, 2001). Entrepreneurs that have set up initiatives benefit not only from

small increases in income at the cost of heavier capacities and repayment pressures. Now and

again their loans are used by men in the family to set up enterprises, or sometimes entrepreneurs

end up being employed as unpaid family workers with little benefit. She advances points that in

some cases entrepreneurs increased independence has been temporary and has led to the pulling

out of male support. It has also been observed that small increases in entrepreneurs’ income are

also leading to a decrease in male contribution to certain types of household expenditure. Warns

about the inherent dangers in using social capital to cut costs in the context of other policies for

financial sustainability were also discussed (Mayeux, 2001). The reliance on peer pressure rather

than individual incentives and penalties may create disincentives and corruption within groups.

Reliance on social capital of entrepreneur’s clients along with increasing importance on ideals on

strict economic accounting at the programmed level require increased voluntary contribution by

14
the members in terms of time and effort. She noted that those putting in charitable contributions

also expect to be repaid in the form of leadership of the group.

A study on the impact of microfinance on rural, poor households' income and susceptibility to

poverty in Makueni County was conducted (Kiiru 2009). The central objective of the thesis was

to investigate the impact of microfinance on household income as well as measure household

vulnerability to poverty after access to microfinance. The study was an experimental case of

Makueni County where participants in microfinance programs and non-participant households

were studied over time; thus yielding a rich pooled data for analysis. On integrating time

dynamics in the analysis, the results indicate a positive and significant impact of microfinance on

household income. The study argues that there is a role of microfinance on the improvement of

household incomes. The study also asserts that providing reasonable financial services to the

rural population still remains to be an important component of development strategy.

On the other hand, the thesis give emphasis to that there is necessity to come up with innovative

microfinance service that are supportive of their own role in assets accumulation and wealth

creation for their clients. This will involve innovative targeting of potential clients, as well as

streamlined microfinance regulations to protect their clients. In particular the study cautions that

the 18 ability of households to begin informal sole micro entrepreneurships should not be

assumed to be adequate for the improvement of household income. There is need to create a

policy framework to spur growth not only in the micro enterprises but also in the overall rural

economy that would lead to the creation of employment opportunities and an increment in the

agricultural output. This is quite a big task to accomplish and may require more than one

particular policy intervention. In essence this calls for both private (microfinance) and public

15
partnerships to create the environment where such poverty reduction objectives could be

realized.

A study on the impact of micro-finance services on the growth of SMEs in Kenya. The study

targeted 50 SMEs in Nairobi. The study established that SMEs largely depend on micro

financing for growth. A significant percentage of SMEs was found to have access and do seek

micro credit for their businesses (Cooper 2012). The study also established that microfinance

services have assisted enterprises to change their status through growth in sales level from micro

to small and from small to medium. Though SMEs have easy access to micro finance services,

the study indicated that they have no exemption from strict requirements when applying for

loans. The study also established that most SMEs in Nairobi do not demand for micro-insurance

services and that Microfinance service offer minimal training to SMEs. The study concluded that

microfinance services have a strong positive impact on the growth of SMEs in Kenya. SMES in

Nairobi depend on micro financing for growth. The study recommends that there is need to relax

the requirements for loan application 26 and that the government of Kenya should provide a

favorable environment that can allow MFSs to thrive not only in Nairobi but also in other parts

of the country.

A study to investigate the factors that influence the use of microcredit amongst the SMEs based

at Mutindwa market of Buru Buru estate was also done (Wachira 2011). The study found out

that there is a strong relationship between MFs loan use and the loan terms and conditions. MFSs

loans were noted to be popular because of their group lending model where security was by

group guarantee demonstrating the fact that a majority of the loan consumers who are commonly

women lacked tangible collateral. The study concludes that improving the lending terms and

conditions especially through exploring a wide range of security options, pursuing a gender

16
parity client-base and offering diversified business knowledge in favor of small-scale enterprises

would provide an important avenue for facilitating their access to credit and accelerate the use of

MF loans and the subsequent enterprises.

2.5 Research Gap

The studies omitted important factors on the role of MFSs contributions which are central for

business and especially on SMEs growth, performance and success as there are a number of

factors which interact to lead to SMEs growth such as their sources of capital, the skills of its

human resource and the satisfaction of their financial needs with the support of MFSs. It is in this

viewpoint that this study was conducted primarily to address these research gap on factors like

provision of startup capital, financial skills training and savings opportunity by answering the

question: what is the role of microfinance service on the growth of SMEs in Kirinyaga County

2.6 Summary of the Literature Review.

The literature review shows that, it is apparent that availability of credit finance has significant

impact on growth of SMEs. Game theory supports the idea of group lending among micro

finance service. Many of the new mechanisms rely on groups of borrowers to jointly monitor and

enforce contracts themselves ( Ledgerwood 1999). It is based on Grameen lending model of

microfinance which is based on group peer pressure whereby loans are made to individual

groups of four to ten. Group members jointly guarantee loan reimbursements and access to

successive loans depends on successful repayment by all group members. Payment is usually

made weekly or monthly. According to economic theory, microfinance services (MFSs) are

treated as infant industries, while the psychological theory differentiates microfinance

entrepreneurs from traditional money lenders by portraying them as social consciousness driven

people (Arrow, 1951).

17
The essence of the economic argument is that achievement in any business undertaking,

including MFSs, is strong-minded by the entrepreneurs' capability to deliver suitable services

and profitably (Heidhues & Buchenrieder, 2002). Nonetheless, studies steered in different parts

of the world indicated that there are no successful MFSs by this definition. Micro finance credit

is a credible and active instrument for poverty mitigation and as such its contribution to

economic growth and performance of SMEs. Financing of small and medium scale enterprises is

essential for fashioning employment and economic growth. The literature review discussed

above has shown that microfinance credit is important for growth and development of SMEs. It

is important to note that preventive credit requirements and guidelines in regulatory systems

inhibit availability to microfinance credit by borrowers.

CHAPTER THREE: RESEARCH METHODOLOGY

3.1 Introduction

This chapter covers research design and the methodology that will be used in the study. It is

followed by the target population, sample size and sampling procedure, data collection procedure

and instruments, data analysis techniques and ethical considerations.

3.2 Research Design

This study adopts descriptive research design. This descriptive research design aids the

determination, evaluation and selection of the best course of action to be taken to ensure that

SMEs experience is enhanced. A descriptive study was concerned with determining the

frequency with which something occurs or the relationship between variables (Cooper &

Schindler, 2003).

18
Survey method was employed in this study. “A survey is an attempt to collect data from

members of a population in order to determine the current status of that population with respect

to one or more variables” A survey research is therefore a self-report study which requires

collection of quantifiable information from the sample. A survey could be descriptive,

exploratory or involving advanced statistical analysis (Mugenda & Mugenda, 2003). The method

was important for getting information from SMEs regarding the effects of microfinance services

on the growth of SMEs. There are several studies that have used the survey method for example;

Ryan (1993) used the survey method to conduct an ex-post facto evaluation of one financial

source of small businesses in Malawi, he surveyed 50 firms that had received loans from

microfinance. Mwindi (2002) used the survey method to study SMEs operating in Nairobi that

have been financed by microfinance. Inziani (2006) used a survey method to study SMEs

operating in Dandora slums of Nairobi Kenya. Maghanga 25 (2007) used a survey to study the

perception of microfinance loan borrowers on the effects of loans on their business and as a

poverty alleviation tool, the study population was borrowers in Nairobi

3.3 Target Population

In Kirinyaga County, there are over 1,000 licensed SMEs in various sectors that include: trade

and commercial services, education services, financial services, transport services and

construction. This study focused on the owners and staff of 1,000 SMEs as the sample size.

Population refers to an entire group of individuals, events or objects having a common

observable characteristic. A sample on the other hand refers to a small group obtained from the

accessible population. The sample will be a census survey of all SMEs in Kutus, Mwea and

Kerugoya.

19
3.4 Sample Size and Sampling Procedure

The researcher applied random sampling to pick 286 SMEs that would be involved in the study.

This number is considered appropriate due to time and cost constraints and assumed to be a good

representative of the whole population.

n = N / (1 + Ne2)

Where:

 n = Number of samples,

 N = Total population and

 e = Error tolerance (level).

N=1000

e=0.05

n=?

1000/(1+1000(0.05)2)=286

The simple random sampling procedure is preferred because this concept allows unbiased

sampling and accords the research work more scientific feature thereby making the validity of

the research findings more concrete.

3.5 Research Instruments.

3.5.1 Questionnaire

The tools used for data collection in this study was questionnaires and interview schedule. The

questionnaires are developed in reference to the study objective. The questionnaire is structured

20
into two sections A&B, Section A contain personal information of respondent and section B

contained questions concerning the objective of the study. The questionnaire shall be

administered to private investors sampled for the study.

3.5.2 Interview schedule

A semi-structured interview instrument was employed on sample selected. An interview is an

oral exchange between an interviewer and an interviewee. In here, the researcher notes the

respondents’ expressions, gestures, hesitations and explores their feelings attitudes and beliefs

which contribute to the authenticity of the information. A semi-structured interview is an

interviewing instrument that is however less formal, still has some structure that ensures that all

topics are covered. It also gives the interviewer more freedom to gather a wider range of

information from the respondent. This instrument is advantageous to this study on the premise

that the researcher is in a position to probe interesting issues to gather information that is much

more detailed on the required topics under study.

3.6 Data Collection Procedure

Have a permit to carry out the research study from the department, school of Business and

Education; the semi-structured interview shall be administered individuals as per the selected

samples. The researcher with the help of research assistants was able to distribute questionnaires

to 90 SMEs owners/managers in Kutus, Kagio, Sagana, Kagumo, Kianyaga, Mwea & Kerugoya

town and data collected across the sectors of various business ventures. Primary data was

collected through administration of structured and semi-structured questionnaires. The

questionnaires were personally administered to the entrepreneurs (owner/manager) using the

‘drop and pick later’ method. To ensure uniformity in response and to encourage participation,

21
the questionnaires was kept simple and structured with mostly multiple-choice selections in a

Likert scale.

3.7 Validity and Reliability.

3.7.1 Validity

Validity is a measure how well a test measures what is supposed to measure. It is the degree to

which results obtained from analysis of data actually represents a phenomenon under study.

Content validity of the instrument shall be determined through expert judgement. Content

validity is the degree to which the sample of the test represents the content that the test is

designed to measure (Orodho 2008). Research instruments shall be prepared based on the

research objectives. They shall then be administered to the selected sample in the area of study.

Feedback was taken and the instruments administered to the main sample.

3.7.2 Reliability

Reliability is defined as the degree of consistency that the instrument procedure demonstrates.

Reliability measurement concerns the degree to which a particular measuring procedure gives

similar results over repeated trials (Orodho, 2008). In research, however, reliability might be

influenced by random error. As the random error increases, reliability decreases. Therefore, as

the researcher designs and administers the chosen instruments, he/she takes care of these errors,

which would arise due to inaccurate coding and ambiguous instructions. The items in the

questionnaire shall address the objectives and research questions of the study related to the

research topic. The same questionnaires shall be administered to the same study samples after a

month. The responses from the two administrations shall be recorded and comparison obtained.

22
A Pearson Product Moment Correlation formula for the test-retest shall be employed to compute

the correlations coefficient in order to establish the extent to which the contents of the

questionnaire were consistent in eliciting the same responses every time the instrument will be

administered.

3.8 Pilot Testing.

A pilot study is a smaller version of a full-scale study (Patron, 1990). Involves prelisting of a

particular research instrument such as questionnaire. A research tool should be tested on a

sample of members of the target population. Structured tests with interview guide with relevant

questions on the study variables were identified and used for the pilot study. Process enabled the

researcher to make correlations or adjust any misconceptions available. Also, the process

allowed the researcher to identify whether the respondent understood the questions and

instructions and whether the meaning was the same for all respondents.

3.9 Data Analysis

Data was analyzed using descriptive statistics. Closed-ended questions would be analyzed using

quantitative analysis while open ended questions was analyzed using qualitative methods.

Regression and correlation analysis was applied to show the relationship between variables. The

dependent variable being the growth of businesses in Kirinyaga County.

The independent variables being services offered by Microfinance. Multiple linear correlation

analysis was done to establish the association between the dependent and independent variable.

А regression analysis was done to determine what percentage of the debt rating and credit

accessibility influences business growth.

The regression model was of the form: Y= β0+ β1X1 + β2X2 + β3X3+β4X4 +μ

23
Where: Y = Business growth

X1 = Provision of startup capital

X2 = Financial literacy training

X3 = Credit Facilities

X4= Insurance

μ= Error term

The data collected was analyzed by use of SPSS software. The descriptive data was analyzed and

presented by use of frequencies, percentage, mean and standard deviation in tables and graphs.

CHAPTER 4: DATA ANALYSIS, RESULTS AND PRESENTATION

4.1 Introduction

The findings of the study are presented, analyzed, and interpreted in this chapter. This

presentation's analysis and interpretation made use of computational percentage tables and

narrative in the form of description to make the findings easier to understand

4.2 Response rate

The study used questionnaire as a tool for data collection. The sample for this study was 286.

Each of the owners of the SMEs and managers of MFIs were provided with an appropriate

24
questionnaire to answer. Out of the intended 286, only 250 returned fully completed

questionnaire giving a response rate of 87.41%.

4.2.1 Socio-demographic characteristic of the respondents.

The socio-demographic background details of data of owners collected include gender, age,

nature of business and business ownership.

Table 4.1 Socio –demographic characteristic of the respondents

Demographic Characteristic Frequency Percentage

Gender Male 200 69.93%

Female 86 30.07%

Age 18-25 98 34.27%

26-30 62 21.68%

31-35 68 23.78%

Over 36 58 20.28%

Nature of business Products 118 41.26%

Services 97 33.92%

Both products and 71 24.83%

services

Business ownership Sole proprietor 168 58.84%

25
 Partnership 118 41.16%

From table 4.1 it is evident that the majority of SMEs in Kirinyaga County are owned by males

which is 69.93% while female at 30.07%. The findings also indicate that majority of the SMEs

are run by young people between the age of 18-25 which represents 34.27% of the respondents.

Nature of businesses in Kirinyaga County mainly comprises of products at 41.26% and services

at 33.92% while most of the SMEs are owned by proprietor at 58.84% and partnership at

41.16%.

4.2.3 Number of employees in the SMEs

This section aimed at establishing the size of the firm by determining the number of employees

at the SMEs. The results are obtained are presented in the table below.

Table 4.2 Number of employees in the SMEs

Number of employees Frequency Percentage

Below 5 160 55.94%

6 to 10 56 19.58%

11 to 20 40 13.99%

21 to 50 30 10.49%

Over 50 0 0%

26
 Total 286 100%

. The findings indicated that the majority 55.94% of the SMEs had below 5 employees,

19.58% had 6 to 10 employees, 13.99% had 11 to 20, 21 to 50 employees had 10.49% and 0%

over 50.

4.3 Microfinance and provision of loans.

The research was meant to identify the effects of start-up capital on growth of small and

medium sized enterprises in Kirinyaga County. The findings as shown in table below.

Table 4.3: Microfinance and provision of loans.

SOURCE OF CAPITAL PERCENT RESPONSE

Bank 20%

MFIs 12%

Sacco 32%

Personal savings 16%

Partnerships 15%

Shylocks 5%

27
From the table above, the study found out that up to 32% of the respondents had borrowed

funds from saccos to start and run their businesses. While up to 20% of the respondents had

borrowed from bank. Only 12% of the respondents had borrowed from Microfinance

institutions. 16% of the respondents had their source of capital to start and run their business

from their personal savings. 15% of the respondents borrowed their funds from partnerships

while only 5% borrowed their funds from shylocks.

4.4 Reasons for seeking credit.

The respondents were asked to disclose the reasons for seeking capital from the financial

institutions. The results are presented below.

Table 4.4: Reasons for seeking credit from financial institutions

Reasons for borrowing capital Percent

Working capital 50%

Buying business assets 20%

Capital equipment 20%

Paying other loans / improving business 10%

28
The findings of the research revealed that up to 50% of the respondents sought credit for

working capital, followed by Buying business assets (20%) and Capital equipment (20%). Only

10% of the respondents sought credit for paying other loans.

4.5 The impact of insurance on the growth of SMEs in Kirinyaga County.

The research was meant to find out the impact of insurance on growth of small and medium

sized enterprises in Kirinyaga County. The findings as shown in table below.

Table 4.5: Insurance

Reason for getting insurance Percent

Protection against financial loss 19.70

Compliance with legal requirements 30.65

Access to healthcare 17.00

Protection of assets 28.45

Risk management 4.20

The study found out that insurance play a crucial role in supporting the growth and success of

SMEs, providing them with financial protection up to 19.70%, access to financing, legal

compliance up to 30.65%, access to healthcare up to 17.00%, protection of assets up to 28.45%

and risk management up to 4.20%.

29
 4.6 The effect of credit facilities on the growth of SMEs in Kirinyaga County.

This section presents the results and analysis of the study on the effect of credit facilities on the

growth of SMEs in Kirinyaga County. The study aimed to investigate the extent to which credit

facilities influence the growth of SMEs in the county, and to identify the challenges faced by

SMEs in accessing credit facilities.

Table 4.6 Credit facilities

Reasons Explanation Percent

Working Capital SMEs seek credit facilities to finance their day-to-day operations, such as 27.70

paying suppliers, buying raw materials, and covering expenses like rent and

utilities.

Business Expansion SMEs seek credit facilities to expand their businesses by opening new 33.50

branches, increasing their production capacity, or investing in new

equipment and technology.

Inventory Financing SMEs seek credit facilities to finance their inventory purchases, 23.00

particularly during peak seasons or when they receive large orders from

customers.

Debt Consolidation SMEs seek credit facilities to consolidate their existing debts into a single 7.00

loan, which can help them reduce their monthly payments and improve

their cash flow.

Cash Flow SMEs may seek credit facilities to manage their cash flow, particularly 8.80

Management during periods of low sales or unexpected expenses.

30
SMEs seek credit facilities for various reasons, such as working capital, business expansion,

inventory financing, debt consolidation, and cash flow management. Access to credit facilities

can help SMEs grow their businesses, increase their competitiveness, and seize new

opportunities. However, SMEs also face challenges in accessing credit facilities, such as high

interest rates, collateral requirements, and lengthy application processes.

4.6.1 Performance of SMEs after loans advance.

The research determined how the business performed after borrowing of loans from MFIs over

the last six years as shown below. The data used was obtained from secondary sources.

Performance of SMEs after loans advance

1200
1000
800
600
400
200
0
year 1 year 2 year 3 year 4 year 5 year 6
Years

sales profits income

Figure 4.1: Performance of SMEs after loans advance

31
4.7 The effect of financial literacy training on growth of SMEs in Kirinyaga County.

The research sought information on whether there was any entrepreneurial training among the

SMEs in Kirinyaga County. The results are presented in table below.

Table 4.7: Respondents’ prior training on management of MFIs loans

Frequency Percentage

Yes 100 40%

No 150 60%

Total 250 100%

From the table, it is evident that 40% of the respondents had some prior training before loan

acquisition while the remaining 60% were not trained and were therefore managing the business

without any training.

4.8 Microfinance and provision of training services.

This section explains about the microfinance and provision of training services to the people

sampled in Kirinyaga County. This is represented below:

Table 4.8: Microfinance and provision of microfinance services.

Statement Mean Standard

deviation

I have trained on business management by 2.5 0.62

MFIs

32
 The MFIs have organized seminars where I 2.62 0.86

have gained a lot of on management of my

business

MFIs have improved my people management 2.53 0.64

skills

MFIs have improved my financial management 2.81 0.90

skills

MFIs have taught me on the importance of 2.51 0.70

strategic management

MFIs have taught me on how to grow my 2.81 0.90

business

The management skills gained have increased 2.68 0.85

my sales

The respondents agreed with a mean score of 2.50 regarding their training on business

management. This indicates that, on average, the respondents had a negative level of agreement

that their training in business management was helpful.

The respondents disagreed with the provision of gainful business management seminars and

improvements in people management skills, with mean scores of 2.62 and 2.53 respectively.

This suggests that the respondents felt that attending these types of seminars and developing

their people management skills were not beneficial for their businesses.

Regarding the importance of strategic management and how to grow a business, the

respondents disagreed with mean scores of 2.81 and 2.68 respectively. This indicates that they

33
felt that understanding strategic management and knowing how to grow their businesses were

not important factors in their success.

4.9 Regression and Correlation analysis.

The table below shows the determination of the coefficients for the regression and correlation

analysis.

Table 4.9: Regression and Correlation analysis.

Model Unstandardized Standardized t Sig

Coefficients Coefficients

Beta

Growth of 16.75 .610 .000

SMEs
.183 .056 .253 .000

Startup capital
.134 .058 .247 .023

Insurance
-.135 046 .256 .034

Credit
.132 044 .135 .056
facilities

literacy

training

34
Dependent Variable: Growth of SMEs

The regression model was of the form: Y= β0+ β1X1 + β2X2 + β3X3+β4X4

Where: Y = Business growth

X1 = Provision of startup capital

X2 = Financial literacy training

X3 = Credit Facilities

X4= Insurance

μ= Error term

: Y= 16.75+ 0.184X1 + 0.132X2 + 0.135X3+0.134X4+μ

Correlation is significant at the 0.01 level (2-tailed).

Correlation is significant at the 0.05 level (2-tailed).

4.9.1 Interpretation of Results

Pearson correlation was used to establish and measure the relationship between elements of

Microfinance services and the growth of SMEs. From the correlation matrix in Table 4.9 above,

there is a clear positive and significant relationship between growth of SMEs and provision of

credit facilities, Provision of startup capital and provision of financial literacy trainings and

provision of insurance with values; 0.135, 0.184, 0.132 and 0.134 respectively.

35
Correlation takes the values between +1 and -1 that quantifies the degree of association

between variables. When the Pearson’s r is closer to 1, the relationship is strong and when

closer to 0, the relationship is weak. The Sig (2-Tailed) value tells us if there is a statistically

significant correlation between two variables. A value that is greater than 0.05 shows that there

is no statistically significant correlation between the variables whereas a value of 0.05 or less

implies that there is a statistically significant correlation between the variables. From the

correlation matrix above, there is a statistically significant relationship between growth of

SMEs and provision of credit facilities, Provision of startup capital, provision financial literacy

training and provision of insurance with values of 0.135, 0.184, 0.132 and 0.134 respectively at

99% level of confidence for microcredit and micro savings and 95% for trainings.

Based on the coefficients of the regression and correlation analysis as shown above. The model

extrapolates that when microfinance services is zero, the growth of SMEs is 16.75 but a unit

change in provision of start-up capital, financial literacy training, credit facilities and insurance

increases growth of SME by 0.183, 0.132, -0.135 and 0.132 respectively. Credit facilities had a

significant negative effect on growth of SMEs. As a result of a unit change in microcredit

services, growth of SME declines by 0.135 units indicating an inverse relationship between the

two. This indicates that micro-insurance services had a significant positive effect on growth of

Small and Medium Enterprises. This indicates that a positive unit change in micro-insurance

results to positive changes in SMEs growth. Changes in micro-insurance services by a unit

result to 0.132unit changes in growth of SMEs. To calculate the p-value, we look at the "Sig"

column in the table for each of the coefficients (X1, X2, X3, X4) in the standardized

coefficients section. The p-value for X1 (startup capital) is 0.000, the p-value for X2 (financial

36
literacy training) is 0.023, the p-value for X3 (credit facilities) is 0.034, and the p-value for X4

(insurance) is 0.056.

CHAPTER 5: SUMMARY OF FINDINGS, CONCLUSION AND

RECOMMENDATIONS.

5.1 Introduction.

This chapter presents the summary of the findings, the conclusion drawn from them and

recommendation made there to. The conclusions and recommendations drawn from the results

of this study were centered on addressing the purpose of the study which was to establish the

effect of microfinance services on the growth of SMEs in Kirinyaga County. The specific

objectives of the research study were to determine the effects of start-up capital, provision of

insurance, credit facilities and provision of financial literacy training on the growth of SMEs in

Kirinyaga County.

37
5.2 Summary of Findings.

This section represents a summary of the findings as per the objective of the research and the

data analyzed and presented in chapter four.

5.2.1 Regression analysis

The regression equation for this model was:

Y = 16.75 + 0.184X1 + 0.132X2 + 0.135X3 + 0.134X4 + μ

This equation shows that the intercept (β0) is 16.75, and the regression coefficients (β1-β4) are

0.184, 0.132, 0.135, and 0.134 for X1, X2, X3, and X4, respectively.

This means that, after controlling for the other variables in the model, a one-unit increase in the

provision of startup capital is associated with a 0.184 unit increase in the growth of SMEs.

Similarly, a one-unit increase in financial literacy training, credit facilities, or insurance is

associated with a 0.132, 0.135, or 0.134 unit increase in the growth of SMEs, respectively. The

model also includes an error term (μ) that represents the unexplained variation in the dependent

variable that is not accounted for by the independent variables in the model.

Overall, this regression model aimed to identify the significant predictors of the growth of SMEs

and to estimate the strength and direction of their relationships

38
5.2.2 Startup capital on growth of small and medium sized enterprises.

The study found out that up to 32% of the respondents had borrowed funds from saccos to start

and run their businesses. While up to 20% of the respondents had borrowed from bank. Only

12% of the respondents had borrowed from Microfinance institutions. 16% of the respondents

had their source of capital to start and run their business from their personal savings. 15% of the

respondents borrowed their funds from partnerships while only 5% borrowed their funds from

shylocks.

5.2.3 Insurance on growth of small and medium sized enterprises.

The study found out that insurance play a crucial role in supporting the growth and success of

SMEs, providing them with financial protection up to 19.70%, access to financing, legal

compliance up to 30.65%, access to healthcare up to 17.00%, protection of assets up to 28.45%

and risk management up to 4.20%.

5.2.4 Credit facilities on growth of small and medium sized enterprises.

The third objective was to establish the effects of credit facilities on the growth of small and

medium sized enterprises in Kirinyaga County. The study aimed to investigate the extent to

which credit facilities influence the growth of SMEs in the county, and to identify the

challenges faced by SMEs in accessing credit facilities. Small and medium-sized enterprises

(SMEs) seek credit facilities for a variety of purposes, including working capital, business

expansion, inventory financing, debt consolidation, and cash flow management. Access to

credit facilities can help SMEs grow their businesses, increase their competitiveness, and take

advantage of new opportunities. Despite these benefits, SMEs face several challenges when it

39
comes to accessing credit, such as high interest rates, collateral requirements, and lengthy

application processes.

5.2.5 Financial literacy training on growth of small and medium sized enterprises.

The respondents agreed with a mean score of 2.50 regarding their training on business

management. This indicates that, on average, the respondents had a moderate level of

agreement that their training in business management was helpful.

The respondents agreed with the provision of gainful business management seminars and

improvements in people management skills, with mean scores of 2.62 and 2.53 respectively.

This suggests that the respondents felt that attending these types of seminars and developing

their people management skills would be beneficial for their businesses.

Regarding the importance of strategic management and how to grow a business, the

respondents agreed with mean scores of 2.81 and 2.68 respectively. This indicates that they felt

that understanding strategic management and knowing how to grow their businesses were

important factors in their success.

5.3 Conclusion.

Based on the findings of the study on the effects of start-up capital on the growth of small and

medium-sized enterprises (SMEs) in Kirinyaga County. The response rate was 87.41%, and the

socio-demographic characteristics of the respondents, such as gender, age, nature of business,

and business ownership, were analyzed. The number of employees in SMEs was also

established, with the majority having less than five employees. The study also investigated the

sources of capital for SMEs, with saccos being the most commonly used source of funding. The

40
reasons for seeking credit included working capital, buying business assets, and capital

equipment. Insurance was found to play a crucial role in supporting SMEs' growth and success,

providing financial protection, access to financing, legal compliance, access to healthcare,

protection of assets, and risk management. Finally, the effect of credit facilities on the growth of

SMEs was analyzed, with most respondents reporting that credit facilities had a positive impact

on their business growth.

5.4 Recommendations for the research study.

Following the findings of the study and the conclusions drawn, the following recommendation

is suggested to help in enhancing an accelerated and sustained growth of SMEs as well as to

improve and enrich the services of MFIs. The government and other developments partners

need to facilitate the accessibility of micro finance services from MFIs to SMEs. Among others,

access to micro financing, Provision of credit services and provision of Training services are

essential in a nation’s achievement of its vision 2030 development plan. The development of

the MFI sector should also be stimulated so that their services become further enriched and

widely available to SMEs and other prospective businesses.

5.5 Suggestions for Further Research.

This study concentrated on the SMEs in Kirinyaga alone and therefore its findings cannot be a

basis for generalization across all SMEs in the country. The recommendation is that in the

future a study should be conducted across the country so that the findings can be representative

of the whole nation. It may also be worth carrying out studies in each county as each may have

unique characteristics and diverse contextual realities that may impact on the effect of micro

finance services on SMEs.

41
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APPENDICES

Appendix 1: Letter of transmittal

Dear Sir/Madam,

RE: REQUEST FOR RESEARCH DATA COLLECTION THROUGH QUESTIONNAIRE.

We are students studying at Kirinyaga University pursuing a Bachelor's degree in Economics and

Finance. In partial fulfillment of the requirements of our course, we are undertaking a research

project on the study of the impact of microfinance services on growth of small and medium sized

enterprises in Kirinyaga County.

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We are kindly requesting for the required information as per the attached questionnaire .Your

impartial opinions shall be kept confidential.

Thanks in advance.

Yours faithfully,

Peter Kiplangat Too.

Abimael Kiprotich.

Korir Brian Kiprotich.

Lugalia Ashwin.

Timon Cheruiyot.

Bachelor's degree students.

Appendix 2: Questionnaire

This questionnaire was used to collect data on the effects of Microfinance services on the growth

of SMSEs in Kirinyaga County. Any information given by the respondents during this exercise

will be treated with strict confidentiality. Kindly answer the following questions by writing a

brief answer statement or ticking in the spaces provided as will be applicable.

Section A: Background Information

Kindly, fill all the questions either by ticking in the boxes or writing in the spaces provided.

Name (Optional).........................................................................................................................

1. Gender. Male  Female 

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2. Age. 18-25 years  26-30 years  31-35 years  36 years and over 

3. What is the name of the

business?.....................................................................................................

4. When was the business

established?................................................................................................

5. What is the nature of the business?

Products  services  Both Product and Services 

6. What is the form of business ownership?....................................................................................

7. How many employees work in the business?................................................................................

8.Have you received any training before? Yes  No 

9. Was it relevant for the enterprise you're in? Yes  No 

10. How long is your experience in this field of work? …............

11.What is the estimate of the monthly income of the

business?.......................................................

Section B: Sources of finance

12. For the option indicated:

Used the sources of finance provided below ✅,

Did not use the provided sources of finances ❌

opti Source Amount Application Application Repayment Amount

on sourced fee period period repaid

Bank

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 MFI

SACCO

Personal

Savings

Partnersh

ip/

venture

capital

shylocks

other

13. Reasons for choice of source of capital you selected (indicate source)

 ..........................................................................................................................................

 ..........................................................................................................................................

 .........................................................................................................................................

14.Requirements for sources used

 ......................................................................................................................................

 .........................................................................................................................................

 ................................................................................................................................................

.............................................................................................................................

15.What challenges did you encounter when sourcing funds to start the business?

 ...................................................................................................................................

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  .........................................................................................................................................

 ….....................................................................................................................................

 .........................................................................................................................................

16.Did you budget for the expenditure? Yes  No 

17. For yes; how effective was your budget? (On a scale of 1 to 5)

Where,

1-not at all,

2-little extent,

3-moderate extent,

4-Great extent,

5-Very great extent.

…................................................................................................................................................

Appendix 3: Interview Schedule

Section Responses

Introduction

Can you introduce yourself and your role in the company?

Can you briefly describe your company and its operations?

How many employees does your company have?

Business Profile

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What are the main products or services that your business

provides?

Who are your target customers or clients?

What is the annual turnover of your business?

Finances.

What are the main sources of financing for your business?

How do you manage your cash flow?

What are the main financial challenges that your business

faces?

Operations

How do you source your raw materials or supplies?

What are the main challenges that your business faces in its

operations?

How do you manage your inventory and stock control?

How do you ensure the quality of your products or services?

Marketing

How do you promote your products or services?

What marketing strategies have been effective for your

company?

How do you engage with your customers or clients?

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