Microfinance loans 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. The objectives was to determine the effect of microfinance loans on financial performance of SMEs in Nyamira Town, Kenya. The hypotheses was: there is no significant effect of microfinance loans on financial performance of Small and Medum Enterprises. 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 study rejected the null hypothesis if the t-statistic value was significant. Validity and reliability of research instruments was tested by use of Cronbach’s alpha co-efficient. 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 results imply that microfinance loans has a positive and significant relationship on financial performance at 0.604. The study therefore rejected the null hypotheses and concluded that microfinance loan 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 institutions 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.