The Effect of Microfinance Institutions on the Growth of Small Scale Enterprises in Kiambu County

A Research Project Report Submitted to the Chandaria School of Business in Partial Fulfilment for the Executive Degree of Masters in Organizational Development (EMOD)The main objective of this study was to determine the effect of MFIs on the growth of SMEs in Kiambu County. The study was guided by the following research objectives: To determine the effect of MFIs on the growth of SMEs capital, to examine the effect of MFIs on the growth of SMEs human resource and to investigate ways of how MFIs can improve their financial assistance towards SMEs growth. This research adopted a descriptive research design. A descriptive research design is a scientific method which involves observing and describing the behaviour of a subject without influencing it in any way. The research population consisted of 25,000 registered Kiambu SMEs. In this study, the sampling frame constituted of SMES entrepreneurs and the information was obtained from the Kiambu County Authorities. The sampling techniques included the purposive sampling method in the determination of SMEs to be included in the study. Using a confidence level of 95% and a total population of 25,000 SMEs the sample size was 393. The data collection techniques that were employed for the research include the use of structured questionnaires. The respondents were requested for their time prior to sending the actual questionnaire. A pilot test involving 5 respondents was carried out to evaluate the completeness, precision, accuracy and clarity of the questionnaires. In this study, the descriptive statistics such as percentages and frequency distribution will be used to analyze the demographic profile of the participants. The demographic data will be tabulated using frequency and percentages. In order to describe the data, the study used means of each variable. The study established that savings remains the most important source of finance throughout the business cycle. The MFIs play a smaller role in economic empowerment of SMEs in Kiambu County, as most of the respondents, depended on village loans, self help groups (SHG) and from family members in generating their business start up capital. SHGs can also promote savings and yield moderate economic benefits that reduce the dependence on moneylenders. Access to finance has been identified as a key element for small scale enterprises to succeed in their drive to build productive capacity, to compete, to create jobs and to contribute to poverty alleviation in the county. Without finance, small scale enterprises cannot grow or compete in the turbulent business environment. MFIs play a small role on the growth of human capital. From the findings, MFIs also play a small role in making the labour force to be more productive. A small proportion of the respondents agreed that there were a number of MFIs offering business training to small and medium scale entrepreneurs in Kiambu County. It was also found that MFIs do not play any significant role in offering training in business skills. Any government interested in the development of their economy should be involved in the provision of good regulations for business growth. Making credit available to SMEs and at an affordable rate is a means to empower them. MFIs should deal with trust worthy Self Help Groups. MFIs should increase the grace period of loan repayment among SMEs. MFIs should collaborate with other MFIs in assisting SMEs and sensitization of SME business management in giving clients information about new loans, saving procedures and any other new products from the MFIs. The study concludes that MFIs have a small impact on the growth of SMEs as savings remains the most important source of finance throughout the business cycle. MFI plays a small role on the growth of human capital. The Kenyan government has failed to safe guard the property of the SMEs. The study recommends that MFIs should come up with innovative ways to finance SMEs for successful growth. MFI should play a critical role on the growth of human capital. The government should be involved in business growth. MFIs should assist SMEs in marketing of the business products, making credit available to SMEs at an affordable rate