Financing Of Small and Medium Business Enterprises in Kenya: A Case of SMES in Ongata Rongai – Kajiado County

A Research Project Report by Evans Kiprotich Koech, Submitted to the School of Business in Partial Fulfillment of the Requirement for the Executive Masters in Organization Development (EMOD).This study had an overall objective of determining how small and medium business enterprises obtain and manage their finances. Small and Medium Enterprises (SMEs) play a vital role in the Kenyan economy, as they control a greater percentage of it. However, most SMEs face a lot of challenges, especially when it comes to their financing and handling their finances, which directly affects their development in the business world. The specific objectives of the study were (i)To establish the main sources of financing for SMEs. (ii) To access the impact of education and training on financing of SMEs and (iii) To evaluate the management related issues affecting the financing of SMEs with a view to proposing some recommendation to help mitigate these challenges. The study focused mostly on establishing and finding out the various sources of finance that the SMEs are exposed to in Ongata Rongai Town. This included both internal and external sources of financing, including the government funds. The study will go ahead to establish the challenges that the small business owners are facing with respect to accessing the finances for their businesses. The research design adopted a case study approach and included mixed research design. This study was carried out in Ongata Rongai. The number of SMEs was 142. In order to determine the sample size, n, I used a formula for calculating sample size by (Mugenda and Mugenda, 1999). The confidence level was 95% and confidence interval was 10. Therefore the sample size, n was 104. Results were presented inform of tables. Inferential statistics technique was also used to make generalizations about the population from which the samples were drawn. This process was achieved through sampling. The data collected was analyzed using qualitative and quantitative methods and this was being done using Statistical Package for Social Sciences (SPSS). Data was coded according to different variables and descriptive statistics such as frequencies, mode, mean percentiles, variances and standard deviations were be used for study for ease of interpretation and the data was presented into tables, bar graphs and pie charts. The findings of the study in relation to the first objective were that majority of the SMEs in Kajiado county depend on; loans from financial institutions and personal savings which in most cases do not meet their entire objectives. The study also found a direct correlation between management decisions impact on financing as most are not well informed in that they cover all aspects some of which need some level of expertise like accounting. The third major finding was that there was a definite corroboration effect between education level and decision making ability to influence better financing of SMEs. The higher the education level and training the better for decision making and ultimately chances of better financing. The research led to the conclusion that a large percentage of the SMEs are run by entrepreneurs’ with basic knowledge and training in the specific business or industry they have ventured into. A major conclusion that was also noted was that use of the major sources of funding for the SMEs which was loans from financial institutions and personal savings had a direct bearing on the knowledge and training the owners had achieved over time. Those who had run their SMEs over a period of more than 3 years and had gained knowledge and some training on utilizing and acquiring financial resources during this period had better profit margins and capital stability. A number of recommendations were drawn from this study. In order to raise and improve SMEs performance, SME owners and ultimately financial institutions including the county government should raise awareness through training and disseminating knowledge through education on the availability of government funding towards SMEs. The need to include experts in specific functions such as accounting in SMEs can guide SME owners on proper management decisions and ultimately better financing and higher profits. This will eventually benefit the entire community as SMES form a vital role in development of a county. There should be measures to try reducing the lending rates and costs of borrowing for many SMEs to have access to finances