Asset-Based Financing Solutions and the Growth of Manufacturing (Sme) In Nairobi County, Kenya

A Research Project Report Submitted to the United States International University School of Business Administration in Partial Fulfillment of the Requirements for the Degree of Masters in Business Administration (MBA)Although several studies have been undertaken focusing on the sources of business financing, very few have specifically dealt with alternative sources of finance, especially the existing asset-based financing solutions and their influence on the growth of manufacturing small and medium enterprises. This study therefore sought to investigate the existing asset-based financing solutions and how they influence the growth of manufacturing small and medium enterprises in Nairobi County. This study adopted a causal research design with the target population of the study comprising of 2,000 manufacturing SMEs in Nairobi and its environs namely Thika, Athi River and Limuru. Using systematic random sampling, a sample size of 100 was attained proportionally from the three strata of agro-based, chemical and mining and engineering and construction enterprises. Primary data was collected through semi-structured questionnaires while secondary data was collected from relevant published materials both in print and online. The data was then analyzed with the aid of the Statistical Package for Social Sciences (SPSS). The analysis entailed computation of descriptive statistics (frequencies and percentages) presented in the form of tables and charts. The findings of this study showed that the growth of SMEs had different effects on the economy including leading to an increase in employment opportunities and overall economic growth. The most preferred sources of SME financing were identified as microfinance institutions, government funding, SACCOs and community savings groups (ROSCAs, Chamas, etc.), with commercial banks being less preferred. The main barriers to accessing financing by SMEs were found to include restrictive requirements, low awareness of available financing options, lack of reliable business plans, high interest rates for financing solutions and poor record-keeping by SMEs. On the specific asset-based financing solutions, the survey found that LPO financing had significant influence on SME growth including enhancing technology adoption, providing working capital, helping them acquire workforce and ensuring faster delivery of goods and services. Similarly, cheque discounting had different benefits including ensuring SMEs had high liquidity which was essential for future viability of the businesses and enabling them bargain for better prices and discounts when paying in cash. Further, leasing offered SMEs different benefits including the fact that leased assets were paid off over time with income they generated, required no collateral, incorporated an insurance policy that reduced risk and loans were utilized only for their specified purpose. The survey also provided strong evidence that LPO financing, cheque discounting and leasing financing solutions had a significant influence on the growth of manufacturing SMEs in Nairobi County. This study was able to derive different conclusions in line with the main objectives of the study. First, the study identified the key measures of SME growth as including profits, sales and positive cash flows as indicators of financial growth, skills development, teamwork, organizational structure and number of employees as indicators of workforce growth as well as availability of machinery, customer relations management systems and computerized processes as indicators of technology adoption. The the main influences of the growth of SMEs within an economy included increase in employment opportunities and overall economic growth. The study also revealed that financing solutions offered by commercial banks were not easily accessible by SMEs. Further, the survey provided strong evidence that there was a significant correlation between the independent variables (purchase order financing, cheque discounting and lease financing) and the dependent variable (growth of SMEs), indicating that these asset-based financing solutions had a significant influence on the growth of SMEs. Finally, this survey offered different recommendations that can help enhance access to asset-based financing solutions by SMEs. First, the government and financial service providers may consider developing customized financial facilities for SMEs so as to facilitate their access to financing and ultimately enhancing the growth of SMEs. Service provider can also seek for ways to address different barriers such as interest rates and restrictive requirements. Further, internal barriers can be addressed through offering SMEs financial trainings that may ensure they can develop better and fundable business plans and have better record-keeping skills among other skills. Finally, this study recommends that other academic research projects be undertaken to determine the influence of asset-based financing solutions within the manufacturing SMEs in the whole country or even within the whole SME sector so as to enhance or back up the findings of this study hence offering further knowledge within the academia