Effect of Financial Risk on Profitability of Small and Medium Enterprises in 26-June District in Hargeisa Somaliland

Abstract: Small and medium enterprises are imperative for the growth of a striving economy because they cater for a huge level of manpower and vast resources. Therefore, it is crucial to guarantee their continuous performance in order to support Somaliland’s economic development. The purpose of this study was to examine the effect of financial risks on profitability of SMEs in 26-June District in Hargeisa, Somaliland. The study used descriptive research design; using convenient non-probability sampling method, a suitable sample of 206 SME was selected from the population of study. Logistic regression model was used in this study since the dependent variable was binary. The study found out that credit risk and market risk are associated with profitability and are statistically significant. The odds ratio for credit risk and market risk indicates that every unit increase in credit risk and market risk respectively is associated with decrease in the odds of profitability in SMEs in June District as per the sample while liquidity risk was statistically insignificant with the odds ratio of liquidity risk indicating that every unit increase in liquidity risk is associated with increase in the odds of profitability in SMEs in June District as per the sample. The study recommends that the SMEs should put in a place system that can provide them with latest information about both credit risk sources which are suppliers and customer’s hazards so as they can refine their collection process and improve their unstable cash flow. The study on market risk recommends that, to optimize earnings and mitigate financial damages, it is crucial for the SMEs to monitor market information regularly as to apply any modifications to its products or services so that they can reduce their exposure to market risk. The study further recommends creation of specialized training and development programs that are intended to help businesses increase their overall knowledge of the financial risks, as this aligns with Somaliland vision 2030 that seeks to create a well-developed private sector that provides investment, employment, sustained livelihoods and vital services to strengthen the economic foundation of peace. Keywords: Financial risks, Credit Risk, Market Risk, Liquidity Risk, Profitability, Logistic Regression Model, Small Medium Enterprises (SMEs). Title: Effect of Financial Risk on Profitability of Small and Medium Enterprises in 26-June District in Hargeisa Somaliland Author: Isra Ismail Ahmed, Dr. Nathan Wamalwa Wafula International Journal of Management and Commerce Innovations ISSN 2348-7585 (Online) Vol. 11, Issue 1, April 2023 - September 2023 Page No: 278-290 Research Publish Journals Website: www.researchpublish.com Published Date: 08-July-2023 DOI: https://doi.org/10.5281/zenodo.8126092 Paper Download Link (Source) https://www.researchpublish.com/papers/effect-of-financial-risk-on-profitability-of-small-and-medium-enterprises-in-26-june-district-in-hargeisa-somalilandInternational Journal of Management and Commerce Innovations, ISSN 2348-7585 (Online), Research Publish Journals, Website: www.researchpublish.co