Microfinance Services and Financial Performance of Small and Medium Enterprises in Meru Town, Kenya
Mutuma, Kirima George
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Small and Medium Enterprises remain an integral sector in the Kenyan economy. However, financial performance of SMEs remains erratic since most of them fail to continue operating due to financial challenges. Empirical evidence has shown that Microfinance services to the sector affect financial performance of SMEs. However, the link between the two remains an issue for empirical investigation in Kenya especially in Meru County were there is scanty empirical evidence. Hence, the purpose of this study was to establish the effect of microfinance services on financial performance of Small and Medium Enterprises in Meru Town, Meru County, Kenya. The specific objectives of the study were: to determine the effect of credit facilities, savings programs and entrepreneur training programs on financial performance of SMEs in Meru Town. The study adopted descriptive research design to obtain information regarding the current status of the phenomena to describe “what exists” on variables in a situation. A sample size of 93 respondents was used. Data collection was effected using a questionnaire. Descriptive statistics and multiple regression analysis were used to analyze data. The study found a fairly strong positive relationship (R= 0.632) between microfinance services and financial performance of the SMEs. The study found a significant relationship between Microfinance Services and Financial Performance of the SMEs studied at a significance level of 0.05 that is credit facilities (p-value= 0.034), savings programmes ( p-value= 0.026) and entrepreneur training (p-value= 0.015).The findings indicated that respondents strongly agreed that MFIs funding contributed to increase of entrepreneurs who started new ventures. The findings also indicated that SMEs were inclined to MFI saving plans due to easy accessibility of their funds as well as a variety of microfinance products. It was evident that credit facilities, savings programs as well as entrepreneur training services had significant effects on the financial performance of the SMEs in Meru town.