The contribution of microfinance services to the growth of micro and small enterprises (Mses) in Thika Municipality, Kenya

Abstract

This project report is focused in Thika municipality in Central Kenya, an area of concentration being microfinance institutions (MFIs) in Kenya .The evidence from this study suggests that MFls have in fact been small players in growth of Micro and small enterprises (MSEs).The microfinance clients are the center of analysis rather than the supplier, although, as expected, areas of interaction are considered wherever appropriate. This project report presents specific insights about the contribution of microfinance service to the growth of MSEs in developing countries. It focuses in Thika municipality in Central Kenya, an area of concentration being microfinance institutions (MFls) in Kenya. In terms of scope of analysis, the focused on MFI services {financial (loan products, savings, and other) and non-financial (business development services, advisory and consultancy, training, and others)} delivery and clients' preferences, and utilization and contribution of these services on client welfare. The client of MFls (MSEs) known as Jua kali are the biggest employer in Kenya and employ an average rate of about two percent each year .The study was based on a cross- sectional data collected from two hundred and eighty five MSEs and sixteen MFls randomly selected households using structured questionnaires and interview schedules from different respondents. This is MSEs Owners and MFI managers, who represented 25.8 percent of the total MSE Owners and all MFls respectively as of 2009 Thika Municipal record. After the data was collected it was entered and cleaned before being analyzed using descriptive statistics which include frequency measures of central tendencies, and measures of dispersion. The findings of this reveal that MFIs offer services to customers (MSEs) had contributed growth which has been rapid over the years. Majority of businesses in Thika Municipality (56.8 percent) were owned by married people. Despite majority of MFls (93.75 percent) being integrationist (providing non-financial services along with the financial services) and 6.25percent minimalist (i.e. provide almost exclusively financial services), surprisingly 22.7 percent respondent reported not having any non financial products from MFIs. Default rate was high while MFI loan was second main source of capital (38.6percent) contrary to Oketch, (1995) Ondiege (1996), Karega and logiag (1997), who had shown that main source of capital for MSEs are personal savings, donation or gifts from friends.The main reason for their saving was for expansion of and growth of business the same sentiments echoed by Jagongo, (2009) .Finally, 76.9 percent business was initiated with capital less than ten thousand Kenyan shillings .This low seed capital explains why MSEs have stagnant growth. Finally the businesses that received MFI services reported growth in sale, revenue and number of employees employed. The study recommended that to enhance growth of MSE, MFls need to offer an exchange program to their clients (MSEs) in order acquire skills regard in improving their business give more training, before and after advancement of loan to customers. Secondly MFIs should network with other MFls in order to improve their service delivery the government should set policy regarded essential in improving loan repayment period and loan amount. From research it is clear that there exists a large unexploited saving mobilization and utilization potential. This call for MFls to tailored their financial and non financial products to meet financial needs of poor.