Effects of Participation of Micro and Small Enterprises in Microfinance on Their Performance in Kenya
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Date
2018
Authors
Obebo, Forah M
Wawire, Nelson H. W
Muniu, Joseph M
Journal Title
Journal ISSN
Volume Title
Publisher
Canadian Center of Science and Education
Abstract
The development of the microfinance sub-sector in Kenya is seen as a favourable catalyst for increasing
performance of Micro and Small Enterprises (MSEs). Despite the development, MSEs continue to suffer from
high levels of financial exclusion and shortage of operating funds. This scenarios raise policy questions on
whether participation in microfinance has effects on performance of MSEs. While past studies on this
relationship have demonstrated that the effects are mixed, an understanding of the effects on participation of
microfinance on different segments on MSEs - especially the youth and women owned businesses and age of
businesses, is necessary in designing relevant policy changes in the MSE subsector. To address this, the study
used the 2016 FinAccess Dataset and estimated these effects using the propensity score matching technique. This
model was considered suitable since it accounted for potential endogeneity biases associated with self-selection
into participation, unobserved entrepreneurial abilities and risk taking behaviour of MSEs. Apart from showing
that participation in microfinance has positive effects on performance of MSEs, the study has demonstrated that
there is presence of constraints limiting the impact of microfinance especially in firms owned by the youth and
women. As such, there is need for policy and product designs to address these hindrances even as participation in
microfinance is encouraged. Based on the results, it is recommended that government and microfinance
providers should design policies and products that increase firm participation in microfinance. This may be
through scaling up financial literacy programmes and encouraging acquisition of permits. Finally, policy should
address obstacles that hinder the youth and women owned MSEs from benefiting from microfinance.
Description
Article
Keywords
micro and small enterprises, microfinance, propensity score matching, probit, endogeneity
Citation
Obebo, F. M., Wawire, N. H., & Muniu, J. M. (2018). Effects of participation of micro and small enterprises in microfinance on their performance in Kenya. International Journal of Economics and Finance, 10(7), 78-88.