Financing strategies and liquidity of supermarkets in Kiambu County, Kenya
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Date
2022-11
Authors
Rotich, Anne Chepkemboi
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta university
Abstract
Liquidity is very important facet of firm performance and ensures that firms effectively and efficiently meet their obligations as they become due. Local supermarkets have been struggling with severe liquidity challenges over the past halfdecade which has negatively impacted on their performance, growth and survival. Kenyan retail sector with average annual yields declining from 8.6 percent in 2018, to 7.0 percent in 2019 and 6.7 percent in 2020. Further, the average annual current ratio for the supermarket has fallen below the recommended 2.0. These has seen closure of several supermarkets in Kenya such as Uchumi, Nakumatt, Tuskys and Ukwala. The closure was as a result of the concerned retail stores unable to meet fast maturing obligations. There are few research on the impact of financing techniques on supermarket liquidity in Kenya. Despite the fact that several researches have been conducted on the liquidity of retail stores, many knowledge gaps remain unfilled. The purpose of this study was to evaluate how financing strategies affect supermarket liquidity in Kiambu County, Kenya. The specific objectives were; to investigate the effect of formal financing, informal financing, internal financing, and government funding on supermarket liquidity. Descriptive survey research design was used. The target population comprised of 76 respondents from 38 supermarkets in Kiambu County, Kenya. A census study approach was adopted. The study considered a five year time period between 2017 and 2021. The study exploited primary data sources which were collected through semi structured questionnaires. Tables and figures were used to present the data.The findings indicated mostly sourced financing from commercial banks, micro finance institutions and savings and credit cooperative societies. The results presented that majority of the supermarkets embraced informal credit financing as one of the major source of finance in the retail sector which included; interpersonal borrowing from peers, table banking and leases. The findings presented that the supermarkets pooled funds, ploughed back profits and used personal income to finance the operations of the supermarkets. The results presents that the supermarkets have not benefited from government credit guarantees, recovery loan plans, youth entrepreneur development fund and no funding from the government. The mean aggregate score for current ratio, quick ratio and cash ratio indicated that the targeted supermarkets were not doing well in terms of liquidity and that the supermarkets were unable to meet quick maturing responsibilities such as paying workers, rent, water bills, electricity and rates.The study concluded that formal financing, informal financing, internal financing had a positive and significant effect on supermarket liquidity. The relationship between government financing and liquidity of supermarkets was insignificant. Supermarkets should employ informal credit financing for financing, which offers many benefits, including easy access to information through social and private networks. For the supermarkets without access to commercial credit, informal moneylenders should serve as an extremely important source of short-term and emergency financing.
Description
A research project submitted to school of business in partial fulfilment for the award of master in business administration (finance option) at Kenyatta University, November, 2022
Keywords
Financing strategies