A Review of the Effect of Microfinance Services on the Profitability of SMES in Kenya

Abstract

Small and medium-scale enterprises (SMEs) are entities of utmost importance in the economic development of a country, as they not only generate job opportunities but also provide goods and services to meet basic human needs. Microfinance institutions (MFIs) are purveyors of financial services such as microcredit, micro savings, and microinsurance, which empower low-income individuals and SMEs to achieve their financial goals. The present study delves into the effects of these microfinance services on the profitability of SMEs in Kenya. The existing empirical literature has shown a significant positive correlation between the utilization of microfinance services and the profitability of SMEs. However, it is imperative to note that gaps exist, including the dearth of localized studies focusing on SMEs in Kenya and the need for more robust methodologies to establish causal relationships. To conclude, SMEs in Kenya can undoubtedly benefit from microfinance services to enhance their profitability. Although existing literature provides valuable insights into this relationship, further research is warranted to address methodological limitations and contextual factors specific to the Kenyan SME landscape.