THE IMPACT ASSESMENT OF THE MICRO FINANCE TO FINANCIAL INCLUSION AND BISUNESS GROWTH: A STUDY OF THE MICRO, SMALL AND MEDIUM ENTERPRISES IN IGEMBE SOUTH (KENYA)

Martin Guantai Kanake,Dr R Mahesh

doi:10.47672/ajf.323

Abstract

Purpose: The purpose of this study was to assess the impact of microfinance on financial inclusion and business growth in Igembe South District Kenya.Methodology: Descriptive research was used in discovering the research objectives. The research targeted the micro, small and medium sized businesses operating in Maua town (Igembe south District), 2181 of which were registered and licensed. A sample of 280 businesses (12.84% of the population) participated in the study.Results: This study revealed that microfinance institutions played a major role in improving financial inclusion among the small business owners who previous research has shown that they have been traditionally excluded from the formal banking systems. 78% of the respondents had access to the micro finance services while 60% had active microcredit in the preceding 12 months. It was clear that the microfinance institutions were cultivating the culture of saving among the micro entrepreneurs. However, most of the new businesses specifically those less than one year of age minimally benefitted from the micro finance services. It was also noted that default risk among the small businesses remains to be a challenge that micro credit lenders have to overcome for continued services provision. Working capital requirement was the leading reason for borrowing from micro finance institutions by the businesses.Unique contribution to theory, practice and policy: The study found that there was a good complementation between the existing micro finance institutions and the public entrepreneurial programs initiated by the government of Kenya such as Youth Entrepreneurs Development Fund, Women Enterprise Fund, Uwezo Fund and other County governments initiatives. The study recommended that the microfinance institutions should also be included in the distribution channel of these public funds for stronger linkage with the target groups. The MFIs should also utilize Credit Reference Bureau services to reduce the problem of default.

Highlights

1.1Background of the StudyMSME is an abbreviation that is used to refer to Micro, Small or Medium sized Enterprises in many countries in the world
In the World Bank research working paper on Financial Inclusion Around the World (Findex2014), it was noted that people who participate in the financial system are better able to start and expand businesses, manage risks and absorb any financial shocks
As noted by Aduda and Kalunda (2012) in their study on financial inclusion and financial stability noted that developing the financial sector by any country in an attempt to increase accessibility and usage by all individuals in the population is a pre-requisite of economic growth

Summary

Introduction

1.1Background of the StudyMSME is an abbreviation that is used to refer to Micro, Small or Medium sized Enterprises in many countries in the world. For instance in India, the capital requirements is used while in South Africa a three point criterion is considered; total number of full time employees, total turnover and the value of fixed assets. The dream and vision of every developing nation is to achieve growth in terms of their Gross Domestic Product (GDP) by raising the level of business activities within and without their boarders. This objective can only be achieved if there is inclusive participation in the economy that in turn is made possible by creating environment for growth of entrepreneurial spirit whether in the formal or informal sector. Today world-over, the MSMEs are being viewed as an important ingredient in the economic growth

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