The Relationship between Microfinance Saving Services and SMEs Growth in Kenya: A Case Study of Manyatta Sub-Location, Kisumu, Kenya

Abstract

Purpose: The Purpose of the study was to establish the relationship between microfinance saving services and Small and Medium Enterprises’ growth in Manyatta Sub-County-Kisumu County. Methodology: The research was anchored on the classic microfinance theory of change. The study employed correlation research design. Data was analyzed using Pearson’s correlation analysis, with a population size of 2500 small and medium enterprises. Using probability sampling technique, a sample size of 71 respondents was drawn from owners of the small and medium enterprises. Primary data was collected by administering questionnaires, observations and interviews and secondary data was collected from relevant books, journals and periodicals. Data was presented using frequency tables. The data was for the period 2011 to 2015. The test-retest coefficient was obtained to establish reliability of the research instruments as established by Fishers’ 0.7 coefficients. Findings: The study found that the correlation coefficient between loan amount and problem servicing loan was (r = -0.299), favorable interest rates and income was (r = 0.322), favorable interest rates and profit was (r = 0.272). Also, favorable interest rates and loan investment was (r = 0.292) implying that there was statistical significance. The study also found out that the correlation coefficient between savings expand business and business expanded after one year was (r =0.385), profits and income was (r =0.369), income and investment was (r =0.321). This showed that there existed a relationship. Conclusion: The study concluded that there exist a positive effect of Microfinance saving services on the growth of small and medium enterprises in Manyatta Sub-County in Kisumu County, Kenya. Recommendations: The study recommends MFIs to offer financial training to assist SMEs in understanding the importance of savings to scale up economic growth. The study also recommends further research to establish more facts between savings and economic growth.