EFFECT OF ACCESS TO CREDIT ON FINANCIAL PERFORMANCE OF SMALL AND MEDIUM ENTERPRISES IN KENYA

Jackson Macharia Kirikiru, Fredrick M. Kalui

Abstract


Small and medium enterprises play a major role in the growth of the national economy through employment creation and poverty alleviation. However, most of them perform poorly and about half of them are closed within the first year of operation. Some of the reasons for closure include shortage of operating funds, declining income and losses incurred from the businesses. The objective of the study was to determine the effect of access to credit on the financial performance of small and medium enterprises in Kenya. The study adopted explanatory research design. The target population was heads of finance departments in the 100 top small and medium enterprises in Kenya. Yamane’s formula was adopted in this study to determine the sample size. Stratified random sampling technique was used to select 80 small and medium enterprises from the target population. This study used primary data, which was collected by use of structured questionnaires from the heads of finance departments in the selected small and medium enterprises. A pilot test was conducted to assess the validity and reliability of the research instrument. Data was analyzed by use of both inferential and descriptive statistics with the help of statistical software known as Statistical Package for Social Sciences (version 22). Descriptive statistics composed of calculation of percentages, and frequencies, measures of central tendency (mean) measures of dispersion (standard deviation). The results were presented using tables and figures which included bar charts and pie charts. The relationship between the independent variable(s) and the dependent variable was determined through the use of correlation analysis and regression analysis. The study found that access to credit has a positive and significant effect on the financial performance of small and medium enterprises in Kenya. The study recommends that the financial institutions as well as the government of Kenya should work towards increase access of credit small and medium enterprises in Kenya. In addition, the government of Kenya should allocate more funds to the Youth Enterprise Development Fund and Women Enterprise Fund as a way of ensuring access of credit among the youth and women.


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