| dc.description.abstract | Despite the critical role SMEs play in the economy, their growth and success is always dogged by
myriad of challenges due to their limited ability to access expansion finances and bridging the
working capital deficits. However, MFIs comes in handy by playing a key role in financial
intermediation in so far as growth and Success of the SMEs is concerned considering that to a
large extent, they lack collaterals and other borrowing requirements imposed by commercial bank.
Alive to that fact, the study thence seeks to establish the nexus between microfinance institutions
practices and the performance of small and medium enterprises in Kenya. In doing so, the study
adopts a case study of Kajiado County specifically to examine the effect of microfinance lending
practices, microfinance savings practices, microfinance insurance practices and microfinance loan
recovery practices on financial performance of small and medium enterprises. This study adopted
descriptive research due to its ability to explore and offer detailed explanation on the study’s unit
of analysis, which in this case is the SMEs in Kajiado County. The study target population was
2851 SMEs registered in Kajiado County. However, the study sample was the 372 SMEs registered
in Kajiado Township within Kajiado County. Given the small size of the target population, the
study employed census. The study utilized secondary data collected using structured
questionnaires administered to the SME owners. STATA was used for data analysis in which
analyses included computation of measures of central tendency, as well as the measures of
dispersion. In addition to the descriptive statistics, correlation analysis of the study variables was
used to examine the relationship among the variables. To determine the specific effect of
microfinance financial practices on the SME performance, we relied on a linear empirical model
using a multivariate Ordinary Least Squares method. In addition, several diagnostic tests namely:
heteroscedasticity, multicollinearity, and autocorrelation tests were conducted. The study found
that microfinance lending practices to the SMEs has a negative and significant effect on the SME’s
profitability with one unit increase in micro credit likely to lead to 0.106 units decline in SME
profitability holding other factors constant. Further, microfinance savings practices was found to
have a negative and significant effect on the SME’s profitability with one unit increase in micro
saving likely to lead to 0.421 units decline in SME profitability holding other factors constant. In
addition, microfinance insurance practices was found to have a negative but insignificant effect on
the SME’s profitability with one unit increase in micro insurance likely to lead to 0.015 units
decline in SME profitability holding other factors constant. Lastly, microfinance loan recovery
practices were found to have a negative effect on the SME’s profitability with a single unit increase
in outstanding loan likely to increases SME profitability by 0.008 holding other factors constant.
The diagnostic tests results concluded the absence of heteroscedasticity, multicollinearity and
autocorrelation problems. | en_US |
