Effects of microfinance lending on working capital management of micro and small enterprises in Narok town Kenya

Abstract

Financial management is a critical component of efficient working capital management of both small and large firms. MSEs business remain the most dynamic force and agent of economic growth and development of a nation. However, MSEs sector have the problems of accessing funds for their working capital because they do not have securities. Despite the provision of fund by MFIs, many MSEs businesses still fail because they neglect the principal of efficient working capital management. This study sought to establish the effects of MFI’s lending on working capital management of micro and small businesses in Narok Town. The specific objectives of the study were to establish the effects of Microfinance institution lending on the cash management, inventory management, receivables management and payables management of the MSEs. The findings from the study will aid MSEs in making efficient use of loans advance to them by MFIs and Government will use for policy formulation. The study used descriptive survey design and the target population comprised of 240 MSE’s. Purposive sampling technique was used to select a sample of 71 MSE’s from the population. Primary data were collected using face to face interviews through the aid of structured questionnaire. Descriptive statistics which includes percentages, frequencies, means, standard deviation and inferential statistics namely; Pearson product moment correlation and multiple regressions were used to analyze the data. Test of significance was tested at α=0.1. The Statistical Package for Social Science (SPSS) aided the data analysis. In general the study established that MFI’s lending (cost of lending, loan period and loan size) positively effect on working capital management (cash management, inventory management, receivables management and payable management) of MSEs in Narok Town. In conclusion, it is evident that adoption of MFI’s lending is likely to significantly improve the working capital management of MSEs in Narok Town.