An evaluation of effect of provision of micro-finance on the perfomance of micro-enterprises; a case study of youth micro enterprises under K-rep program, Kisii county, Kenya

Abstract

Micro and Small Enterprises (MSEs) sector contributes 20% to the GDP of the Kenyan economy. The vision of micro finance is to promote the growth of micro enterprises. In pursuit of this vision, the rapid growth of Micro Finance Institutions (MFIs) has made MSEs access to credit more than doubled from 7.5% in 2006 to l7.9%in 2009. Despite this increase, a recent study has shown that over 50% of MSEs continue to have a deteriorating performance vw'th 3 in every 5 MSEs failing within months of establishment. This brings to question the effectiveness of the role of micro finance in promoting growth of micro enterprises. The overall objective of this study was to evaluate the effect of provision of micro finance on the performance of micro enterprises. The study was guided by the concept of micro finance which is the provision of financial services to low income groups engaging in income generating activities. Objective of micro finance is to empower the poor. The study was conducted through a cross- section survey design. The population of study comprised 110 Youth micro enterprises under K- rep program in Kisii County. Simple random sampling technique was used to obtain a sample of 86 micro enterprises. A structured questionnaire was pre-tested for validity and reliability which was then administered to 86 youth micro entrepreneurs to collect primary quantitative data. The data were analyzed using descriptive statistics such as mean, percentages and frequency. A multiple regression analysis and Pearson correlation coefficient was used to establish strength, direction and significance of relationship between extent of provision of micro finance and performance of micro enterprise. Data were presented using tables and graphs. The study findings indicated that provision of micro finance had significant effect on the performance of micro enterprises. To enhance the performance, the study recommended inclusion of micro insurance in the microfinance package, extension of grace period from 1 to 3 months, raising minimum loan size and providing varying loan sizes to meet diversified business needs of youth entrepreneurs.