AN ASSESSMENT OF THE EFFECTS OF FINANCIAL INTERMEDIATION ON BUSINESS PERFORMANCE: A CASE STUDY OF WOMEN OWNED MICRO AND SMALL ENTERPRISES IN KISII MUNICIPALITY – KENYA

ABSTRACT
The purpose of this study was to assess the effects of financial intermediation on business performance. The study was carried out on women owned micro and small enterprises in Kisii Municipality. Descriptive research design was adopted for the study. The study sought to : assess the extent to which financial intermediaries intermediates between savers and borrowers, to assess the level of business performance of micro and small women owned enterprises and ; to assess whether financial intermediation has an effect on business performance on women owned MSEs in Kisii Municipality. The target population of the study was 150 women owned enterprises in Kisii Municipality (Equity Bank, Kenya Women Finance Trust and Kenya Rural Enterprise-Loan Programme beneficiaries). Random sampling procedure was adopted to sample 108 respondents who participated in the study. Data was collected using a structured questionnaire. Data analysis was done using descriptive statistics techniques which include frequency tables, percentages and summated averages. A likert scale was used to identify the extent to which financial intermediation influences business performance on women owned MSEs in Kisii Municipality. Microfinance loans, bank loans and co-operative loans were the most preferred sources of finance by the women entrepreneurs. Data were analysed using the statistical software package for social sciences. The study findings are useful to the women entrepreneurs who will plan and manage their businesses effectively. The study will also help financial intermediaries and policy makers to formulate appropriate policy framework to guide in the management of registered micro and small women owned enterprises and women entrepreneurship in the country and will also add to the already existing literature on financial intermediation.

CHAPTER ONE 
Background of the study 
Women as micro and small entrepreneurs have increasingly become the key target group for financial intermediaries. Consequently providing access to financial and non- financial services is not only considered a pre-condition for poverty alleviation but also considered as a strategy for empowering women (Karanja 1996). The micro and small enterprises (MSEs) play an important role in the Kenyan economy. According to the 1999 Baseline Survey (CBS, ACEG and K-REP) indicated that there were 1.3 million MSEs which contribute 18 percent of Kenya’s Gross Domestic Product (GDP). The survey stated about 64 percent of the MSEs are in trade, under which women entrepreneurs fall. This sub-sector is engaged in buying and selling of goods. Income from the trade sub- sector is ranked lowest among the MSE sector, but they are vital to the livelihoods of many urban and rural poor. The Kenya Labour Force Survey Report of 1998/99 indicates that the sector covers all semi-organized and unregulated activities that are small scale in terms of employment (ROK, Labour Force Survey 1999). 

The MSE sector is a major source of employment and income and about 48 percent of MSE operators are women. By the end of the year 2001, informal employment was estimated at 4.6 million accounting for 72 percent of total wage sector employment and 81 percent of private sector employment. The contribution of MSEs is more than double that of medium and large manufacturing sector that stands at 7 percent of the GDP (ROK 2003a). Micro enterprises are very small business often involving only the owner, some family members and at the most one or two paid employees. Most of them have a limited capital base and only rudimentary technical or business skills among their operators. However many micro enterprises advance into viable small businesses. Earning levels of micro enterprises differ widely, depending on the particular sector, the growth phase of the business and access to relevant support. Small enterprises constitute the bulk of the established businesses, with employment ranging between five and about 50. (Oketch 2000). 

Starting and operating a small business includes a possibility of success as well as failure. Because of their small size, a simple management mistake is likely to lead to sure death of a small enterprise hence no opportunity to learn from its past mistakes. Lack of proper planning, improper financing and poor management have been posited as the main causes of failure of small enterprises (Longenecker et al 2006). Lack of credit has also been identified as one of the most serious constraints facing MSEs and hindering their development (Tomeko & Dondo 1992). Education is one of the factors that impact positively on growth of firms. Those entrepreneurs with larger stocks of human capital, in terms of education and (or) vocational training are better placed to adapt their enterprises to constantly changing business environments (King and McGrath, 1998). 

Financial intermediaries are banking and non banking financial institutions which transfer funds from economic agents with surplus funds to economic agents that would like to utilize those funds. ( Salmulson & Nordhans, 1989). Financial intermediation has not only opened up new opportunities for the financial sector participants through financial innovations there is increase of new market players arising from new products in the financial markets. These developments have increased the range of financing and investment opportunities available to economic agents. As the financial markets become more liquid there is an increased speed and strength of the channels of marketing policy with complete change in interest rates, the cost of investment financing and return on savings (Shane, 1997). 

In Kenya, Financial intermediaries have programs that assist in developing micro and small enterprises through financial and technical assistance. Among the most notable financial intermediaries that have targeted women entrepreneurs are: the Kenya Women Finance Trust (KWFT), Kenya Rural Enterprise Program Bank (K-REP), and Equity Bank (Kioko 1995). K-REP operates two major loan programs for micro and small entrepreneurs, Jihudi and Chikola. The Jihudi methodology involves small groups. Each Jihudi group consists of four to eight individuals. The Chikola Loan Program works through existing rotating savings and credit self-help groups that are comprised of individual micro entrepreneurs. Jihudi and Chikola Loan Program are micro finance loans with minimum amounts of kshs. 15,000 to finance small-scale business people and entrepreneurs within a group set up (Kioko, 1995). Another scheme offered by K-REP is katikati, which is advanced to individual entrepreneurs with viable businesses whose credit starts at kshs 100,000 (K-REP, 2002). 

Kenya women Finance Trust provides loans to women entrepreneurs, its business loan products to micro and small women entrepreneurs are Biashara loan, Mwangaza and mwamba. To be eligible for a KWFT group programme, the group must be registered with the Ministry of Culture and social services as a self-help group, have existed as a group and operated a merry-go round for at least one year, and must accept that they have to save an agreed amount of money on a monthly basis. The minimum savings is Kshs. 200 per month. Members must agree to use the savings as collateral for group and individual members loans. During the mobilization stage, groups complete eight weeks of training to build their capacity and enable them to fully utilize the credit they access. (KWFT 2002). KWFT is also currently piloting an individual loan programme to meet the needs of growth-oriented clients with financing needs of kshs 100,000 to ksh. 500,000. (KWFT 2004). Equity bank provides Fanikisha loan products. Fanikisha loans are of six types each to suit a particular class of entrepreneurs. Fanikisha shaba targets women entrepreneurs who lack conventional securities and would like to start micro enterprises and would like to borrow through a group approach. The loans range from Kshs. 10000 to Kshs. 300,000 with a repayment period of 6-12 months at an interest rate of 1.25 % p.m. Fanikisha Dhahabu and Fanikisha Imara targets women in MSE who would like to borrow individually and the repayment period is usually fixed at 24 months. (Coeztee et al 2002).

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Item Type: Kenyan Project Material  |  Attribute: 51 pages  |  Chapters: 1-5
Format: MS Word  |  Price: KSh900  |  Delivery: Within 30Mins.
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