The aim of this study was to determine effects of mobile money transactions on financial performance of Small and Medium enterprises in Nakuru Central business district. The objectives of the study were to determine, the frequency by which SMEs use mobile money transaction to carry out their business financial transactions financial; and the effects of mobile money transaction on sale revenue, debt collection, and cash management. The study employed descriptive survey research design. 120 out of 640 SMEs businesses were sampled using simple random sampling. The respondents were selected by use of purposive sampling technique. Questionnaire was used as data collection instrument. The data was analyzed using both descriptive and inferential statistics. For descriptive statistics the study used frequency, percentages and mean. Chi- square test was used to establish whether there was any relationship between the use of Mobile Money Transfer (MMT) and financial performance of SMEs. The results were presented using charts, frequency tables, and graphs. The findings of the study reveals that, the proportion of SMEs using mobile money transaction was significant compared to those which did not. In addition, the study established that the frequency by which SMEs use of mobile money transaction was statistically significant. The study also established that SMEs after adopting the use mobile money, performed better than they used to. However this usage of MMT had no statistical significant effect on sales revenue, debt collection and cash management of SMEs. On the basis of these findings the study recommends that SMEs should monitor the usage of mobile money transaction in order to realize its benefits on the financial performance of their businesses. Since most of SMEs use mobile money to carry out their financial transactions, the government should come up with a legislation that protect the usage of mobile money and make it an acceptable way of transacting business

The background to the study 
The term small and medium enterprises cover a wide range of definitions and reasons, varying from country to country and the source reporting SME’s statistics. There is no universally agreed definition of small and medium enterprises because their classification into large or small is a subjective and qualitative judgment based on number of employees, values of assets, value of sales and size of capital and turnover. The most common definitional basis used is employees because of comparatively (Brilliant, 2008). In Kenya, according to the Sessional Paper No. 2 of 2005, SME’s refers to the full range of enterprises employing between 1-50 workers in all sectors. The term embraces all businesses in the informal sector. Those working in this sector work in a manner which is not organized and thus unregulated. Their main target group is people whose income is low. It serves mostly people who are unbanked, which implies that the people working in this sector face a lot of challenges. 

Chogi (2006) cited that according to Central Bureau Statistics 2005 Kenya has over 5,970,600 people employed in this informal sector, which is about 19% of the total Kenyan population. This is because to start a business in this sector requires less capital and it is not structured. This sector has continuously experienced growth; becoming a key sector in the economy of the country, creating most of the new jobs in Kenya. The sector constitutes 98% of all businesses in the country, absorbing a high population of school, college and university leavers (Malick ,2004).The Economic Survey (2006) showed that SMEs contributed over 50 percent of new jobs created in the year 2005. SME’s therefore play fundamental part of the economic fabric in the country. They play a crucial role in increasing growth, innovation and prosperity (Dalberg, 2011). It is therefore an important sector that has positively contributed to the development of Kenyan economy; and thus can’t be ignored. 

Based on the World Bank study (2012), the inability of the SME’s to access funds is still a major issue that limits the formation of new businesses and prevents others from expanding and growing. The sector also faces other challenges. Lennart (2010) noted that, liquidity and cash- flow management are key bottlenecks for micro and small enterprises operations. This assertion tallies with what Bowen et al (2009) established that debt collection, lack of working capital are among the top five challenges facing micro and small businesses. These challenges make SMEs lack financial capacity to enlarge and develop. A World Bank’s Investment Climate Assessment studies as quoted by Lennart (2011) showed that small firms are more credit constrained than large ones (41% vs. 11 %). This assertion confirms what Atieno (2009) established that most formal financial institutions consider micro as small enterprises uncreditworthy, thus denying them credit. This lack of access to financial resources has been seen as one of the reasons for the slow growth of SME’s. This is coupled with negative perception towards them, which adversely affect their accessibility to the financial services provided by financial institutions; since they are considered not viable customers by the formal financial sectors as their transaction sizes are small. Their accessibility to financial institutions is therefore difficult due to low capital base, poor returns, lack of financial records and collateral property to secure loans from banks; thus becoming uncreditworth; which in turn affect their development (Wambani, 2009; Amyx 2005; Stern, 2002; Oketch, 2000; Tomecko & Dondo, 1992; Kiiru, 1991). 

Business as well as society at large in Sub-Saharan Africa has a very strong cash-based heritage, and cash is the default means for carrying out small-scale transactions. Cash is also the key to doing business; it is a scarce resource, and any business success may very well depend on how to mobilize cash quickly; from savings, credit from suppliers, or to have customers that can pay upon delivery, or even better in the case of production and delivery being separate instances, upon the placing of an order. This insinuates that the performance of the SME’s businesses depends on how fast cash receipt and payments are made since any delay affects operations of their business. The faster they get cash the better it is for their businesses. The biggest challenges they face in attaining this is how to reach their customers, mode of payment and accessibility to local receipts of money and payment of their credit.; Since in many developing countries 9 out of 10 people do not have a bank account or access to basic financial service. This implies that majority of the people who transact or either do businesses are unbanked (Lennart, 2011; Wambani, 2009). 

The presence of the mobile money transaction has changed how business is conducted. This is because offering banking products through mobile phones has brought about great potential for reaching those who have no bank accounts. Moreover, accessibility to the mobile phone is to both the poor and the rich. 

According to Lennart (2010) the fast diffusion of mobile money transfer was viewed as a potential key tool for facilitating financial transactions. This indicates that the rapid adoption of mobile phone was seen as means of uplift the financial functionality of this sector. A positive aspect of mobile phone is that mobile networks can reach remote areas at low cost; and has made financial transactions to be made in a simple and faster manner from any point insofar as there are mobile phones money service providers. It is easier to transact and at a lower cost. There was need therefore to find out whether SME’s entrepreneurs (whose main target populations are unbanked), use mobile phones to transact their businesses. At the same time how the use of mobile money had affected financial performance of their businesses. That is, in terms of their sales revenue their debt collection and cash management. This was therefore a study to determine effects of mobile money transactions on financial performance of the SMEs in Nakuru Central Business District (CBD).

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Item Type: Kenyan Topic  |  Size: 71 pages  |  Chapters: 1-5
Format: MS Word  |  Delivery: Within 30Mins.


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