The Impact of Microfinance Credit on Microenterprises’ Performance and Entrepreneurs’ Livelihoods: a Study of Businesses Managed by Members of Self-help Groups in Kakamega County, Kenya

Abstract

Shortage of capital is a major constraint in the development of microenterprises (MEs) among entrepreneurs who are members of self-help groups (SHGs) in Butere, Mumias, Matungu and Khwisero Sub-Counties of Kakamega County. Shortage of capital is occasioned by inability of entrepreneurs in the informal sector to access credit from mainstream financial institutions. Thus, a number of microfinance institutions (MFIs) in the study area provide credit to members of SHGs operating MEs so as to improve their businesses. However, it is not clear: how entrepreneurs’ and MEs’ characteristics influence total microfinance credit secured by entrepreneurs; and how microfinance credit impacts MEs income, capitalization, employment and entrepreneurs’ incomes and subsequently, their livelihoods in the study area. The study, therefore, sought to investigate these issues. Both survey and experimental research designs were used in the study. A sample of 267 credit-assisted entrepreneurs (representing 15 per cent of the target population) who were members of SHGs operating MEs located in 40 centres, was drawn using stratified and proportionate random sampling techniques for study. Also, a control group sample comprising 155 entrepreneurs (representing 15 per cent of enumerated population) in the 40 centres, who were non-beneficiaries of credit operating MEs was drawn and surveyed. The study relied on both primary and secondary data. Primary data was sourced from entrepreneurs and key informant and collected using: a semi-structured questionnaire; case-studies; observations; and informal interviews. Data collected was analyzed using descriptive statistics, chi-square, correlation and multivariate linear regression. The study found out that entrepreneurs’ and MEs’ characteristics were significantly different and influenced differences in total microfinance credit secured by entrepreneurs based on ME type. Further, these characteristics were significantly correlated with total microfinance credit secured, even though they explain only 24.9 per cent of the change in the total microfinance credit secured by entrepreneurs. Significant differences were also observed in the way entrepreneurs spent microfinance credit secured on MEs variables based on credit source. Notably, 69.2 per cent and 30.8 per cent of the total credit secured was spent on MEs and household items, respectively. Microfinance credit secured impacted significantly on MEs incomes and capitalization levels and not on employment levels, with ME incomes impacting significantly on entrepreneurs’ incomes and livelihoods. These findings have important development implications especially for planners, policy makers, SHGs, MFIs and other stakeholders in Kenya’s ME development framework