Citation:

Diana Awino, Dr. Onesmus Mutunga. "Effect of Financial Inclusion on the Financial Performance of Small and Medium Enterprises in Mombasa County, Kenya" International Research Journal of Economics and Management Studies, Vol. 2, No. 3, pp. 96-105, 2023.

Abstract:

The study sought to establish the effect of financial inclusion on the financial performance of SMEs in Mombasa County. The key factors considered in this study included financial access, financial use, financial quality and service delivery. The development of mobile banking, microfinances, SACCOs and internet banking in Mombasa County aimed to improve financial access and enhance finance quality, financial use and service delivery. However, small businesses are still failing in their performance. There was a need to empirically study these problems and be able to understand how financial inclusivity can help the financial exhibition of Small and medium enterprises. The study's theoretical framework comprised the Grameen, credit rationing, and financial intermediation theories. The research methodology of the study comprised a descriptive research design, a target population of 3000 SME owners in Mombasa County, from which a study sample of 300 SME owners was selected, forming a 10% representation. Data was collected primarily using questionnaires tested for reliability and validity before a full scale was done. Data obtained were subjected to diagnostic tests to check collinearity, linearity and significance. Data was then analyzed in descriptive and inferential statistics using a Social Package for Social Sciences. The study established; a weak positive relationship between financial access and financial performance of SMEs in Mombasa County, the effect of financial access was attributed to accessibility of commercial banks and mobile banking that are more convenient to SME owners; a weak positive relationship between financial quality and financial performance of SMEs in Mombasa, the impact of financial quality was ascribed to adaptability in credit reimbursement period and protection of advance in order to limit defaulting; a weak positive relationship between financial use and financial performance of SMEs in Mombasa, the effect of financial use was ascribed to appropriate usage of assets for organizations and infusing of individual budgets to help business and a positive relationship between service delivery and financial performance of SMEs in Mombasa, the influence of financial use was attributed to good preparation of financial institutions and their intermediaries to serve the SMEs and special service line to help SMEs overcome challenges. The study concluded that; financial inclusion significantly influences the financial performance of small and medium enterprises in Mombasa County. The measures recommended by this study include; training SMEs on using mobile banking applications, as many were found to borrow from multiple applications and failed to pay back, an action that affected their credit rating. SME owners also need to be trained on the importance of recording their transactions so they can track all income and expenses. This study recommends another study on SMEs once the economy fully recovers to test if a stronger relationship will be obtained. Furthermore, the study was done in Mombasa County, which is a financial hub for the region; also, subsequently, there is a need for a study to be conducted in different counties like Kilifi and Kwale to make a comparison if similar results can be obtained.

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Keywords:

Financial inclusivity, Financial Access, credit rating, service delivery.