Effect of Financial Development Initiatives on Growth of Small and Medium Manufacturing Enterprises in Nairobi County, Kenya

Wandiri, L; Nyangau, S; Ochieng, D. E

Wandiri, L Ag Enrollment Manager, KCA University
Nyangau, S Lecturer, Jomo Kenyatta University of Agriculture and Technology
Ochieng, D. E Lecturer, University of Nairobi, School of Business, Department of Finance and Accounting

Abstract

Abstract

Purpose: This paper investigates the relationship between financial development initiatives and growth of small and medium manufacturing enterprises in Nairobi County, Kenya.

Methodology: The study targeted 451 SMEs in manufacturing industry in Nairobi County who are members of Kenya Association of Manufacturers (KAM). The study selected the sample proportion in concurrence with the Krejcie and Morgan (1970) and sample size was 210 respondent firms proportionately distributed across different categories under the Kenya Association of Manufacturers.

Findings: The study established that pooling of savings by firms would promote the relationship with the financial institutions. The way firms allocate capital in different investment projects also determines growth and requires expertise to ensure risk diversification, which may lead to high profits. Finally, access to credit has a strong association with the growth of the manufacturing SMEs.

Implications: The study concludes that pooling of savings by manufacturing firms will promote the relationship with the financial institutions and this will ensure efficiency when they are seeking for funds needed for investment, which in turn brings firms growth such as opening new branches. Equally, capital allocation in different investment projects also determines growth and requires expertise to ensure risk diversification that may lead to high profits thus growth of the firm. Finally, the study concluded that access to credit has a strong association with the growth of small and medium manufacturing enterprises. Collateral is key when it comes to debt financing.

Value: The article extends empirical insights in Kenyan context that assist to resolve previous research inconsistences on financial development initiatives and growth of SMEs. Additionally, the findings present an appreciation of the impact of financial development on the growth and profitability of SMMEs which are major players in economic activities.

Keywords: Financial Development Initiatives, Pooling of Savings, Allocation of Capital, Access to Credit, Growth of SMMEs