Influence of Digital Credit on Performance of Small and Medium Enterprises in Nairobi County, Kenya

Abstract

The general objective of the study was to examine the influence of digital credit on the performance of Small and Medium Enterprises (SMEs) in Nairobi County, Kenya. The study was guided by the following research questions; how does financial access influence the performance of SMEs in Nairobi County, Kenya? How does multiple borrowing influence the performance of SMEs in Nairobi County, Kenya? And how does flexible payments influence the performance the performance of SMEs in Nairobi County, Kenya? Descriptive research design was used in this study. The target population was 538 owners and managers of registered small and medium entrepreneurs in Central Business District (CBD) engaging in trade and services business activities. Stratified sampling method was used which gave each participant an equal chance of being chosen. Primary data was gathered through the use of a standardized questionnaire which were closed-ended. Data gathered was quantitative in nature. Quantitative data was analysed with Statistical Package for Social Sciences (SPSS) version 24. The data was analysed with both inferential as well as descriptive statistics. The data was presented using table sand figures. The study showed that many small and medium enterprises collapsed within one year of starting and that the main challenge for small and medium enterprises access to credit was lack of collateral demanded by financial institutions. Correlation analysis showed that there was a statistical and significant linear positive relationship between financial access and performance of SMEs (r=.526, p=<0.05). Regression analysis indicated that financial access accounts for 27.2% of the changes in the performance of SMEs within Nairobi’s CBD (adjusted R²=.272). Analysis of Variance (ANOVA) showed that financial access as a factor was significant to the performance of SMEs within Nairobi’s CBD (F (1,171) = 64.892, p<0.05), and that a single unit change in financial access may influence the performance of SMEs within Nairobi’s CBD by 42.7%. The study revealed that multiple borrowing had led to over-indebtedness of small and medium enterprises. Correlation analysis showed that there was a statistical and significant linear positive relationship between multiple borrowing and performance of SMEs (r=.487, p=<0.05). Regression analysis revealed that multiple borrowing accounts for 23.3% of the changes in the performance of SMEs within Nairobi’s CBD (adjusted R²=.233). ANOVA showed that multiple borrowing as a factor was significant to the performance of SMEs within Nairobi’s CBD (F (1,171) = 52.835, p<0.05), and that a single unit change in multiple borrowing may influence the performance of SMEs within Nairobi’s CBD by 34.1%. The study indicated that flexibility in the repayment method improved the performance of small and medium enterprises. Correlation analysis showed that there was a statistical and significant linear positive relationship between flexible payments and performance of SMEs (r=.789, p=<0.05). Regression analysis indicated that flexible payments account for 62.1% of the changes in the performance of SMEs within Nairobi’s CBD (adjusted R²=.621). ANOVA revealed that flexible payments as a factor was significant to the performance of SMEs within Nairobi’s CBD (F (1,171) = 281.242, p<0.05), and that a single unit change in flexible payments may influence the performance of SMEs within Nairobi’s CBD by 68.7%. The study concludes that performance of the SMEs could be seen from profit margins and that most of them collapsed within one year of starting. Microfinance services had increased the risk of multiple borrowing by SMEs and their repayment problems had driven them into a vicious cycle of taking out more loans, and microfinance institutions offered flexible loan contracts to SMEs who had the ability to determine their own preferred loan repayment schedule. SMEs’ loan repayment schedule was dependent on the prevailing state of the world, thus most financial institutions had increased outstanding balance withheld by the businesses. The study recommends the managers and owners of SMEs in Nairobi’s CBD to adopt an entrepreneurial mind-set. They need to diversify channels of financing their enterprises. The reduction of their indebtedness would positively improve their financial position and status, and make us of available flexible repayment options to borrow what their businesses actually require. This would provide them with the finances to improve their businesses whilst reducing the burden of repayment. This would significantly improve their performance and financial stability.