Effects of Microfinance Lending on Business Performance: A Survey of Micro and Small Enterprises in Kitale Municipality, Kenya

The provision of financial services, especially credit and saving facilities plays an important role in the development of the economy. Despite the efforts of microfinance institutions to take microfinance services within the reach of poor people and MSEs that have not benefited from the conventional formal financial system, growth and expansion of MSEs sector had not shown any sign of growth and expansion. The main objective of this study was to investigate the effects of microfinance institutions lending on micro and small enterprises performance within Kitale Municipality. This study adopted a descriptive survey research design and the target population was 1,200 MSEs which were registered within Kitale Municipality and had operated for at least three years. The target population was stratified into homogeneous categories as wholesalers, retailers, restaurants and service delivery. A sample of 120 MSEs was drawn proportionately and randomly from the strata. A semi- structured questionnaire was used to collect data. Completed questionnaires were verified and coded by the researcher in a computerized package then analyzed and summarized in frequency tables, pie charts and figures. The association between microfinance lending and MSE performance variables was established through Chi square and correlation tests at 95% significance level. A multivariate logistic regression was used for significant bivariate variables at 95% significance level. The amount of loans is significantly and positively related with performance of MSEs in Kitale Municipality. Microfinance institutions should reduce the period required for MSEs to participate in training and group formation to facilitate speedy access to MFI loans. The amount of loan given by MFIs to MSEs should be increased to enable the MSEs grow to medium scale enterprises.