Microfinance refers to small scale financial services such as cash loans, money transfers, direct
deposits, savings, and insurance made accessible primarily to the poor. Micro enterprises can be
defined as those enterprises employing up to 10 workers (including the owner) and small
enterprises as those employing more than 10 up to 15 workers.
The research was aimed at investigating the impact of micro-finance credit on the financial
performance of SMEs in Kenya. The study was carried out in Nairobi region targeting SMEs in
service industry, manufacturing sector, trade and food processing industries.
The research found out that as SMEs grow they require funds to finance growth in fixed asset
and increase working capital. SMEs therefore require long-term credit in ever increasing
amounts so that they can purchase raw materials, supplies and carry out activities that they need
to facilitate the production process. From the study findings it was concluded that, access of
credit by SMEs from MFIs greatly influences their performance. The conclusion is supported by
the results from the various descriptive statistics. The descriptive statistics on net profit indicate
that the net profit after access of credit from MFIs was more than the net profit before access of
credit. This is attributed to the increased working capital of the SMEs and expansion of business
operations. These findings have implications for management of MFIs to ensure that policies are
instituted to facilitate easy access of loans by SMEs from MFIs.
Management of MFIs should therefore, among other things come up with policies which can
help those with no collaterals but good ideas to access credit from MFIs, encourage personal
service delivery, provide financial advisory services to individual proprietors when advancing
credit to them, lower lending rates while improving service delivery and train people on risk
management and financial management. The Government should also regulate MFIs to ensure
that the SMEs are not exploited by MFIs