The Impact of Microfinance Credit on Micro Enterprises’ and Entrepreneurs’ Household Incomes and Livelihoods in Butere, Mumias, Matungu and Khwisero Sub-Counties, Kenya

Grassroots institutions such as self-help groups (SHGs) exploit existing linkages with other stakeholders, within Kenya’s development framework, to enhance members’ development activities and improve their livelihoods. For instance, entrepreneurs who are members of SHGs in Butere, Mumias, Matungu and Khwisero Sub-counties operate MEs to generate or diversify their incomes so as to improve their households’ livelihoods. However, shortage of capital remains one of the major obstacles to the performance of ME-sector. A number of microfinance institutions (MFIs) provide ‘friendly’ credit to entrepreneurs; preferably those who are members of SHGs, to improve their MEs’ income, entrepreneurs’ household incomes and subsequently, their livelihoods. This study, therefore, aimed at assessing the impact of microfinance credit on incomes generated from MEs and subsequently, how it affects total incomes and livelihoods of entrepreneurs who are members of SHGs in Butere, Mumias, Matungu and Khwisero Sub-counties, Kenya. Descriptive and experimental research designs were used in this study to ascertain ME variables and assess the impact of microfinance credit on MEs incomes. A ample of 265 entrepreneurs, who were members of SHGs and owners of microfinance credit-assisted MEs located in 40 centres, was drawn using stratified and proportional random sampling techniques for study. Also, a control sample of 155 entrepreneurs who had not received credit was drawn purposely to aid in determining the impact of microfinance credit on MEs incomes. Data, sourced mainly from entrepreneurs and credit officers of MFIs, was collected using a semi-structured questionnaire. Mini-case studies and key informant interviews were also used to collect data. Data generated was analyzed using: descriptive statistics. The study found out that microfinance credit impacted significantly on MEs incomes, entrepreneurs’ and households’ incomes and subsequently their livelihoods. The study, therefore, recommends that the provision of microfinance credit to entrepreneurs operating MEs and who are members of SHGs, be strengthened in the study area as an avenue in the development of the ME-sector and improvement of entrepreneurs’ household incomes and livelihoods at the grassroots. Keywords: Entrepreneurs, Grassroots, Impact, Livelihoods, Micro enterprise, Microfinance Credit, Household Incomes and Self-help Groups.

Utilization and Impact of Microfinance Credit on Performance of Microenterprises among Entrepreneurs who are Members of Self-Help Groups in Butere, Mumias, Matungu and Khwisero Sub-Counties, Kenya

Self-help groups (SHGs) are important institutions at the grassroots through which members can exploit existing institutional linkages with other stakeholders, within Kenya’s development framework, to enhance their development activities. For instance, members of SHGs in Butere, Mumias, Matungu and Khwisero Sub-Counties, which comprised the study area, operate micro enterprise (ME) to generate employment and improve their incomes. However, shortage of capital, which is occasioned by the unwillingness of the mainstream financial institutions such as banks to provide credit to majority of entrepreneurs, remains one of the major obstacles to the performance of MEs. Thus, a number of microfinance institutions (MFIs) have developed ‘special’ ME-sector credit lending programmes, preferable for entrepreneurs in SHGs, in a bid to address the problem of shortage of credit. It is, however, not clear how such microfinance credit impacts ME capitalization, incomes and employment in the study area, which this study sought to investigate. Both descriptive and experimental research designs were used in this study to ascertain and assess the impact of microfinance credit on MEs variables. An experimental sample of 267 entrepreneurs who were members of SHGs and owners of credit-assisted MEs, located in 40 centres, was drawn using stratified and proportional random sampling techniques for study. Also, a control sample of 155 entrepreneurs operating MEs that were not credit-beneficiaries was drawn in the same 40 centres surveyed. Data, sourced mainly from entrepreneurs and MFIs, was collected using a semi-structured questionnaire. Observations, mini-case studies, and key informant interviews were also used to collect data. Data generated was analyzed using: descriptive statistics; and chi-square. The study found out that between the year 2008 and 2011, entrepreneurs had secured loans totaling Ksh 18,448,100 and spent 69.2 per cent of this amount on MEs. Microenterprise capitalization was the largest beneficiary, accounting for 79 per cent of the money spent on MEs. The loan money spent on MEs met 86.3 per cent of all MEs needs. Also observed was that credit impacted significantly on MEs incomes and capitalization levels, with insignificant impact observed on ME employment levels. The study recommends that MFIs and SHGs should come up with institutional control mechanisms to ensure appropriate utilization of credit so as to ensure better performance of MEs resulting from microfinance credit secured. MFIs can also consider lending to potential entrepreneurs who want to start new businesses in the informal sector, other than entrepreneurs already operating MEs. This will ensure significant growth in ME employment, as a ME performance indicator. Keywords: Entrepreneurs, Impact, Microfinance, Micro enterprise, Enterprise Performance and Self-help Groups