The study was carried out to investigate the determinants of acquisition of financial services by the micro and small enterprises. Descriptive research method was used to carry out the study. The general objective of the study was to investigate the determinants of acquisition of financial services by the micro and small enterprises Langata sub-county of Nairobi. The findings of the study were therefore based on the specific objectives of the study and the hypotheses tested. The first objective of the study was to determine the relationship between legal and regulatory framework and acquisition of financial services. Relationship with legal and regulatory framework was analysed in terms of status of business registration, maintenance of bank account, source of initial capital and maintenance of business insurance. The study result showed that there was a negative but significant relationship between the legal and regulatory framework and acquisition of financial services by micro and small enterprises.
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The second objective was to determine the relationship between level of education and entrepreneurial training of the owner/manager of a business and acquisition of financial services. Based on the results and the interpretation of the results, it was found that there was a negative significant relationship between level of education and entrepreneurial training of the owner/manager of micro and small enterprises and acquisition of financial services. The hypothesis was therefore not accepted.
Thirdly, the study examined the relationship between demographic factors and acquisition of financial services. The objective was to establish the relationship between; gender, age of respondents, level of business annual incomes and; size of business and acquisition of financial services. The results indicated that demographic factors had a negative significant relationship with acquisition of financial services by micro and small enterprises. The other factors of gender, level of business annual income and size of business had no relationship with acquisition of financial services.
The fourth objective of the study was to determine the relationship between economic factors and acquisition of financial services. Based on the findings of the study all the factors; collateral, guaranty, profitability and rate of interest had no relationship with acquisition of financial services. The study found that
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economic factors had no significant relationship with the acquisition of financial services by MSEs in Langata Sub County of Nairobi County.
5.3 Conclusions
Firstly, the study concluded that legal and regulatory framework had effect on the demand for loans and credit from banks and other financial institutions. There was evidence that owners/ manager of registered businesses were likely to request for a subsequent loans than the business owner or manager whose businesses were not registered. It can therefore be hypothesized that there is a relationship between legal and regulatory framework and access to financial services from banks and the other financial institutions.
Secondly, the study concluded that Demographic factors had a positive influence on acquisition of financial services. Majority of the micro and small enterprises in Lang’ata Sub County of Nairobi County were owned and managed largely by the youths. There was evidence of ownership by the youths as majority of the owner/managers were in the age bracket of 29 years and 49 years. Thirdly, the study concluded that the average age of the business owners/managers was 34 years. It could therefore be hypothesized that age of the business owner/manager, gender, level of income and number of employees effect acquisition of credit or loan from a bank or a financial institution.
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The study finally concluded that maintenance of bank account has effect on the demand for or other financial institutions. Based on the findings, there was evidence of accessing credit or bank loan or financial resources from other institutions by those who maintain bank accounts than those without bank accounts. In processing requests for credits or loans, banks consider potential risk of the loan and therefore evaluate customers on the basis of character.
5.4 Contribution to Knowledge
From the conclusions of the study, a number of new knowledge have emerged which can assist Kenyan economy achieve the Millennium Development Goals as well as Vision 2030. The study explained that Legal and regulatory framework had influence acquisition of financial services from banks and Microfinance. Institutions requesting for financial services are still required to comply for control and regulations. Secondly the findings explained that demographic factors influences acquisition of initial capital from savings, friends and family members that young businesses tend to rely more on equity financing rather than debt financing. The study also showed that level of education and entrepreneurial influences acquisition of financial services from financial institutions. Micro and small enterprises which are owned or managed by trained individuals can rely on debt financing in addition to equity. Due to complexity of acquisition of financial services from banks and other credits from financial institutions and the stringent repayment conditions, most of the small businesses rely on own savings and
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reinvested profits instead of debt financing. The Millennium Development Goals (MDGs) and the Vision 2030 are achievable if such knowledge are utilized.