ijcrb.webs.com INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS APRIL 2013 VOL 4, NO 12 MARKET, KISUMU COUNTY, KENYA.

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1 EFFECT OF MICROFINANCE LOANS ON THE PROFIT MARGINS OF WOMEN MANAGED SECOND HAND MERCHANDISE ENTERPRISES AT KIBUYE MARKET, KISUMU COUNTY, KENYA. SARAH OKWISA SIMWA SCHOOL OF HUMAN RESOURCE AND DEVELOPMENT, JKUAT P.O BOX, 268(40200), KISII, KENYA DR MAURICE SAKWA SCHOOL OF HUMAN RESOURSE DEVELOPMENT, DEPARTMENT OF SOCIAL SCIENCES AND HUMANITIES,JOMO KENYATTA UNIVERSITY OF AGRICULTURE AND TECHNOLOGY. ABSTRACT The purpose of the study was to assess the effects of Micro finance loans on the performance of women managed second hand merchandise enterprises at Kibuye market, Kisumu Municipality. Specifically, the study was to assess the impact of financing on enterprise profit margins, sales volumes and value, asset base of the enterprise and creation of employment opportunities. The population constituted of 300 women managed second hand merchandise enterprises at Kibuye market, Kisumu Municipality. Both stratified and simple random sampling was applied to obtain sample (30) respondents. Personal interviews were used to collect primary data from the respondents. The data was subjected to descriptive statistical analysis, using Excel Computer Based Programme to generate results which were represented inform of graphs, tables and charts among others. From the results it was concluded Micro financing had led to growth and expansion of the enterprise in terms of profits, sales, business assets and employment opportunities. Hence, extending microfinance loans to women enterprises enhanced profit margins. The study recommended that the government and other financiers should channel more funds to the sector to enhance profits received thereby improving the performance of the women enterprises. Keywords: EFFECT ; MICROFINANCE LOANS ; PROFIT MARGINS ; WOMEN MANAGED SECOND HAND MERCHANDISE MARKET, KISUMU COUNTY, KENYA. ENTERPRISES AT KIBUYE COPY RIGHT 2013 Institute of Interdisciplinary Business Research 976

2 1.0 INTRODUCTION The burden of childbearing, caring for the children, providing for the family in terms of health, education, food and security has pushed women into managing enterprises to earn some income to meet these obligations. Rahmat and Maulana (2006) researched on the impact of microfinance to micro and small enterprises performance in Indonesia and the findings indicated that microfinance had a positive impact on the improvement of MSEs performance. It is estimated that 20% of Kenya s Gross Domestic Product (Republic of Kenya, 2006) is generated by medium, small and micro enterprises (MSMEs) under which the women enterprises fall. This implies that the contribution of women in economic development cannot be ignored nationally. One of the key mandates of MFI is to promote the growth of micro enterprises especially women managed enterprises (ILO, 2008). The Microfinance institutions provide a formal financial support that employs an integrated approach, dissemination of information as well as capacity building for the women enterprises in effective management of revolving funds (ILO, 2008). An ILO study by Stevenson and St-Onge (2005) came up with three profiles of women entrepreneurs operating micro and small enterprises in Kenya, the Jua Kali Microenterprises, Small scale enterprises and Micro-enterprises distinctively differentiated by their demographic profiles. The rapid growth of MFI has made MSMEs access to credit more than double from 7.5% in 2006 to a high of 17.9% in the year 2009.Kisumu is a city that is known with high poverty levels with 53% of its inhabitants living under the poverty line while 60% of the residents lacking access to basic necessities like clean water and sanitation. Kisumu town COPY RIGHT 2013 Institute of Interdisciplinary Business Research 977

3 is known for having high gender inequalities than the national average (UNDP, 2006). This is perpetuated even further because gender inequalities are entrenched in the customary laws of the people in this region. 2.0 LITERATURE REVIEW Microfinance loans play a pivotal role as far as performance of women enterprises is concerned. The loans are given to the women because of their better repayment records as compared to their male counterparts (Sharma and Zeller, 1997). A study in Ghana, Sinapi Aba Trust (SAT) by Opportunity International, a micro credit Institution revealed that microfinance loans led to expansion of existing enterprises and increased profits. Theories that were applied in this study are; Modern Portfolio Theory (MPT) and Investment Portfolio Theory (IPT). Investment Portfolio Theory is defined as the art and science of making decisions about investment mix policy, matching investments to objectives, asset allocation for individuals and institutions and balancing risk against performance. It is a strategy of combining a variety of assets to reduce the overall risk of an investment portfolio where the risk is either systematic or unsystematic. The Modern Portfolio Theory developed by a scholar, Markowitz says that it is not enough to look at the expected risk and return of a particular stock rather by investing in more than one stock an investor can reap the benefits of diversification thereby reducing in riskiness of the portfolio (don t put all the eggs in one basket).this implies an enterprise can put the microfinance loan in different investments to reduce risk involved and maximize on the returns. COPY RIGHT 2013 Institute of Interdisciplinary Business Research 978

4 Many women are increasingly accessing microfinance loan for their enterprises. The proportion of women involved in productive projects is huge in developing countries thus 84.4% of the poorest clients of the MFIs are basically women as reported to the Microcredit Summit Campaign in Results: 3.1 Education Level of the Respondents Lack of education is known to reduce people s ability to take advantage of opportunities around them. Fig 4.1 showed that (56%) of the respondents had received primary education and (22%), secondary education. This enabled them to understand basic enterprise management skills and is reflected on the stock values of the women managed second hand merchandise enterprises at Kibuye market, Kisumu Municipality. These findings concur with similar impact studies carried out by Akanji, (2006) and Kenya Institute of Management (KIM) in the year 2011 in Nairobi, Kenya Percentage per level of education Primary Secondary College Highest education level achieved 0 University Fig Educational level of the Kibuye Second Hand Women Entrepreneurs e COPY RIGHT 2013 Institute of Interdisciplinary Business Research 979

5 3.2 Age of Respondents From figure 4.2 below (67%) of the respondents are aged between years, (22%) years, while 11% are aged above 50 years. The results strongly showed that the Second hand clothes Merchandise Women Entrepreneurs at Kibuye Market Kisumu were generally in of prime age neither too young nor too old to manage a business. Studies by Alila (1996) in Nyakach and Vihiga, Kenya reveal that when women at this age brackets tend to boost the enterprise by adding stock or opening more outlets. This concurs with the findings of this study % of Rupia Clients >50 Age distribution in Years Fig 3.2 Ages of the Clients COPY RIGHT 2013 Institute of Interdisciplinary Business Research 980

6 3.3 Type of enterprise The findings documented in Table 4.4 below show that the majority of the respondents are stocking women ware, households, children and men ware, while the minority are on accessories. Table 3.3 Types of Enterprise Undertaken by Kibuye Women Entrepreneurs Business type N0.Respondents % Women Ware House holds Accessories 3 10 Children ware Men Ware 3 10 Totals Age of the Enterprise In Table 4.5 below it is indicated that 5 respondents (16.66) had enterprises of less than 3 years old, 10 (33.34%) had businesses 4-6 years old and 15 respondents (50%) had businesses 7-9 years old. Half of the respondents 50 % therefore had businesses between 4-9 years and were within the range used for this impact study. A conclusion can therefore be reached that most of the Kibuye Market Second Hand Clothes Women Entrepreneurs are in the growth and survival stages of the business cycle. Most businesses in Kenya do not survive for more than two years, which is basically the business start up stage. Commutatively, 83% were beyond the critical age and were in the survival growth. This is manifestation that Micro Financing does contribute to the performance of these enterprises from the critical death age of 2 years to their current status. Table 3.4 Age of the Enterprises Years N0.Respondents % Totals COPY RIGHT 2013 Institute of Interdisciplinary Business Research 981

7 3.5.1 Effect of Microfinance on stock Stock Value is another indicator of enterprise performance and the amount of stock available. Table 4.7 indicates that the highest change in stock value was 437 from 4 respondents. However, the highest value change was from Kshs 29,000 to Kshs achieved by only one respondent. Nevertheless there was a remarkable change in stock volume by all respondents except one who recorded a change of 36.5 %. This showed that financing had great impact on stock increasing it tremendously. Table Change in Stock Value after Financing Frequency Value of Stock Before Value of Stock After Change in Stock value % Change in stock Value The findings in Table 4.7 indicate that respondents had their stock increased from (27%) to 67%. While those owning business premises had increased by 50% from 17% to 67%. House hold property ownership had also increased by about 53% from 7% to 60%. In summary the Micro financing contributed to improvement of stock in terms of assets and household assets. This is an indication that Micro financing is important in both enterprise performance and stock value. COPY RIGHT 2013 Institute of Interdisciplinary Business Research 982

8 3.5.2 Changes in Profit after Financing Profit is a key indicator of business performance. Results in Table below indicate that 10 out of the 30 respondents were able to achieve a profit margin of 500% after financing. Two respondents achieved the highest profit margin of 860% with the lowest respondent attaining 44.4%. The results showed that financing had a great impact because of increase in profit margins in all the enterprises that were under being studied. In Table more than a third of the respondents of the women managed enterprises at Kibuye Market, Kisumu had their enterprise profits changing by 500% after financing. A study by Suresh de Mel et al,(2009), Matovu (2006) and K Aol (2008) agree with the findings of this study that financing improves the financial performance of the enterprises. Table Change in Profits after Financing Frequency Profit Before Profit After Profit Change % Change Profits Change in Employment. Table below shows that there is employment creation improved tremendously where by households and accessories categories added the number by 3 each reflecting increase of 60% and100 % respectively. This indicated that in each category employment had been created and that accessories must be fast moving items in that the number of employees doubled. COPY RIGHT 2013 Institute of Interdisciplinary Business Research 983

9 Table Effect of Micro Financing on Employment NUMBER NUMBER NUMBER % BEFORE AFTER ADDED INCREASE Category Women s ware Households Accessories Children s ware Men s ware TOTAL Effect of Microfinance loan on Number of Items Sold On the effects of MFI loans on the number of items sold by women entrepreneurs in the second hand merchandise enterprises, all the respondents realized an increase in the number of items sold where the value more than doubled apart from only one respondent. Four respondents agreed the loan increased by 313%. COPY RIGHT 2013 Institute of Interdisciplinary Business Research 984

10 Table Effects of MFI loan on Number of Items Sold Frequency Items Sold Before Items Sold After Change in items % CONCLUSION The results indicated that indeed the Microfinance loans had a positive change on the profit margins of women managed second hand merchandise enterprises. Only 1 enterprise did not realize this, had only 44% change while the rest had %. The findings also showed that one entrepreneur had a high of 860% implying a very high change in profit margins. This showed that the Microfinance loans increased profit margins. RECOMMENDATION Microfinance loans increase profit margins as seen from the results so in order to promote this and improve the performance of the enterprise, the government, microfinance institutions and other stakeholders in this sector should consider pumping in more funds to increase profits received by the women which will in turn improve their economic standards of the whole nation COPY RIGHT 2013 Institute of Interdisciplinary Business Research 985

11 REFERENCES Akanji,O.O.(2006), Microfinance as a Strategy for Poverty Reduction. Central Bank of Nigeria Economic And Financial Review, 39(4). Alila, P.O.et al Women Street Vendeors Institute of Development Studies, University of Nairobi, Nairobi. de Mel, S., Mackenzie, D.,& Woodruff, C. (2009). Are women More Credit Constrained? Experimental Evidence on Gender and Microenterprises Returns. American Economic Journal: Applied Economics, 1 (3), K Aol G.O (2008). The Role of Microfinance in Fostering Women Entrepreneurship in Kenya. Nairobi. Rural Enterprise Program (K-REP), Nairobi. Matovu, D. (2006). Microfinance and Poverty Alleviation in Uganda. Uganda. Pitt, M. M.- Khandker, S.R. (1998). The Impact of Group Based Credit Programs on Poor Households in Bangladesh: Does the Gender of Participants Matter? Journal of Political Economy 106(5), pp Sharma, M.-Zeller, M. (1997), Repayment Performance in Group-Based Credit Programs in Bangladesh: An Empirical Analysis, World Development, 25(10), pp Stevenson, L; St-Onge, A Support for Growth- Oriented Women Entrepreneurs in Ethiopia, Kenya and Tanzania: An Overview Report, Programme on Boosting Empowerment through Small Enterprise Development Job Creation and Enterprise Development, International Labour Office, Geneva and Private Sector Department (OPSD) Africa Development Bank(AFDB)(Tunis). United Nations Population Fund (UNFPA) and Microcredit Summit Campaign (2006). From microfinance to macro change: Intergrating health education and microfinance To empower women and reduce poverty. New York. COPY RIGHT 2013 Institute of Interdisciplinary Business Research 986