Micro Credit orientation, financial literacy and investment efficiency of Smes in Kericho County, Kenya

Abstract

Small and Medium Enterprises (SMEs) are vital for economic advancement, especially in developing economies. Despite their importance, many struggle with optimizing investment effectiveness, crucial for their survival and growth. Microcredit orientation, encompassing credit availability and usage, is a key influence on investment success. However, its effectiveness in boosting efficiency may depend on entrepreneurial financial acumen. Thus, this research explored how financial literacy influences the link between microcredit practices and SME investment efficiency in Kericho County. The research specifically aimed to investigate microcredit accessibility's influence, assess microcredit utilization's consequences, and ascertain microcredit terms' impact on SME investment efficiency. It also delved into financial literacy's moderating role concerning various microcredit orientation components and investment efficiency. This investigation was underpinned by financial intermediation, pecking order, and human capital theories. Utilizing an explanatory research design, this study focused on all 5,813 registered SMEs in Kericho County. Stratified random sampling selected 385 SMEs from its five sub counties. Data from managerial personnel were gathered via questionnaires. Reliability was verified using a Cronbach's alpha coefficient (minimum 0.7). Post collection, responses were coded and analyzed using SPSS version 26. Analysis included descriptive statistics (averages, frequencies, dispersion) and inferential statistics (multiple regression, Pearson’s Moment Correlation). The research revealed microcredit accessibility (β= -0.026, p=0.001<0.05), utilization (β=0.209; p=0.000<0.05), and conditions (β =0.8; p=0.000<0.05) were all statistically significant. Financial literacy moderated microcredit accessibility (β=-0.211, p=0.011<0.05, ΔR2 = 0.246) and conditions (β =0.979, p=0.000<0.05, ΔR2 =0.045), but not utilization (β=0.110, p=0.177>0.05, ΔR2 =0.316). The study concluded that combined microcredit elements contributed to SME investment efficiency. Therefore, the study recommended that financial institutions providing microcredit products should formulate policies aimed at making microcredit conditions more manageable. They should also educate SME owners on effective strategies for utilizing the microcredit obtained from these institutions. The findings of this study are expected to be valuable for policymakers, the leadership of financial institutions, regulatory bodies, and academics and scholars.