Assessing the Impact of Financial Inclusion on Financial Performance of Micro, Small and Medium Enterprises in Baringo County, Kenya

Abstract

Financial sectors that effectively mobilize savings and allocate resources play a crucial role in promoting financial inclusion, which in turn enhances resource allocation and risk management, ultimately influencing financial performance. However, financial institutions in Baringo County, Kenya, are currently underperforming, which hinders micro, small, and medium enterprises (MSMEs) from benefiting from financial inclusion. This study explores the impact of financial access, usage, and awareness on the performance of MSMEs, guided by theories of financial inclusion and credit access. Data were collected from 111 MSMEs across six sub-counties using a simple random sampling method and analysed through both descriptive and inferential statistics. The findings reveal that increased access to lending institutions and higher levels of entrepreneurial literacy improved the performance of MSMEs by 0.46% and 0.95%, respectively. Conversely, higher interest rates hurt performance, reducing it by 0.33%. While an increase in savings balances and the frequency of daily bank transactions enhanced performance by 0.98% and 1.08% respectively. Equally, financial awareness especially through credit access guidance and risk management training increased the performance of MSMEs by 0.25% and 0.14%, respectively. To bolster the performance of MSMEs, policymakers should focus on improving access to financial institutions and enhancing entrepreneurial literacy, while also regulating interest rates to promote sustainable growth and development. Promoting savings and increasing financial awareness will further support the sustainable growth of these enterprises.