Micro, small and medium enterprise growth and innovation in Kenya: a case study on the Women Enterprise Fund
Katwalo, Allan M.
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This study sought to examine the growth and innovation in micro, small and medium enterprises in Kenya by assessing the performance of the Women Enterprise Fund (WEF) on these dimensions. The WEF, a Government of Kenya initiative, aims to develop and grow women-owned MSMEs. Five years since its inception in 2007, it is imperative to establish whether the Fund is achieving its objectives in reaching the intended beneficiaries with the right kind of funding and support. Using a mixed method approach, comprising qualitative and quantitative methodologies, the study examined the performance of the Fund at the micro, meso and macro levels. Fourteen constituencies in four Counties – Kakamega, Nairobi, Nakuru and Nyeri – were purposively selected. Stratified random sampling (the strata being the borrowing stream) of the entrepreneurs was used to ensure representativeness of the sample. Questionnaires were used in the survey of women owned MSMEs in combination with in-depth interviews and focus group discussions with selected respondent groups. Quantitative data were analysed using SPSS. Descriptive results show the extent of growth and innovation in the post loan period. Multivariate regression analysis sought to empirically establish the determinants of growth and innovation among women owned enterprises. Logistic regression models for the selected measures of growth and innovation were estimated using the maximum likelihood estimation technique. Qualitative data were content analysed for emerging themes and patterns which formed the basis for discussing study findings. Study findings show that although the general indicators reflect positive growth among women owned businesses in terms of total business worth, turnover, gross profit and number of employees, they obscure incidences of stagnation or decline in growth. Incidences of decline or stagnation were significant at between 15 to 30 percent across the four measures. The most common form of innovation was observed in the change or addition of new products in the post loan period. Innovations in terms of services, markets and sources of raw materials were, however, less common among women owned enterprises. The study finds no evidence of significant differences in growth and innovation among enterprises across geographical regions, borrowing stream and age groups. Overall, entrepreneur characteristics such as age, marital status, level of education and family size were poor determinants of growth. Business characteristics such as location, the person who manages the businesses and the age of the loans, were significant determinants of growth in the number of employees. Growth in number of employees is considered a critical proxy for the other forms of growth in terms of total business worth, turnover and gross profit. From the findings, locating an enterprise in an urban area increased the likelihood that the business would either stagnate on decline in its number of employees and gross profit. Urban decline on these indicators was partly attributed to heightened competition among low-end enterprises which characterise most women owned ventures in urban slums and informal settlements. Similar to the case in growth, entrepreneur characteristics of age, marital status, level of education and family size were poor determinants of business innovation. Only some of the business characteristics, growth factors and innovation factors were found to be significant determinants of innovation. Overall, women owned enterprises in urban areas lack the expected ‘urban advantage’ in terms of growth and innovation. The most widely provided complementary service was training which was accessed by one half of women entrepreneurs in the study. Other common complementary services included general education and awareness on how to run business and business progress monitoring. Although reported in interviews and group discussions, the following complementary services were rarely offered: networking, exhibitions, export promotion and product certification, supplementary loans, mobile banking and overdrafts. From the findings, it can ii be deduced that besides training, few complementary services were available to the majority of women borrowers of the WEF loans at a level that could meaningfully sustain businesses on the growth path and spur innovations. The Fund continued to face numerous challenges at the WEF secretariat, lender and borrower levels. The main challenges at the Fund level included inadequate WEF field personnel, inadequate fieldwork facilitation, low loan amounts, delays in disbursements and an inefficient multi-layered Fund structure. High cost of loan administration, competition with commercial bank products, poor dissemination of information, high demand/limited scope of coverage, lack of distinct product branding, lack of individual choices in group lending, high default rates, bureaucratic processes and limited business monitoring were the main challenges at lender level. For the borrowers, the challenges included limited and shrinking markets/competition, lack of business knowledge, misconception about the purpose of the Fund, diversion of the funds, low literacy among segments of women borrowers, lack of loan securities and domestic interference. To reform the Fund in a way that enhances its quality, service delivery and sustainability, as well as the growth and innovation of the enterprises, the study recommends that there should be: improved field level staffing at WEF, improved business monitoring, allocation of more resources to field teams, provision of individual loans, increase in amounts of loans, enhanced and standardised training, development of legal framework for default recoveries, increased funding to the CWES stream, business incubators for start-ups, enhanced revolving funds, rationalization of administrative costs, increase in the number of loan holding banks, timely disbursement of the funds and simplification of the application process.