The Effect of mobile loans acquisition on the financial performance of micro and small-scale enterprises in Mlolongo Town, Kenya

Abstract

Following the rapid adoption of the use and innovation of mobile phones, this research sought to determine the effect of mobile loans acquisition on the financial performance of micro and small-scale enterprises in Mlolongo town, Kenya. Micro and small-scale enterprises encounter difficulties in surviving and growing. The study was guided by the following research objectives: To determine the effect of mobile loans’ cost of credit on the performance of micro and small-scale enterprises, to establish the effect of mobile loans’ perceived risk on the performance of micro and small-scale enterprises, and to assess the effect of mobile loans’ relative advantage on the performance of micro and small-scale enterprises in Mlolongo town, Kenya. The study was based on the Diffusion of Innovation Theory. The study employed an explanatory research design. The study population comprised 1682 micro and small-scale enterprises operating in Mlolongo town. The respondents were sampled using the Krejcie and Morgan formula, where a sample size of 313 was used. Data was collected using questionnaires. The researcher first did the pilot study before the real data collection. The information on the data collection instruments was scrutinized to check for validity and reliability. Reliability was ensured by the use of the Cronbach Alpha coefficient while validity was ascertained by giving the instruments to the supervisor. Data was analyzed through the use of descriptive statistics such as percentages and frequencies. Inferential statistics were also used and included correlations and regression analysis. The presentation was in tables and figures. The results for the first objective showed that mobile loans’ cost of credit had a significant negative relationship with performance (r = -.799, p = .000). For the second objective, the study found that mobile loans’ perceived risk had a significant negative relationship with performance (r = -.688, p = .000) and finally for objective three, it was found that mobile loans’ relative advantage had a significant and positive relationship with performance (r = .750, p = .000). Specifically, some reasons made the respondents prefer mobile loans that are the amount for application fees charged on mobile loans, the amount for processing fees charged on loans of mobile loans, and the interest rates charged on mobile loans among others. The study also determined that the risk that the respondents could not be able to repay a loan from a financial institution on time influenced them to acquire a mobile loan. Other factors that made the respondents acquire a mobile loan are the long time taken to process a loan from other financial institutions, the ease of access to mobile loan applications, and also the flexibility of loan applications. The study recommends that SME owners need to be trained on the processes of securing loans, especially from major financial institutions. To encourage the growth of these micro and small-scale enterprises, policy reforms are required that do not exclude these businesses due to their low levels of income.