The Effects of micro insurance products on the business sustainability of informal enterprises in Gikomba Market

Abstract

There is extensive evidence that micro and small businesses, especially those in the informal sector, are facing numerous challenges that are exposing them to risks such as theft, fire and other disasters. Despite studies showing that obtaining microinsurance coverage can protect businesses and improve their performance, local reports have shown that only a small percentage of the informal enterprises are covered by micro insurance. This is despite evidence that microinsurance products availability in the country has been on the rise. However, there is limited understanding into whether they have any actual impact on business sustainability. Hence there is need to critically examine how various microinsurance products can influence business sustainability with an aim of improving the growth of informal businesses in the country. This research sought to examine the effects of micro insurance products on the business sustainability of informal enterprises in Nairobi City with specific inference to Enterprises in Gikomba Market. Specifically, the research analyzed the effect of loan protection, property, business income and health microinsurance and their effect on business sustainability. The survey was based on risk theory and the expected utility theory. The research utilized a positivist and descriptive research approaches with the population of interest drawn from the forty thousand informal businesses operating in Gikomba Market. A sample of three hundred and eighty firms was randomly selected for participation in the research and a structured questionnaire was applied in collection of primary data. The research tool was pilot tested to determine the validity and reliability of the instrument. This was conducted among thirty-eight firms that were not involved in the main research. The collected research data was analyzed using descriptive, correlation and regression tests. Findings of the study are presented using charts and tables. The regression findings established that the businesses are adequately sustainable, and that there is a positive and significant effect of micro insurance products, on the business sustainability of the informal enterprises in Gikomba market. Based on the parameter estimates, the research deduced that loan protection microinsurance has a positive and significant effect on business sustainability, that property micro insurance products have a positive and significant effect on business sustainability, and that health micro insurance products have negative and significant effects in the business sustainability of informal enterprises. Business characteristics were also determined to have significant control effects on the relationship between micro insurance products and the business sustainability of informal enterprises. The findings led to the recommendation that microinsurance providers should increase the entrepreneurial training and sensitization of the various available microinsurance products and their benefits as this would increase their acceptance. Key words: micro insurance, business sustainability, business characteristics, loan protection micro insurance, property micro insurance, business income micro insurance, health micro insurance